The Economics of Car Sharing Still Unclear to Rental Car Giant


While car sharing company Zipcar (s ZIP) had a smash hit debut on the Nasdaq last month, how big of a market car sharing will become is still unclear — particularly to rental giant Enterprise. Enterprise Holding Chief Strategy Officer and EVP Greg Stubblefield told me in an interview that car sharing (or the automated local car rental market, as Stubblefield prefers to call it) is “in the early, early stages,” and it’s still unclear if it will become more than a niche market.

Right now, car sharing services like those from Zipcar and City Car Share tend to offer members the ability to rent cars in 15 minute integrals, and cars are parked around urban areas, can be unlocked using a key fob, and can be reserved on the web or a cell phone. In addition, car sharing services often include fuel in the service fee. In contrast, more traditional car rental businesses tend to rent cars through actual stores, mostly rent cars only during business hours, and most of the time, fuel isn’t included in the price.

Stubblefield told me he sees car sharing as an extension of what Enterprise is already doing: offering cars as a service to people who want them. But Enterprise has also been exploring the car sharing market with its own branded car sharing service WeCar, which it has launched in select locations including in Mountain View, Calif.; Nashville, Tenn.; and universities like Washington University, University of Missouri, and Tulane University.

However, Enterprise wouldn’t tell me how many cars were being shared in its WeCar service or how much money the division was making. That would lead me to guess that it’s a pretty small number in terms of both cars and revenues.

Overall, car sharing is still a tiny market compared to the car rental market. Stubblefield said out of the 1.6 million cars that make up the car rental market in the U.S., automated car sharing makes up around “one-half of one percent.” Enterprise itself has 850,689 cars in its rental fleet, while Zipcar had 8,541 cars in its fleet as of September 2010.

The economics of car sharing haven’t yet proven to be profitable, even for leader Zipcar. For the year ended December 31, 2010, Zipcar generated revenue of $186.10 million, with a net loss of $14.12 million. As of December 31, 2010, Zipcar had an accumulated deficit of $65.4 million, and in the company’s risk factors in its S1, it says, “We expect to incur a net loss in 2011. We do not know if our business operations will become profitable or if we will continue to incur net losses in 2012 and beyond.”

There’s the concept of car sharing and then the economic viability of car sharing, Stubblefield said:

There’s a whole litany of things that are associated with a vehicle that have to be played out from an economic viability point of view. There’s an asset that is fairly expensive that has to be paid for and utilized in a certain way. Is there an economic model that will sustain this [car sharing]? Or will it be a niche business that is in certain areas or for a non-profit?

It’s still too early to tell, said Stubblefield. In particular, car sharing based around having the company cover the cost of fuel is difficult, because the price of fuel has gone dramatic up in recent months, Stubblefield pointed out.

Another issue is whether or not the Zipcar model will work in many more cities. An investor who shorted the stock told Barrons in an article this weekend: “I think they’re going to rapidly run out of cities where this works.”

What’s more clear is that the rental car business is changing to become more automated and more distributed. Enterprise says its weekend local car rental business in cities like San Francisco — where a sizable portion of the population don’t own cars — is a very important business for them, and Enterprise is also incorporating more automated services.


Bronwyn Ximm

What I’m curious about is how the new neighbor-to-neighbor car-sharing businesses like Relay Rides will change the space.

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