In many urban areas and college campuses, car-sharing services have been developed. The largest of these is ZipCar, has filed for an IPO. Does this service make sense for you? Does investing in ZipCar make sense? A heavily qualified " maybe" to both.
If you are an American, chances are, you own a car, and chances are, your car is sitting idle right now. So the idea occurs naturally, why not share cars? And back in 2001, a couple of people in Cambridge Massachusetts founded ZipCar. The idea is simple. Instead of owning a car, you can rent one for an hour or a day, to run errands or pick up things, instead of owning a regular car.
If you take mass transit to work, and need a car only occasionally, it makes sense. But if you need a car to drive to another city, well, it might not work for you very well. And if you need a car fairly often, it may not work at all. And of course, if you want to use a car during popular times, like the weekend, you may find yourself competing for a limited number of cars and time slots.
And of course, like any other communal ownership scheme, there are drawbacks. There is little incentive to take care of the car, wash it, clean, it, maintain it, or even drive it gently, as you would for a personally owned vehicle. If you get to the car, and find that the previous renter had left his McDonald's wrappers in it, what do you do? Suppose they spilled a milkshake on the seat? Left cigarette butts in the ashtray? Or a roach in the ashtray (and you get pulled over?). Owning your own car, of course, avoids those sort of issues.
But for someone who rarely needs a car, it may be worthwhile, provided the service is in your neighborhood. Oddly enough, Zipcar has recently pulled out of some markets, notably the L.A. Market. They did this after merging with competitor Flexcar. It is not hard to read the tealeaves on this one. Neither company was making money, and Flexcar was likely hemorrhaging cash on is L.A. operation, so they shut it down.
Why not L.A. - the car city? Well, mostly because owning a car in L.A. is part of the culture, and being such a sprawling city, it would be hard to put ZipCars in areas where large numbers of users could access them. Tellingly, they left the vehicles in the college campus areas (high concentration of users) but abandoned other city locations. I suspect that accidents, theft, vandalism, as well as lack of use were other reasons behind their pulling the plug from the market.
ZipCar plans an IPO, but when? Zipcar has recorded net losses every year since its inception, and by the end of March 2010 it had racked up a $56.4 million deficit. The company expects to lose money again in 2010 and plans to make significant investments as part of a massive expansion effort.
So these car-sharing companies have yet to really show any real profits. ZipCar appears to be claiming it made a profit in 2009, buts its IPO, approved in July of this year, does not appear to have gone anywhere fast.
Are these car-sharing plans the wave of the future? Perhaps not. For most people, owning a car is an emotional issue, with the type and model of car a statement of who they are. And ironically, the same is true for ZipCar users, many of whom are embracing "alternatives" to traditional car-based lifestyle, and for whom a ZipCar, like a hybrid, is a social statement more than anything else. Outside of niche markets like college campuses and liberal neighborhoods, these might be a tough sell.
Thus, overall growth for ZipCar might be flat in the long term. It would sell in Ithaca, New York (college town, high population density, disposable income, left-leaning), but probably less so in Syracuse (population too diffuse, incomes lower, less liberal). Thus, long-term growth for the service does not seem all that great. They probably already have all the subscribers they will have, period.
And most Americans live in suburbs, where a ZipCar just doesn't work. You can't walk 5 miles in a suburb to get to your ZipCar. Maybe if the car would drive itself to your door, it could work (and you know, that just might happen, sooner than you think!). But for the time being, low population density areas, which is more and more of the country, are just not going to work.
So, it sells in San Francisco (dense residential population, left leaning, disposable income) and New York City (ditto) and Boston (ditto). But perhaps not in Dallas or Houston. Austin, maybe (but that is a sprawl city as well).
So for me personally, I won't be using the service and won't be buying the stock. I wish them the best of luck, as it is a good idea and a good way to save resources and also a great service for a city person who needs a car part-time. But I think it will remain a niche market for many years to come.
Unless they can get the cars to drive themselves to your door.....
Before you join the service, Read This Blog with comments from actual users. I am not sure if their insurance policy is still the same - being stuck for $14,000 in collision repairs (cash!) is not a very good thing. And note, as I projected, that dirty cars and unavailable cars (during peak times) were a common complaint. And note that one user said he spent $3200 in three months. That is more than enough to buy a cheap, secondhand car and even pay to park it, in NYC. If you use a car a lot, I don't think this is a cost-effective idea. It was also disturbing that the daily rental rate is not far below that of a car rental agency, perhaps even more! Low-cost car rentals can be as little as $25 a day in some places....
Hmmm..... what was the point of this service again? Saving money?
UPDATE: This article on CNN.com this morning illustrates some of the "gotcha" problems with Zipcar. The author rents a car for $50 (hmmm, that's as much as Hertz charges!) and then is zinged with a $750 repair bill for damages that occur to the car after he returns it. Since there are no manned return centers, the cars can be damaged by anyone, even vandals - and you are liable for it.
This is the sort of thing that might turn people off ZipCar and onto more traditional rentals.
Once upon a time, rental car companies had agencies in the middle of big cities - and you could rent cars when you needed them. Slacking demand forced them to close. ZipCar has not really so much invented anything new, as it has reintroduced the downtown car rental agency.
I suspect that the big car rental agencies might wise up and offer downtown and neighborhood rentals in the future - cutting into ZipCar's margins. For $50, you can rent a regular car for the DAY, and when you return it, they sign off on the car as not being damaged.
5 comments:
I have to wonder about their accident rate as well. Zipcar drivers are, by and large, going to be people who don't drive much, and thus might get into accidents more often.
I would not want to underwrite that!
I think another problem for ZipCar is redlining. Does ZipCar have franchises near inner city public housing projects? If not, is that not a form of discrimination?
If so, are the cars, like everything else in the inner city, going to be trashed in short order (as apparenlty they were in NYC, according to the complaints boards)?
ZipCar works well in affluent, liberal enclaves like Cambridge Massachusetts, and Ithaca, New York, and other affluent, left-leaning college towns with responsible rich liberals who want to make a statement.
But expanding the concept to the everyman is not only physically impossible, but socially impractical.
As the NYC experience shows, people in big cities will not wash the car, clean out their debris, or even bring it back on time.
I think it is an interesting concept, but only for limited applications.
UPDATE: March 7, 2010
Zipcar has the slowest IPO going. Hopefully their cars run faster.
They continue to hint that an IPO is slated to roll out "soon" but no firm date, from what I can tell.
While their revenues for 2010 are up, they still had a $14M loss last year and do not project a profit for 2011 or 2012.
See:
http://www.bizjournals.com/boston/news/2011/03/07/zipcarIPO.html
At prices PER HOUR that rival daily rental costs at a "cheap car rental" place, I don't think they can raise rates very much.
That leaves cost-cutting. But if they cut costs, it hurts revenue, as people won't pay top dollar for crappy cars or crappy service.
That leaves increasing revenue as a last alternative. In other words, they have to make sure their cars are utilized to the most optimum extent possible.
It is a great idea, to be sure. I am just not sure it is a profitable great idea. Yet.
Someday, when cars drive themselves, it may make sense. A Zipcar could drive itself to your door on demand. That may be 50 years from now, if not more.
The ZipCar IPO finally hit the market, and the stock soared, meaning that the company screwed itself by selling the stock too cheaply to institutional investors.
See:
http://www.businessinsider.com/zipcar-ipo-price-2011-4
Of course, is $28 a share a good deal when the company offers the stock for $18 a share?
And throw in the fact that it has never made money, and in fact, really doesn't seem poised to?
Um, I am not sure this company can grow its way to profitability - it doesn't "scale" above certain highly dense cities.
And since it can be readily COPIED by existing rental car companies, which already have offices and infrastructure (not to mention cars), it may not have a corner on the market.
I think, like a lot of other things, people are buying this stock because they are fans of the concept and they are aware of the brand.
But the financial fundamentals don't seem sound - to me, anyway.
Update, May 2011: Zipcar stock seems to be stabilizing at about $25 a share, clearly based on some investors "forward-looking" projections.
Losses are getting smaller, partly due to the fact they paid off some debt with the equity sale (IPO).
Membership is up, according to the media.
We'll see if they can turn this into a money-maker.
Of course, there are few barriers to entry in this business, so one wonders if they are successful in certain markets, if people don't just cherry pick those markets and offer competing services for $1 less....
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