Are we in a sharing mood?
In this still-troubled economy, Americans seem content with either holding onto their existing cars longer, or choosing not to buy a new car. High gas prices aren’t going away, and neither is the green revolution.
Car sharing, or short-term auto use, is poised to take advantage of these shifting transportation priorities. Membership in car sharing programs has tripled in three years. Zipcar, the world’s largest car share player, says it will finally make a profit in this quarter. Enterprise and Hertz have jumped into the carsharing pool.
Herein is a snapshot of the market, an explanation of the components of a carsharing business and a case study of a startup independent carsharing company in New York City.
For traditional car rental, the question will be explored: Can a car sharing operation be a reliably profitable business?
There are 27 car share operations in the United States, according to data from Susan Shaheen of the Transportation Sustainability Research Center, UC Berkeley.
Zipcar: Started in 1999 in Cambridge, Mass., Zipcar has grown to be the world’s largest car sharing company, serving 67 cities and 100 college campuses in North America and the U.K. with a fleet of 6,500 autos and more than 200 employees. Zipcar bought its biggest rival, Flexcar, in 2007. Zipcar controls 80 percent total market share in the U.S.
The company is gearing up for an IPO in 2010. CEO Scott Griffith maintains the company will post its first profit in the third quarter of 2009. Sales will reach $120 million this year and are expected to grow to $1 billion within a decade, Griffith has said publicly.
Connect by Hertz: Hertz staked a claim in car sharing in December 2008 with Connect by Hertz, opening in New York, London and Paris. The company is making good on its declaration of rapid growth, adding more than 420 cars at 170 parking locations in Manhattan this year. Connect by Hertz has expanded onto college campuses and signed corporate accounts such as Marriott Hotels’ Maryland headquarters, IBM in Germany and Xerox in England.
Hertz bought Eileo S.A., its car sharing technology provider, in April.
WeCar: WeCar, Enterprise’s car share foray, is aimed at “dedicated fleets” and is designed to complement Enterprise’s business rental program.
WeCar is operating on four university campuses and on corporate campuses such as Recreational Equipment Inc. (REI) and Google, as well as in some municipal fleets.
U Car Share: U Car Share is operated by U-Haul Truck Rental with a fleet solely of Chrysler PT Cruisers. The company once had 10 locations. It now has four, though it’s growing again with programs planned for Salt Lake City and four more college campuses.
CAR2GO: Daimler AG is bringing its carsharing program stateside with a pilot program in Austin, Tex. A fleet of 200 hybrid smart cars will be rentable by the minute and can be done instantaneously by swiping a seal affixed to a driver’s license on the car. Members will reportedly have the ability to return the car to any of its locations.
Local Players: Larger local players include PhillyCarShare, I-Go (Chicago), City CarShare (San Francisco Bay) and the Co-operative Auto Network (Vancouver). All four are nonprofit.
Exploiting New Markets
In North America, five types of car sharing operations have emerged: for-profit, nonprofit, cooperative (owned by its members), public transit (operated by a public transit agency) and university research programs.
Car sharing operations exist predominantly in three areas: urban environments, universities and corporate campuses.
Tony Simopoulos, president and cofounder of Metavera Solutions, a carsharing technology provider, sees further growth potential in the business fleet environment. “I expect legislation with benefits to encourage this,” he says, as corporations look to reduce their fleet costs, miles traveled and carbon footprint.
A new market is emerging in suburban housing complexes. Real estate developers like car sharing because it frees up parking spaces, says Julian Espiritu, managing director of Abrams Carsharing Advisors, a division of Abrams Consulting. Each car share vehicle takes away the need for seven to 10 parking spaces in a complex, Espiritu says. “It’s an amenity, a sales tool,” says Espiritu.
Simopoulos believes that car sharing could grow in suburbia when it’s tied to a form of business-oriented carpooling. The key is to rent those same cars used for commuting during the business day as well, he says. This hasn’t been done yet.
The primary market is still large metropolitan areas where car ownership is less viable because of garage fees and insurance. “My rule of thumb is that if there is a great mass transit system, then the environment dictates carsharing,” Espiritu says.
How It Works
To join a car share organization, drivers apply online and go through an application process, which includes a driving record check and often a credit check. Yearly membership fees range from $25 to $125 plus deposit.
Members then receive a security access card or key fob in the mail. Reservations can be made online, via Smart phone or 800 number.
Cars are situated in lots or dedicated street parking and can be picked up at any time. To gain entry to the cars, members swipe the access card or fob across an RFID reader in the windshield. The keys are inside.
Time and mileage are tracked electronically and the customer is billed via e-mail. Rates range from as little as $2 per hour to $15, depending on time of day. Mileage is usually capped. Zipcars have a 180-mile daily limit; additional miles cost 35 cents.
The car-share operator (CSO) pays for maintenance, parking, gas and insurance on the vehicle.
A Different Cost Structure
The main cost components of a car-share business are fleet, insurance, personnel and technology.
Fleet costs include loan/lease payments, fuel, vehicle maintenance and cleaning. Car sharing fleets are small, so CSOs don’t have the buying power of traditional car rental.
Parking costs are high ($250-$400 per car, per month), especially in urban environments such as New York. In those markets, vehicle damage needs to be contained to a greater extent.
However, members take better care of a car share vehicle than a traditional rental, Espiritu contends. “Car share members are part of a community,” he says. “You’ve got skin in the game with the membership fee. If a car is trashed, members hold each other accountable.”
High fuel prices could keep a CSO awake at night. However, Espiritu says that the goal is to cover a good percentage of fuel costs with per-mile charges on car shares that exceed the mileage limit.
Technology alleviates traditional frontline staffing. However, personnel and administrative costs include a member services coordinator who handles in-house call center functions, enrollment processing and billing questions. Another cost is an outsourced call center for 24-hour customer service issues such as rental extensions or breakdowns.
Befitting the grassroots image of car sharing, traditional media advertising is not part of the marketing game plan. Zipcar, for instance, rarely uses billboards, TV or radio, says Espiritu.
During his seven years at Zipcar, Espiritu instead worked to partner with transportation organizations and developers and coordinate co-branded and marketed events. “The goal is to educate individuals,” he says.