Despite Competition, Carsharing Rivals Sharing Road to Prosperity

Despite growing competition, carsharing companies are speeding up to meet (and drum up) new demand.

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In recent days, Washington, D.C., has been a microcosm of the national carsharing market. Daimler-owned Car2go attracted attention by introducing a fleet of 200 vehicles to the city this past Saturday. Zipcar then announced Tuesday it was adding cargo vans to its city fleet.

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Whether the timing is deliberate or coincidental, it's an example of how companies are jockeying to outdo each other in the young U.S. carsharing marketplace, with companies like Car2go and Hertz On Demand moving into cities nationwide that are already occupied by Zipcar. Those companies will fight for the same business, but as carsharing has yet to find the limits of its reach, there could still be plenty of room for industry-wide growth.

"I think it's here to stay because it's not ubiquitous," says Rebecca Lindland, director of research at IHS Automotive, which provides auto industry forecasts and information. "It still is pretty confined to the urban environment, and so we haven't overgrown it by any means. There's still opportunity."

Figures from Zipcar suggest that interest in the industry remains strong. From 2006 to 2011, the company's membership has grown more than eightfold, from 81,000 to 673,000, and its revenue growth followed suit, from $31 million to $242 million.

Economic troubles have fueled some of that growth. According to an October 2011 survey commissioned by Zipcar, more than 70 percent of respondents over 18 said that in the current economy, expenses like gas and parking make car ownership difficult.

And among young drivers in particular, automobiles are losing their allure. As the New York Times reported last week, 46.3 percent of potential drivers 19 and younger were licensed in 2008, down from 64.4 percent in 1998. In addition, drivers aged 21 to 30 drove 12 percent fewer miles in 2009 than in 1995.

Millennials are a target carsharing demographic, says Lindland. "People that Zipcar appeals to, namely younger buyers, they in particular can't afford cars right now because the job market's just not there."

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However, it's not just sliding incomes that keep Generation Y away from the car lot. Cultural influences, like environmental concerns, can make carsharing more attractive. In addition, says Lindland, Millennials don't attach as much import to car ownership as their parents and grandparents did.

"I think now we're also coalescing with a younger generation that sees carsharing as a point of pride, whereas in older generations, it was getting your first car that was a rite of passage." She adds, "It's [young adults'] expression of being socially responsible."

Zipcar COO and president Mark Norman emphasizes, however, that people of all stripes use the service. "It is bigger, much bigger, than one slice of demographics. We've got people who are investment bankers, hedge fund managers. Granted, not in large numbers," he says, but these drivers are drawn primarily by convenience.

Norman says while growth has been strong, the U.S. carshare marketplace is in infancy. . "We're just scratching the surface on penetration, so as more enter the marketplace, it builds more awareness and really validates our position—'Wait a minute. This is a mainstream alternative.'"

The industry is still feeling out where and how it can grow in the U.S. Zipcar now must fight companies working to fill the gaps in its business model. For example, Car2go often touts that its cars can be taken on one-way trips and deposited in any metered parking spot. Zipcars, meanwhile, must be returned to their original marked spots. (Then again, a cargo van could be more useful than a two-person smartcar on a weekend Ikea run.)

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While competition may still allow several companies to profit, that doesn't mean Zipcar can rest on its laurels. "As the new people fine-tune it, Zipcar may be forced into changes in its business model that it's not ready for," says George Hoffer, professor of economics at the University of Richmond Robins School of Business. "I think they're quite vulnerable, I think, because what they do is emulate-able."