Sure, owning a car in the city is a hassle. But is car sharing the answer? Two American start-ups are betting that it is.
Deals on wheels
Sure, owning a car in the city is a hassle. But is car sharing the answer?
As much as Americans love their cars, they'll also quickly admit that owning one can be a real pain. And the cost and headaches are even worse for drivers who live in big cities, where insurance is pricey and parking is at a premium.
American city drivers can take some comfort in knowing that car ownership is even more onerous in European cities, where parking is that much tighter and gas is almost three times as costly. Which is why several European neighborhoods during the late 1980s began creating car-sharing organizations (CSOs) to reduce individual vehicle ownership.
How does car sharing work? Think time-share -- but with cars instead of villas. Members reserve vehicles over the phone or on the Internet. They pay membership fees as well as usage charges -- both for miles driven and driving time. Two things differentiate car sharing from car rentals. First, rental-car companies keep vehicles in centralized lots, whereas CSOs park them in various spots throughout an area, typically near public-transit stops. Second, CSOs price themselves for frequent, short-term vehicle use, not occasional long-term use. In most cases, using a CSO's vehicle for an entire weekend costs more than a car rental would.
The practice of pooling vehicle use began as more of an environmental movement than a business scheme. As an industry, car sharing has shown little promise. According to Susan Shaheen, a transportation scholar at the University of California, CSOs have struggled with profitability, and few have achieved it. (A Swiss company called Mobility CarSharing Switzerland is one of the notable exceptions.) Why the rough road? Primarily, it's the high overhead -- cars, insurance, parking spots, and staff. As a result, says Shaheen, launching a CSO has -- until recently -- been synonymous with bathing in red ink.
So what makes a rash of new American start-ups any different? Technology, for starters. Wireless communications in particular promise to make car sharing more convenient. Today CSO members must return cars to their original parking areas. But imagine a system in which car sharers could track vehicles electronically, view the CSO's entire fleet on portable devices, and even reserve the nearest vehicle. In that world, the founders believe, car sharing would be a lot more convenient and be done more frequently than it is now, making profits far easier to come by.
But if the urban landscape is so fertile for car sharing, why haven't the big-name car-rental companies started plowing? Well, one of them has. Last May, Hertz opened a "shared-car" program in San Francisco, in which, for less than $400 a month, a "subscriber" can make use of a fleet of Ford Escorts parked at a rapid-transit station. While other major rental agencies have yet to launch pilot programs, they're certainly watching the field closely. Transportation consultant C. Kenneth Orski says the big guys won't hesitate to enter the market if it proves lucrative.
First off the line
When David Brook tapped his retirement savings to start CarSharing Portland Inc. (CSP), his first decision was whether to go for nonprofit status. The idea appealed to him because at the time there was almost no precedent for operating a CSO as a business. A nonprofit venture had other advantages as well: tax-advantaged status and the public perception of a reduced profit motive -- something to ponder in an ecoconscious city like Portland, Oreg. Brook also wondered whether nonprofit status would give him access to foundation grants.
In the end, Brook chose to make CSP the first for-profit car-sharing business in America. Brook imagined that if CSP were a nonprofit, its board members might stymie its attempts to make expedient decisions, on the grounds that, say, increasing the size of the car fleet would be contrary to the organization's environmental mission.
Brook's agonizing about the nonprofit issue is just one of the differences between CSP and other car-sharing start-ups, which have openly declared their desire to expand into other cities. CSP, by contrast, is in no hurry. It's not that Brook doesn't recognize the opportunities in other cities. It's that he's self-financed and says he has his hands full making Portland profitable.
Plus, entering a new city isn't as simple as putting up a shingle. "We know what works here, but we don't know other cities," says Brook. A fledgling CSO must know which neighborhoods would be most receptive to car sharing, which parking spots would be most convenient, which city officials could help with parking spots or funding, and which marketing methods could best introduce a new concept to a community. Brook says he underestimated how difficult such local logistics would be. In its first year, CSP tried to serve more neighborhoods by spacing out its cars around the city. Initially, each car was as much as 20 blocks away from its closest neighbor. That spacing frustrated members, who were prohibitively far away from an alternative car if the one closest to them was already reserved.
Last year CSP had a loss of $50,000 on revenues of $200,000. Nearly a third of the expenses were for leasing cars -- $250 to $350 a month for each of 23 vehicles (mostly Saturns and Plymouth Neons). Brook chose leasing over buying to preserve cash, but he'll begin buying this year. Beyond that, he remains confident he can make CSP profitable by increasing revenues. He's formed a partnership with a local Enterprise rental agency for mutual referrals. He's also begun offering corporate memberships to local businesses so they can save on travel reimbursement.
Rapid transit
"We are going to transform urban transportation," says Robin Chase, CEO of Zipcar, a Boston start-up that's been running since last June. Zipcar's cofounder, Antje Danielson, proposed the idea to Chase in September 1999. Danielson had encountered car sharing on a trip to Germany. As residents of the bustling city of Cambridge, across the river from Boston, the pair immediately recognized the potential for car sharing in their area.
Like many European cities, Boston has precious little parking but a solid mass-transit system. Chase believed the Boston area was ideal for creating a network of vehicles in proximity to frequently used transit stops. She also believed that the area's population -- replete with students, liberals, and high-tech workers -- would embrace the new environmentally friendly concept.
Chase, 42, has an M.B.A. from the MIT Sloan School of Management, and her financial training showed in the way she planned Zipcar's launch. Aware of the car-sharing movement's history of unprofitability, she completed a business plan that calculated to the penny how Zipcar would make money. She concluded, for example, that a Zipcar location could break even if it had 70 cars averaging six hours of daily use. Zipcar has already reached the six-hour average on its fleet of 27 Volkswagens. Chase believes Boston will break even -- which is to say, reach 70 cars -- by this spring.
