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Zipcar Flexes its Muscles


The Flexcar-Zipcar merger gives car sharing nationwide cred


By Christine Cyr



Ever notice those Mini Coopers and Priuses cruising through your urban neighborhood with a bright green or blue logo slapped on the side? Well, more of these cars—part of a network of shared vehicles—will likely be popping up on your nearest city block soon. The country’s two largest car-sharing companies, Zipcar and Flexcar, announced in October their plans to merge. They will operate under the Zipcar brand, with cars in more than 50 cities nationwide.

The deal is not only big news for those already partaking in car-share services, who will now have access to autos in many more cities: It could signal growth in the nascent car-sharing market, a business model that allows members to rent cars by the hour or day. The concept has helped to reduce carbon emissions and traffic by taking private vehicles off the roads.

Car sharing has been most successful in densely populated cities, such as New York, where members generally either walk, bike, or use public transportation to get to and from work but find they need a car from time to time. Members pay an annual fee that permits them to pick up and drop off cars that are parked in convenient locations around town. Both Zipcar and Flexcar were started in the late 1990’s, and have seen their membership explode over the past few years. According to Mark Norman, the COO of Zipcar and former CEO of Flexcar, membership in both companies has almost doubled each year for the past three years. In 2006, Zipcar, the larger company of the two, had 80,000 members; this year it rose to 135,000. After the merger, Zipcar will have 180,000 members.

Aside from San Francisco and Washington DC, where Zipcar and Flexcar both have vehicles, there is no overlap in the markets that the two companies currently cover. That fact played a big part in the merger. “This is largely two companies doing very similar things in different cities,” says  Scott Griffith, CEO of Zipcar. “Being able to combine under a single technology and a single brand means that the same dollars going into marketing get leveraged across the entire company.” Griffith concedes that merger would probably not have happened if the companies were competing directly in more cities.

To date neither company has turned much of a profit, as they’ve both invested heavily in new markets. “This is a very high fixed cost business, primarily because of the investment in technology,” says Griffith. “The cost of the fleet is eighty percent fixed. Whether a car moves one mile or a thousand miles in a month it will have the same cost. It’s important to improve utilization of cars.”

Griffith hopes that capitalizing on each company’s existing infrastructure will help Zipcar expand. Currently there are about 200,000 members enrolled in more than a dozen car-sharing services around the country, including Zipcar and Flexcar. But Susan Shaheen, who researches transportation trends at the University of California at Berkley, estimates that there is a market for at least two million car sharers.

The Zipcar-Flexcar merger is similar to what happened in Europe in the 1990’s, according to Shaheen. Car sharing in Europe started in the late 1980’s as a grass-roots effort then slowly gained mainstream credibility, until it became more profitable for smaller companies to merge. “The car sharing market did not explode, but did continue to grow substantially in Europe, particularly in Switzerland.” By 2006 there were more than 213,000 members in car-sharing services across Europe.

Traditional car companies have taken note of the demand and are jumping on the hourly rental bandwagon, a fact that also played into the Zipcar-Flexcar merger, says Griffith. U-Haul is now offering a car-sharing program in twelve cities around the country. And Enterprise, Hertz, and Thrifty are offering hourly rentals in some cities. These companies offer similar pricing structures to Zipcar and Flexcar, with the cost of gas and insurance included in the hourly rate of the rental. Yet, these traditional car rental companies are still gauging the popularity of their new programs. “It isn’t a huge market,” says Christine Conrad, spokeswoman for Enterprise, but the company plans to continue to offer hourly rentals as long as there is customer demand.

Growth in car sharing and hourly rentals could be good news for the environment. According to a 2005 report by Trivector Traffic, a Swedish consulting firm, European car sharers reduce their personal carbon dioxide emissions by an estimated 40 to 50 percent. Most car-sharing programs also use hybrids in their fleets; Zipcar will have around 550 in total, and many of the rental companies also offer hybrids. Yet, the biggest benefit of car sharing is getting more drivers off the roads. According to the Transportation Research Board, many car sharers in the US opt to sell a privately owned vehicle after they join the program, or forego purchasing a new car. The board estimates that at least five privately owned vehicles are taken off the road for every shared car.

Zipcar will continue to operate out of its Boston office, while executives from Seattle-based Flexcar will move East. According to Norman, over the next six months Flexcars nationwide will be converted to Zipcar technology, which uses smartcards to unlock vehicles. Along with making reservations online, members will also be able to reserve cars from their cell phones or PDA’s. Membership fees will remain similar, hovering around $50 per year, with hourly rates generally ranging between $10 and $15 per hour, including insurance and gas. Flexcar members will also get the bonus mileage that Zipcar offers; Flexcar limited mileage to 150 miles per day, whereas Zipcar allows 180 miles per day.

Of course, the biggest benefit for both Zipcar and Flexcar members is the wider access they’ll have to cars in different cities. Zipcar users, for example, will soon be able to drive cars in Atlanta, Seattle, and Portland, Oregon, while Flexcar members will be able to use cars in New York, Boston, London, Toronto, and Vancouver, BC, just to name a few.

As for the new competition posed from traditional rental companies entering the hourly rental market, Zipcar doesn’t seem to be too worried. As Norman says, “Our biggest competitor continues to be the privately owned automobile.”


Comments

I have a written membership contract with Flexcar, the Auto Assurance Plan effective Sept 2007 which provides 3 hours drive time per month at $9.99 a month with a six-month commitment. I had a confirmed Flexcar reservation for Jan. 29th that was cancelled by email, that an explanation that as soon as I received my new "Zipcard" I should simply re-reserve the car. Zipcar's three-step process is so simple. They already have all your information. Just confirm, click and you're credit card will be charged $50 a month (the least expensive - and automatic - option) + an hourly rate. I have a contract, in writing, through Feb. 2008 that is not being honored, and reservation is just, gone! Poof! Unless I pony up $50 this month, and $50 next month. I, and others, have Auto Assurance Plans, that requires a time commitment, that are not being honored. Your statement that fees will remain similar is mistaken. Zipcar is clearly using bait and switch tactics. Flexcar members, take note.

Sometimes , can be more usefull to rent a car than buy one . It’s a good offert !

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