Driving Forces: Can You Give Up Your Car?

When Sherri Fuselier recently learned she was losing her job as a paralegal, she realized she had to cut the family budget--fast. One excessive expense seemed ripe: the $700 a month she and her husband spends filling up their pickup truck and SUV. But living in suburban Atlanta 30 miles away from work left Fuselier with few options. That is until she ran into a marketing exec from Zipcar, an eight-year-old car-sharing service that rents wheels by the hour. He offered her a free trial membership if she would try to give up her car as part of Zipcar's "low-car diet" promotion.

So Fuselier, 44, parked her Jeep Grand Cherokee and began rising at 5:30 a.m. to catch the bus downtown with her 9-month-old son Brodie sitting on her lap. If she needs a car during the day--to take Brodie to the doctor or go on a job interview--Fuselier can walk a block to where a Prius is parked, swipe a Zipcar membership card over the windshield to unlock the doors, hop in and go. The cost: About $10 an hour, plus a $50 annual membership fee and a $25 sign-up fee. Fuselier figures it will save her $300 a month. "I like the idea of being green," she says, "but I can guarantee you I'm doing this because it puts more green in my pocket."

Pain at the pump is driving car sharing from a college-campus convenience into a main-street solution. Pioneered in Europe's densely populated cities, car sharing is sort of like condo time shares or fractional ownership of corporate jets. You pay a membership fee, reserve your ride online, walk to a car parked near your home or office and then use it for a few hours to go grocery shopping, on a dinner date or to haul home some mulch from Home Depot. The cost of gas and car insurance are covered by the car-sharing company. What it lacks in spontaneity, it's supposed to make up for in cost savings. But in America's car-crazy culture, it's a deal that appealed mostly to a minority: college kids and twentysomethings living in mass-transit meccas like New York, Boston and Washington.

That is, until gas hit $4 a gallon. Now Zipcar is experiencing runaway growth. It's taking on 10,000 new members a month--triple the number of monthly sign-ups a year ago. Four-in-10 of its new members say they're turning to car sharing to save on gas. And nearly two thirds say they plan to ditch their car or not buy one at all. Zipcar, which long operated in only three East Coast locations, is now in 50 cities, has 225,000 members and has cars parked within a 10-minute walk of 13 million Americans. Annual revenues this year will top $100 million and, after years of losing money, CEO Scott Griffith says, Zipcar will finally drive into the black by early next year. "Americans are rethinking car ownership in a way we've never seen before," he says. "And we're becoming an important part of their transportation mix."

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That kind of success is attracting competition. Three big rental agencies--Hertz, Enterprise and U-Haul--are now launching their own car-sharing services. They're testing them in markets like St. Louis (Enterprise's WeCar), San Francisco (U-Haul's U Car Share) and New York (Hertz's still unnamed service). But for the most part, they've yet to break away from their rental-counter format that requires drivers to come to them. Car sharers find that arrangement inconvenient because it operates only during the hours those rental agencies are open. So by the end of the year, the rent-a-car big boys plan to sprinkle their formidable fleets in neighborhoods, urban centers and college campuses, just like Zipcar.

They're expecting to turn a profit quickly. "Car sharing has proven itself to be an industry that is needed," says Hertz spokeswoman Paula Rivera. "We've spent the last year developing a car-sharing product that is unique and, more importantly, a business model that is actually viable."

The key to making it go, though, is having the cars and the complex logistical system to keep track of them. Griffith puts the challenge succinctly: "How do you manage 225,000 people randomly accessing 5,500 cars, 24 hours a day, seven days a week?" Griffith contends his company's edge is the tracking technology it has developed through the years. He compares Zipcar's logistical expertise to Amazon and Netflix.

The big rental agencies, though, have relationships with automakers that can provide them with a steady stream of new cars. Zipcar adds to its fleet just like the rest of us do--by going to a dealer and buying a car. What's more, the rental agencies already have a nationwide network. "We've got a footprint across the country," says Michael Coleman, program manager of U-Haul's U Car Share, which is already operating in 10 cities. "We can grow and expand into new markets faster than other car-sharing companies."

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Better yet, when the new sharing services roll into town, they just might set off a price war. U Car Share charges just a one-time $50 membership fee, not an annual fee or a sign-up charge like Zipcar. WeCar's annual membership cost just $35 when it launched in St. Louis last year. (Enterprise declined to provide additional details on WeCar, other than to acknowledge it is now operating in Boston and "plans to expand the program into other markets in the coming months.").

But there's one price problem all the car-rental services share. The same $4 gas that's driving commuters to share cars is also pushing up rental rates. The hourly rate that was once as low as $7 now averages around $10 and is on the rise. Zipcar hiked prices in January and is about to boost them again, resulting in an hourly rate increase of up to 10 percent this year. Gas prices, however, are just one tenth of Zipcar's overall costs. Bigger expenses include the cost of buying cars and paying for parking. As car services take up more parking spaces, they hope they'll have more leverage to cut better deals with cities and private parking-lot companies.

And they plan to fill a lot of parking spaces. Ultimately, car-sharing providers contend they can replace car ownership. Coleman envisions entire neighborhoods sharing a single pickup truck, for example, for all their home-improvement projects. "Fifteen years from now," says Griffiths, "one-car, one-driver won't work anymore."

Don't tell that to Zipcar's new customer, Sherri Fuselier. She's suffering some serious SUV cravings on her low-car diet. "I don't want to give up my SUV. I'm a die-hard, and I need to carry a lot of stuff," says Fuselier, who admits she still drives the Jeep to work once a week. Yeah, it's good to share. But sometimes you just want to say, "This is mine."

Driving Forces: Can You Give Up Your Car? | Business