Trouble in Bixiland

The bike-sharing program hits a speed bump amid questions about management and its business model

Trouble in bixi-land


It is as Montreal as a two-cheek kiss, a made-in-Quebec success story that has garnered both awards and lucrative contracts around the world. Yet the Bixi bike-sharing system, best known for its sleek two-wheelers of the same name, is plagued by lack of administrative oversight, questionable management and a business plan that has it teetering on the edge of bankruptcy, with a whopping $37-million debt after only two years of operation.

Such is the contention of a scathing report by the city’s auditor general’s office, published in mid-June, which takes both the city and Bixi administrators to task for “neglecting or avoiding several elementary management rules,” and the “illegal nature” of Bixi’s initiative to sell the system to cities including Toronto, Ottawa and London, England. And while administrators have hit back—Bixi spokesperson Michel Philibert recently called the report “old news” in an email exchange with Maclean’s—it seems clear now that the beloved Bixi system won’t likely be able to run without a regular injection of millions of taxpayer dollars.

Bixi began life as part of the city’s 2007 transportation plan entitled “Reinvent Montreal,” a wide-ranging plan that sought to coax Montrealers out of their cars, and make Montreal “a bicycling city par excellence,” according to an executive committee decree from that year. The idea of a bike-sharing program wasn’t new—Paris, notably, has had one since 2007—but it was the first in North America, and a pet project of Montreal Mayor Gérald Tremblay. The “pay and go” idea was developed by Montreal’s parking authority, while Montreal industrial designer Michel Dallaire crafted the bike.

Anyone with a credit card can get a bike from one of the Bixi stations scattered around Montreal. Once users pay for the service, they are given a code to punch into a keypad that unlocks a bike. When done, they simply return it to any Bixi station in the city. Riders pay per minute.

By and large, Montrealers have wholeheartedly embraced the bike-sharing program. “Bixi is our pride, and we won’t let it down,” Montreal executive committee president Michael Applebaum told La Presse. Even an accounting professor with one of the country’s top business schools thinks Bixi’s management problems are small potatoes. “I don’t know why this is worth a story in Maclean’s,” says Pierre-Yves McSween, who teaches at Montreal’s Haute Études Commerciales. “Bixi is a good system.” Launched in 2009, Bixi has become the envy of cities around the world. It has won various international design and environmental prizes, both for the bikes themselves and the solar-powered, GPS-based system that keeps track of them all. Since its Montreal inauguration, eight other cities have adopted Bixi, including Toronto and Ottawa. In all, 14,000 Quebec-built Bixis are on the road in Canada and beyond. “We have no competition. We are the best in the world,” says Bixi chairman Roger Plamondon.

Yet there is trouble brewing in Bixiland. In May, Bixi’s administrators gave the city an ultimatum: lend us $37 million or we pull every one of the city’s 5,000 Bixi bikes off Montreal’s streets. The debt, which was rung up in setting up and running the system since 2009, was incurred by Société vélo libre service (SVLS), a non-profit entity affiliated with Montreal’s parking authority that administers the program. How the city’s own entity came to threaten the city itself speaks to the rather unusual management structure under which Bixi is run.

It all started in 2007, when the city’s executive committee chose the parking authority to run the program, if only because it controlled much of the real estate needed for Bixi’s infrastructure, the sidewalks and parking spots on Montreal streets. The trouble was, the parking authority is in part a for-profit entity—under Quebec law, it is one of the few services in which cities are allowed to make money—so in 2008, administrators created SVLS, a non-profit corporation, to run the co-operative, city service.

SVLS needed the $37-million cash infusion from the city to pay suppliers, Plamondon says. Faced with the possibiltiy of a Bixi-free summer biking season, the city (with the permission of the province’s municipal affairs ministry) acquiesced. SVLS was granted a loan of $37 million and a further $71 million in loan guarantees—roughly $67 for every man, woman and child living on the island of Montreal. The loan came with a caveat from the Quebec government, however: Bixi had to sell off its export arm. By law, Bixi isn’t allowed to participate in commercial ventures. With a few exceptions, the province’s Loi sur les cités et villes prohibits municipalities from entering into commercial, for-profit ventures. Quebec’s municipal affairs ministry has given SVLS until the end of December 2011 to sell off its for-profit export arm, which has earned $8.5 million.

“We never thought that a non-profit organization would not be able to undertake commercial activities,” says Bixi spokesperson Philibert. “Furthermore, the city has always supported this activity that was part of the original business plan.” Yet the auditor general’s report says there was no mention of selling the Bixi system until the summer of 2008.

Montreal Auditor General Jacques Bergeron suggests the apparent oversight was the result of Bixi’s unusual business practices. “No one interviewed could provide any feasibility studies, business plans, risk analysis or cost-advantage studies. Nevertheless, everyone was in favour of launching this project without any of the necessary information to make a proper decision,” Bergeron writes in the report. The auditor general also says Toronto’s Bixi service—which, as in Ottawa, is run by the SVLS—will lose $600,000 this year. If it does, the City of Toronto will swallow the shortfall. Although Plamondon refutes Bergeron’s claim—“there is no $600,000 loss for Toronto,” he tells Maclean’s—if a loss does arise, “the city of Toronto must retake the dossier and assume the loss,” he says.

“If we’d had a multitude of studies commissioned we wouldn’t have bicycles today, we’d have a bunch of studies,” says Plamondon, who also serves on the parking authority board that oversees Bixi. He is particularly bitter about having to sell off Bixi’s for-profit operation, which he says has been “the biggest showcase for Quebec-based companies around the world.”

Bixi posted a $1.5-million operational surplus in 2010, thanks in large part to the sales to Toronto, London and elsewhere. It remains unclear how Montreal’s system, which is roughly 10,000 members shy of SVLS’s break-even point in Montreal, will remain solvent without the ability to sell itself on the world stage. Without this, Bixi had an estimated operational deficit of roughly $6.3 million in 2010. That’s a lot of bicycles.

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