Summary:

Car sharing is a particularly high capital business to be in. You might say “Duh,” but as of September 2010, Zipcar had 8,541 cars in its fleet, most of which it leases, but 1,692 of which it owns outright.

Zipcar CEO on How the IPO Hopeful Has Weathered the Recession

As I’ve been reading through Zipcar’s latest SEC filings on this wintery slow day, one major thing struck me: Car sharing is a particularly high capital business to be in. You might say, “Duh,” but as of September 2010, Zipcar had 8,541 cars in its fleet, most of which it leases, but 1,692 of which it owns outright.

Zipcar brought in revenues of $134 million for the nine months ending Sept. 30, 2010, but also spent $89.78 million operating its fleet, including paying for its car leases, fixing vehicles, paying for parking spaces, paying for fuel, the cost of insurance, adding and removing vehicles to and from the fleet, covering accidents, and vehicle depreciation costs. The result was that Zipcar recorded a net loss of $13.1 million for the nine months ending Sept. 30, 2010. Zipcar’s success will obviously depend in part on growth and bringing in more users, but also on reducing its fleet operation costs by becoming more efficient.

It’s not just that Zipcar has a lot of cars in its fleet, but also that the cars are routinely being turned over, and that requires access to capital. Zipcar only keeps its cars on average 2 to 3 years, after which it sells the cars to the used car market. Zipcar is also constantly removing cars and adding cars to its fleet depending on seasonality (busier in Summer and Spring) as well as meeting its expansion plans. That’s a whole lot of vehicle financial transactions. As of September 30, 2010, Zipcar had an aggregate principal amount of debt outstanding of $95.8 million.

To move to lower cost vehicle turn over and growth, this Spring the company established “Zipcar Vehicle Financing LLC, or ZVF,” which is “a special purpose entity wholly-owned by Zipcar,” that will be used to purchase vehicles. ZVF currently has $70 million available for vehicle purchasing, and Zipcar plans to increase the amount of owned vehicles in its fleet, compared to the amount of leased vehicles. Zipcar explains its reasons for owning more cars as:

We believe this financing model will permit us to add new vehicles to our domestic fleet more cost-effectively than with our current leasing arrangements with third parties over time, resulting from lower financing rates than those available to us under our lease lines as well as streamlined infleeting processes associated with directly owned vehicles, for example, obtaining title and registration. We believe that most, if not all, of our future vehicle domestic needs will be met through this asset-backed vehicle financing model and that we will rely less on third-party operating leases.

Zipcar won’t be investing in expanding by just buying new cars. The company bought London-based Streetcar for $62 million in April 2010, and also invested $300,000 for a minority interest in Spain’s Avancar. According to filings, Zipcar has until Dec. 31 (yeah, Friday) to decide if it wants to take a majority interest in the company.

All these expenses are why Zipcar filed for an IPO this year, and also more recently raised $21 million in a series G financing round. Car sharing costs big time.

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