NEWS

Tired of costs, hassles, some city dwellers try car-sharing

USA TODAY
September 15, 2005
By Jim Hopkins

SAN FRANCISCO — Kyle Walton was fed up with the high cost of car ownership long before gas prices soared this summer.

The Washington, D.C., resident spent $5,500 a year on car payments, insurance and maintenance for his 1997 Honda Civic. His domestic partner, Peter Brett, forked over $1,200 to repair the air conditioner in his 1995 Mercury Mystique.

None of that included the $50,000 they would have spent if they had opted to buy a parking space with the condominium they purchased last spring in the city's Chinatown neighborhood. "We just said, 'We don't want to do it anymore,' " Walton says.

They sold their cars and switched to hourly car-rental service Zipcar. It is one of two "car-sharing" start-ups, newly pumped up with investor dollars, that are expanding in big cities across the USA. The companies and about a dozen non-profit ventures in San Francisco and elsewhere are challenging U.S. auto sales and the traditional car-rental industry.

Zipcar and top competitor Flexcar leverage the Internet and other new technologies in their key markets: densely populated cities including Boston, New York and Los Angeles. Car ownership costs there are high, public transportation is popular, and consumer interest in environmentally friendly business is strong.

Seattle-based Flexcar sold majority control last month to an investment group led by America Online co-founder Steve Case and legendary auto executive Lee Iacocca. Zipcar in Cambridge, Mass., landed $10 million in venture funding in July led by Benchmark Capital, a Silicon Valley firm whose previous investments include eBay.

Car-sharing, which started in Switzerland in 1987, differs in several ways from traditional car-rental outfits such as Enterprise and Hertz. Customers typically rent cars and trucks for a few hours, rather than a full day, for trips to grocery stores or the suburbs when subways or buses aren't an option.

Cars are parked in lots scattered among neighborhoods, often near subway stations or college campuses. The operations are mostly self-service; customers reserve online or by phone, then use wireless-enabled cards to unlock and start vehicles.

Rates are as low as $8.50 an hour, plus annual fees of $40 to $50. Rates include gasoline, an advantage when pump prices in many cities have topped $3 a gallon. Plus, car-sharing fees include insurance, a bonus for customers such as Walton, who gave up coverage when he dumped his Civic.

Then there's the intangible "green" factor that car-sharing ventures promote as they add gas-electric hybrids to fleets: The companies say they improve the environment by reducing resources, including land, devoted to cars. Benchmark Capital general partner Bob Kagle says 20 cars are removed from the road for every one car added to Zipcar's fleet. "That's a pretty interesting benefit for a lot of congested urban regions," he says.

It's no coincidence that Zipcar and Flexcar executives say customers often use cars for trips to Whole Foods grocery stores and to Swedish retailer Ikea, companies favored by hip city dwellers. As a market, Case says, socially conscious consumers once viewed as "fringy" are now considered mainstream.

Walton, for example, works for the Coalition for Smarter Growth, a non-profit transportation planner. He frets that housing costs rise in cities when more land is dedicated to parking. "Why should every car have a home and every person not have a home?" he says.

Mostly, though, Walton likes the flexibility of logging on to Zipcar's Web site to reserve cars at parking lots less than two blocks from home. His employer uses Zipcars in place of a corporate fleet, reflecting another growth area for car-sharing: business users.

Hassle-free

It's that no-hassle factor that drew Case and his $500 million Revolution investment fund launched last April. "It really is an opportunity to provide consumers with more convenience," he says.

Case won't say how much Revolution spent to buy majority control in Flexcar, started in 1999.

But it was enough for Flexcar to plan a 50% increase in cars and locations in Washington, Los Angeles and San Diego by year's end. That would be on top of the 350 cars in five mostly West Coast areas where Flexcar focused when Case arrived.

By the end of next year, Flexcar plans to enter new markets in Zipcar's East Coast territory, including New York, Boston, Miami and Philadelphia, as well as Austin and San Francisco. In five years, Case imagines a fleet of 20,000 cars serving a million customers, up from the current 30,000 customers.

Iacocca, who rescued Chrysler from the brink of bankruptcy 25 years ago, is both investor and consultant, helping Case and management learn more about the auto trade and fielding calls from carmakers wanting to do deals.

Zipcar, with its $10 million in new capital, also is growing. It expanded to the West Coast for the first time this month in San Francisco. Before, it was in seven states and 21 cities. Next up: Seattle and Portland, Ore.

Zipcar, also founded in 1999, says it has more than 45,000 customers and about 800 vehicles.

CEO Scott Griffith says higher gas prices — which Zipcar is absorbing for now — are further piquing consumer interest. "For most city residents, that's an extravagant expense," he says.

New customer applications jumped 26% last month from July, a period when fuel costs skyrocketed, Griffith says.

Zipcar takes business from traditional car-rental companies, which might try to enter the market some day, Griffith says. But more revenue is coming from automakers. About 39% of Zipcar customers say they would have kept a car, or bought one, if they could not tap the service, the company says.

National brands

Griffith and Case say there's room for both companies, and possibly a third, as national brands.

A dozen non-profits, including City CarShare in San Francisco, are likely to help meet demand in smaller cities such as Minneapolis.

City CarShare has more than 4,000 regular customers and about 100 vehicles in the San Francisco Bay Area. Rick Hutchinson, named CEO last month, says the interest shown by Benchmark and Case demonstrates that car-sharing is not a fad.

As Zipcar and Flexcar expand, more consumers will learn about the concept. "We're all for increased awareness," Hutchinson says.

Kevin McLaughlin, who runs industry tracker Carsharing.net, says car-sharing will gain with the involvement of the entrepreneurial Case. As America Online's co-founder, Case was hugely influential in bringing the Internet to the masses.

"There's no doubt," McLaughlin says, "that this business will be a mainstream thing in large cities in the way there is a Starbucks on every corner."