October 31, 2007
The Little Cult of Car Users
Posted by Lisa Fairfax

According to the Washington Post, one car industry expert maintained that while the car sharing industry, in which both Flexcar and Zipcar are engaged, may not supplant the more traditional car rental market, it has developed a "little cult of users."  Both Flexcar and Zipcar, the nation’s two largest car-sharing firms, rent cars by the hour to people who are able to satisfy their environmental consciousness, while avoiding the expense of car ownership.  I must admit I never really thought this idea would take off.  It could be because I grew up in LA and cannot image getting around without owning a car.  Or maybe it is because the car sharing industry relies significantly on students, and hence I wonder about the wear and tear on the cars being shared.  Yet now that I think about it further, it seems that the car sharing industry is just a further extension of the leasing business model, whereby people are able to use cars without the expense and hassles of car ownership.  Indeed, the car sharing companies take care of gas and insurance.  And because relying on car sharing means you do not have to worry about where to park your car, it certainly makes sense for people who live in cities like DC where parking is scarce.  Of course neither of the two car sharing companies has managed to achieve profitability.  However, the two companies hope profitability is just around the corner, and hence plan to merge in order to establish one identifiable brand that offers a larger fleet of cars to share.  Experts predict that a larger fleet of cars will allow the company to achieve economies of scale and hence make more money.  I can imagine that offering a larger fleet of cars also provides certainty for customers regarding the availability of cars, thereby ensuring their commitment to the car sharing arrangement.  Since I am not personally aware of anyone I know actually participating in car sharing, it could be that this trend has simply passed by me.  Yet I can imagine that if the new company is successful in getting students to believe that car sharing is a viable and environmentally friendly alternative to car ownership, then there could be a core set of people committed to this industry and its business model.

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Comments (3)

1. Posted by Mr. Me on October 31, 2007 @ 9:02 | Permalink

If you live in a city like Boston (as I did for three years, Zipcar member for two), car-sharing is a way to save hundreds of dollars a month. I would estimate I saved $7500 compared to what I would have paid to keep my junky 15-year-old Camry, had it survived all that time. And Zipcars are newer and shinier.

Public transit in Boston is good enough to take care of daily commutes and many other needs, but it's lacking for going outside the central Boston/Cambridge/Brookline area or anything like serious grocery shopping. I spent about what I would have paid in insurance every month for Zipcar, and pocketed the difference in gas/maintenance/parking/tickets and the investment loss of tying up capital in a car instead of investments.

I believe Zipcar is profitable in its developed markets (Boston/NY/DC) and only unprofitable because of rapid expansion. I would seriously consider buying stock if they went public.

2. Posted by Jake on November 1, 2007 @ 22:17 | Permalink

A thoughtful post by Lisa. Flexcar and Zipcar offer a service that has a certain logical appeal (to open minded sci-fi readers, for example) and would seem to cater to the environmentally conscious.

On the other hand, Flexcar and Zipcar advertise pricing that aims to build a market for the service they offer, rather than achieve a level of profits that will sustain such enterprises over a longer term. If they increase their pricing in an effort to generate a bottom line profit, would the newfound per unit profit overcome the loss in sales volume? Hard to say. It may depend on the extent to which Flexcar and Zipcar consumers are motivated by politics as opposed to economics.

On a related note, Lisa observes that the Flexcar/Zipcar business model "certainly makes sense for people who live in cities like DC where parking is scarce." This likely is true. But is the scarcity of parking in DC the same thing as the scarcity of snow in the Sahara? I think not. The scarcity of parking in DC is not a naturally occurring condition. It is strictly the product of a local government that mismanages resource allocation, and voters who tolerate such incompetence.

3. Posted by AbelDall on February 4, 2011 @ 21:46 | Permalink

I believe Zipcar is profitable in its developed markets.


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