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Zipcar CEO on How the IPO Hopeful Has Weathered the Recession

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Zipcar has long billed its car-sharing service as a money saver for consumers, rolling the cost of insurance, gas, maintenance and car payments into subscription and hourly rental fees. So at the tail end of a recession, has Zipcar — which has told us it aims to “cross over to profitability” in 2010, and eventually go public — seen consumers flock to its service?

According to CEO Scott Griffith, who spoke on a panel today at the Fortune Brainstorm Green conference, Zipcar saw a drop-off in what he calls discretionary trips — weekend getaways to wine country or the ski slopes, for example. “Some of that is coming back this year,” Griffith said, but the recession took a bite out of longer trips. On average, he said subscribers rent Zipcar vehicles for four hours, and drive about six miles for every hour they have the car checked out.

Still, Griffith said that 10-year-old Zipcar’s membership grew by about 25 percent last year, excluding membership in cities where Zipcar launched new fleets during the year. Those newer cities will offer a real test for whether Zipcar can sustain a much larger footprint nationally and internationally, or if its user base is limited to more niche markets including the cities and university campuses where it has already found success.

According to forecasts from research firm Frost & Sullivan, the number of drivers using car-sharing networks increased 117 percent between 2007 and 2009 in North America. Within five years, the firm expects to see 4.4 million people in North America and 5.5 million people in Europe (where Zipcar hopes to expand  its presence beyond London) sign up for car-sharing programs, more than tripling membership from 2009.

In addition to general growth, Griffith noted another shift in Zipcar’s user base: It’s getting older. After trending upward every year for the last five years, he said the average age of a Zipcar member is now over 30 years. About two-thirds of the company’s 360,000 active users are under age 35, according to Griffith, but the company is bringing in “more and more second-car users.”

In other words, it’s not just college students using the Zipcar vehicles that are available for a discount on campus, but also families that occasionally want access to a different car (something larger for hauling kids or furniture, for example, or a sportier model than the family minivan — Griffith said the Mini Cooper is the most frequently requested model).

“Lots of people sell or don’t buy cars as a result of our business,” Griffith said. “Or we become their second car, their fractional second car,” since users only pay to “own” a Zipcar vehicle for a fraction of the time they’d pay to buy or lease a personal vehicle.

It’s that reduction in vehicles on the road (about 20 for every car in the fleet) that forms the basis for car sharing as a greener transportation option, said Griffith. The Toyota Prius is a popular model among users, said Griffith, and Frost & Sullivan anticipates plug-in vehicles will make up one in every five new vehicle purchases for car-share fleets by 2016. But the most important factor in the “net sustainable benefit,” of car sharing, said Griffith, is reducing personal vehicle ownership. It matters less whether it’s an SUV or a hybrid that consumers borrow for a few hours, and more that the car is eliminating the need for 20 additional cars.

Economically, it works out to be a good deal, said Griffith, since most Americans’ cars end up sitting unused “for 90 percent of the time or more.” Citing census data, he said households with Zipcar membership spend only about 5 percent of their income on transportation, compared to as much as 19 percent in a typical U.S. household.

The company may not have seen the last of the recession’s effects, however. New costs could arise as major partners wrestle to balance their budgets. That’s on the table in Washington, D.C., at least, where the 2011 budget proposal submitted by Mayor Adrian Fenty this month includes $275,000 in new fees for Zipcar to use parking spaces on district streets.

Photo courtesy of Zipcar

One Response to “Zipcar CEO on How the IPO Hopeful Has Weathered the Recession”

  1. Zipcar is a great service but the issue is insurance. And the scary thing is that people are under the impression that they are insured. Most people who rent zipcars do not have cars, and therefore they are not insured, and as result, not covered for rentals. Zipcar has very minimal coverage, but if you happen to be at fault at an accident, you are on your own. Thankfully never happened to me, but unfortunately happened to others.