Car Sharing - Don't Buy, Borrow

Eddie Guy

Somewhere between renting a car and borrowing a car, car sharing promises the benefits of car ownership with fewer hassles and expenses. With car sharing, you can reserve a car online, pick it up locally, access it by waving a smart card across the windshield, and pay by the hour (rather than by the day or the week).

Besides the obvious appeal of renting a car for only as long as you need it, car sharing makes sense on several other levels. The membership fee fosters a sense of community that clients don't get from patronizing Avis or Alamo. Also, in densely populated urban centers and on college campuses, it has allowed some consumers to postpone or forgo buying a car.

"The economic component of car sharing is quite powerful," says Susan Shaheen, research director of the Transportation Sustainability Research Center. "It also comes with social and environmental benefits." Indeed, there's a strong green element to car sharing. It's no coincidence that fourteen of the nineteen such companies in the United States are local nonprofits.

Car sharing is currently offered by thirty-three companies in North America with more than 300,000 members and 7500 cars. That sounds impressive until you realize that the entire car-rental market is a $20 billion industry, and car sharing revenues are a paltry $100 million or so.

At first glance, car sharing seems akin to the dozens of high-end exotic car clubs that have sprung up to give well-heeled members fractional ownership of Ferraris and Lamborghinis. But, in fact, car sharing was developed in Europe after World War II as an extension of mass transit.

The biggest player by far is Zipcar, which merged last year with its only sizable U.S. rival, Flexcar, to create a company with 225,000 members and 5500 vehicles in more than fifty North American cities and London, England. Zipcar offers cars - with cute names like xB Bumblebee and Yaris Yowsa - for as little as $7 an hour or $60 a day, plus a onetime $25 initiation charge and a $50 annual fee. Prices include fuel, insurance, and parking.

What are the obstacles? Well, Zipcar hasn't turned a profit yet. If car-rental excise taxes are applied to car sharing, their prices look a lot less attractive. Also, as more cars enter the market, parking becomes a thorny issue, especially in congested areas where car sharing makes the most sense.

Nevertheless, Zipcar has managed to entice investors to pony up $45 million, which suggests that the smart money is betting on its business model. More significant, Hertz, Enterprise, and U-Haul have all rolled out experimental hourly rental plans of their own, which indicates that this model has a future. "What's clear," says rental car consultant Neil Abrams, "is that there is a market, and it's growing."

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