Carsharing is the mode of the future, and always will be


Avis Budget announced it would acquire Zipcar, the to-date essentially profitless carsharing company, for $500 Million. The stock today is trading at $12.22 a share. It is worth noting Zipcar’s Stock Price History. It went public in April 2011, and is off $15.24 per share (55.55 % after today), from an an initial opening shy of $30 per share.

As a former Zipcar customer (member?) I suspect car sharing is the mode of the future, and like fusion power and Brazil, always will be. While I believe it is possible they will overcome their technical difficulties, the problem of scale remains. Even at the University of Minnesota, one of the largest campuses in the US, there are very few available cars at very few locations. There has been more than a half a decade to work out this problem, it just hasn’t taken off.

When I was a graduate student at Berkeley, I was carless, and used the neighborhood Avis as an effective carsharing service, renting a car maybe once or twice a semester. The contract paperwork was a general nuisance, and like any captive customer I was resentful, and the rate killed it. Carsharing with its very high overage charges are in practice similarly expensive. A thicker market would permit lower rates. There are definitely economies of scale AND positive network externalities to be had.

Carsharing is a great idea, and in principle works well if everyone uses it (i.e. if there were a station on every other block, or within 1/4 mile (400 m), just like walking to transit). In the absence of robot cars, this require either really high population densities or really high market penetration. Thus far we have neither in most places. Even with robot cars, it will require a major social change, affecting how people consider property and treat vehicles.

I am convinced people don’t want to think about every transaction, and if they are charged per use, obviously would use less, but will be less happy, and more determined to get a car of their own to avoid transaction costs. Just as we went from terminals and mainframes to personal computers, and internet cafes to internet at home, we went from trains and transit to private transportation once we could afford it. The cost savings will have to be considerable for people to want to go back.

The best market of course is the urban hipster: with enough money to afford, enough transit to get to work and back with minimum hassle, enough childlessness to have a regular schedule, enough desire to signal greenness to avoid owning a car, but enough sense and desire for dates in the country to recognize the occasional need. This is a non-zero market, Avis assesses at over $500 million in net present value of profit over the discounted future. About half the price of a new NFL stadium (about one-half a giga-dollar).