A Real-World Look at the Business of Car Share
To say that Servco Pacific has a proven track record of innovative diversification is an understatement. Peter Fukunaga founded the company in 1919 as a car repair shop with two bays in Haleiwa on the Hawaiian island of Oahu. Ninety-six years later, it’s still in the car business as the oldest independent distributor of Toyota in Hawaii, including 11 Hawaii dealerships, an auto parts warehouse in Kalihi, two service warehouses and two tire stores.
In between that first venture and its recent takeover of Fender guitars, the company also became a wholesale distributor of home appliances, a specialty insurance underwriter, and the owner of 10 auto dealerships in Australia, among other holdings.
In 2014, this portfolio generated $1.2 billion in revenue, which placed it No. 7 on Hawaii Business’ Top 250 ranking of the state’s largest companies and nonprofits.
“Servco has always put the customer first from the beginning,” says Peter Fukunaga, CFO and grandson of the founder. “The principles it was founded on 99 years ago have always been, if you serve the customer right and give them what they want and put that in front of everything else, the business will work.
“You have to be constantly improving your offerings and growing. The founder used to say, ‘You’re growing or you’re dying.’ We’re trying to move forward and satisfy the customers as best as possible.”
Those words were especially prescient as the operation looked to the future of its dealerships.
As Fukunaga saw the presence of car and ride sharing grow on the mainland, he and his team kept an eye on it in Oahu, as well.
“There is a small presence from Enterprise and ZipCar, but it’s in a pretty small scale; I would estimate 10–15 cars out there,” he says. “On the marketing side, people in Hawaii generally are not very socialized with the concept of car share. A lot of people who went to college on the mainland are familiar with it but the majority of people who lived here their whole lives, they’re very open to the concept once they find out how it works.”
Fukunaga can say that with confidence because last year, Servco partnered with Toyota Connected, Toyota’s global technology strategy business, to test a new car share business and technology platform in Honolulu.
The car share program is the first major business set to launch under Toyota’s global Mobility Services Platform (MSPF). When complete, the service will provide Toyota dealers and distributors with the capability to launch car-sharing programs in local markets.
The program, which just launched after two pilot programs, has proven to be not only an additional business segment for Servco, it also holds significant potential for fixed ops and the ability to service those in-demand vehicles.
In 2016, both Servco and Toyota were independently looking at car share business models. Servco had heard about the customer demand and began conducting preliminary research and station-based car share.
“The consumer demands were changing,” Fukunaga says. “In Hawaii, we have quite a bit of vertical construction and density for the first time occurring. That type of density can support a car-sharing program.”
The downtown quarter, particularly the Kaka’ako area between downtown Honolulu and Waikiki, is a commercial and retail district that has seen considerable growth in recent years.
At the same time, Toyota Connected was looking at mobility services and their own platform and reached out to Servco to see if it would pilot the program.
“The timing worked out great. They started working aggressively on it a year ago. Given our long and wonderful partnership and history with Toyota, we wanted to work with them,” marketing director Casey Nishimura says. “It’s been a great experience working with them.”
The car-sharing platform, developed by Toyota Connected, supports fleet management, driver identification and authentication, payment management, and the ability for users to lock and unlock vehicles without physical keys. Car share users will never have to interact with a person to register, reserve and use a vehicle. Registration and background checks are handled via the mobile application. A Bluetooth connection to the vehicle will also allow users to start the vehicles via a digital key on the mobile application.
From Servco’s perspective, having a technology and software provider meant that the dealership didn’t have to create a completely new department or invest heavily in creating new infrastructure to support the car-sharing business. Instead, it could rely on Toyota to handle the technology and back-end, and could focus more heavily on the marketing and customer relations aspects.
Choosing a Business Model
Naturally, there are numerous different ways to structure a car-sharing business. For Servco, Fukunaga says that it chose the model that was most able to guarantee customer the supply: station-based car share.
“If you book a car this morning and I book this afternoon, we couldn’t guarantee the second booking otherwise,” he says. “That was one thing that was very important. I want the car to be there tomorrow at noon. I don’t want to search for the car. That was a big reason.”
In addition, Servco wanted to offer something organized, that looked nice and structured. That’s where the app came in: It focused on ease of use and 24/7 accessibility.
“We wanted the customer to be able to do whatever they need to do just by rolling up to the car,” Fukunaga says. “We include all the taxes and insurance, gas card in the vehicle—all in one price. It’s very transparent. If we say the price is X, it will be exactly that.”
There was another, more subtle reason for choosing station-based, too: service department benefit.
“Longer term, we anticipate if there’s enough growth and utilization in this area, it can be profitable,” Fukunaga says. “On the service side, we do anticipate it will be another area of the business. Most private vehicles sit 95 percent of the time. You’re looking at car share vehicles that are used significantly more than that. We are using our dealer network to service these vehicles. We’re bringing them in so they get serviced more frequently than a private vehicle. Vehicles will get replaced periodically, so the pre-owned vehicle inventory will also benefit.”
Actually creating a segment of the business that you not only have little experience in, but that’s also new overall, is a big undertaking. That’s exactly why Servco looked to find a reputable partner who could handle some of the back-end operations. At the same time, Toyota Connected was already at work building out a technology platform and software related to car sharing, and was looking for a dealer partner who could handle the implementation.
“We overlapped in a lot of areas,” Nishimura says. “It’s been a great working relationship and we’re trying to work together to make all areas of this work.”
Here’s exactly how it works:
The Vehicles: Servco purposely chose higher-end vehicles to make up the fleet. There are three tiers of vehicles: the lowest tier has a Prius 2, then a Camry XSE and finally, a Lexus 350. Longer term, it hopes to offer a large portion of the Toyota lineup, as well as a pickup truck and van.
“We view it as an amenity, a complement to the bus, bike, even your car. Peter lives in the area and he has a Tundra,” Nishimura says. “But that might not always make sense to ride that. He might want a prius if he wants to run a quick errand. You don’t just have to own with one car. There are options.”
From there, two pieces of hardware are outfitted on each vehicle. First, there’s a smart keybox that the customer’s phone connects to via Bluetooth to lock and unlock the vehicle. In essence, the key acts as a fob or a digital key.
“The biggest differentiator is that everything can be done through an app,” Nishimura says. “Booking, locking and unlocking, generating a digital key…”
There’s also a telematics device in the vehicle so the service department can pay close attention to vehicle maintenance, tire pressure and fuel levels.
The Staffing: While there is support from all areas of the Servco operation (including marketing, legal, service and sales), only five people directly work on the Hui team full-time, including Fukunaga and an operations/supply manager. Road teams go out and check and clean the vehicles 2-3 times per week, and the goal is for every vehicle to be touched every two days.
“There’s good infrastructure of service points for dealership business,” Fukunaga says. “That infrastructure is critical for maintaining or fixing the vehicle. We really want to make sure the offering is guaranteed.”
The Partners: Because the business model is station-based, Servco had the challenge of finding partner businesses at which to install those stations. This is where the company’s solid and long-term reputation in the community was leveraged. Fukunaga looked at specific geographical areas where it made sense to install stations and then went to close partners, business owners, universities, hospitals and developers to pitch the idea. To Fukunaga’s delight, the nearly 20 businesses said yes.
The Price: For car share, Fukunaga says they worked under four driving tenants that helped set the price: quality, availability, convenience and accessibility. The vehicles start at $9.95 per hour and $79.95 per day with no application fee, monthly commitment or mileage limitation. In the future, Hui does plan to introduce a subscription membership, as well.
“For pricing, it was a combination of doing initial market research and surveying residents in certain areas where service would be. We held focus groups as we developed our brand, as well as looked at what competitors were pricing at,” he says. “Because we have higher-end vehicles, we didn’t want to be the cheapest. Convenience is a big factor. Having the right vehicles, as many stations as possible—that all played a part.”
Piloting the Program
Because this service was such a new venture, Servco wanted to begin with a soft launch, which is why they went with a five-month employee-only pilot program as a kick-off. The testers—of which there were many, Fukunaga says—looked at the app flow and how the program worked. After that pilot program, a public pilot program, which included 35 vehicles, was also launched. On the first day they pilot was opened up to the public, nearly 1,000 local residents signed up.
“There was a very strong showing of support from the public. They have joined in to give feedback on a regular basis,” Fukunaga says. “For them, what’s most important is suggestions for new stations, what kind of cars they want, etc. It’s been extremely valuable for us to run it this way, both on the app build and the operational side.”
During that pilot program, Fukunaga says that many lessons were learned. In particular, he says it’s been an interesting mix in terms of how customers use the vehicle.
“I would estimate we’re seeing an equal mix of short duration trips, 1-3 hours to run errands and bring it back,” he says. “We’re starting to see a good mix of people who are booking a vehicle for a day or a longer period of time. It’s a good balance.”
The full program launched in early July with 15 stations and four vehicles at each station. As demand increases, so will stations, which Fukunaga says are very easy to add.
“Since all areas of of Servco are helping, we can onboard them quickly,” he says. “We just add the hardware as needed.”
The general marketing strategy thus far has been hyperlocal marketing.
“Really, you’re not going to be a frequent user if you don’t live or walk by the stations,” Nishimura says. “We introduced a bike-sharing program even and people use it to ride to the station.”
That idea of a shared resource even plays into the name—Hui.
“Hui means group association club. It’s a callback to our roots. It’s also a concept that’s easily understood if you’re not from here,” Nishimura says. “It’s about being a part of something and it lends itself well to this shared economy that is car share.”