Car Sharing Makes Sense To Drivers, But Can It Make Money?

May 4, 2011

How would you like to go online and reserve a nearby car so you can leave to do errands later that morning? When you’re ready, you'd simply walk or take public transportation to where the car is parked, use your electronic key to gain access, start the vehicle, and drive away. An hour later, you would return the car to the same parking spot.

The best news of all is you could pay a reasonable monthly fee for this service, and about $7 for the hour-long use of the car. Fuel costs and insurance: included. Easy as pie.

Car sharing is an emerging trend in large, urban areas—or near major university campuses. But will it become economically viable in a way that can sustain the growth of this niche vehicle rental service?

Companies like Zipcar and City Car Share are growing in popularity among a segment of the population that chooses not to own a vehicle. For some, it’s the economic downturn that’s forcing cost-cutting. For others in large urban areas such as the San Francisco Bay Area, nearby stores and services, along with accessible public transportation make owning a vehicle an option, rather than a necessity. Car sharing becomes economically viable because they no longer have to deal with car payments, insurance, and fuel or maintenance costs associated with vehicle ownership.

Zipcar’s economic viability

If car sharing makes sense to those using its service, is this business model viable for the companies making short-term vehicle use so easy for the end-user? The short answer: not yet. In a recent article on Gigaom’s Earth2tech series, Kate Fehrenbacher wrote that car sharing leader Zipcar reported revenues of $186 million last year, but experienced a net loss of $14 million. They have also accumulated $65 million in debt. The article states that Zipcar doesn’t know when they will be able to turn the tide on the red ink.

Working against Zipcar’s ability to operate in the black is the rising price of gasoline. Because fuel costs are included in the fee it charges for service, $4-plus gas is not helping its profit and loss statement. Another concern is the growth potential of car sharing and how many more cities this business model can expand to.

In the meantime, Enterprise Holding, owner of Enterprise Rent-A-Car, is testing the waters of this automated local rental market. In her article, Fehrenbacher said that Enterprise has begun a new, limited service through WeCar in places like Mountain View, Calif., and Nashville, Tenn. It has recently expanded service to  a few major colleges including Tulane and the universities of Washington and Missouri.

It’s not known if Enterprise has succeeded where others have failed, and is able to operate this cutting-edge car sharing service for a profit instead of a loss.


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