Image: ZipCar
Craig Ruttle  /  AP
ZipCar, which was founded in 2000 in Cambridge, Mass., is perhaps the best-known name in the emerging ‘carsharing’ business. It went public on the NASDAQ in April 2011 and now operates in dozens of markets in the U.S., Canada and Mexico.
Image: Paul A. Eisenstein, contributor
By contributor
updated 10/12/2011 3:35:30 PM ET 2011-10-12T19:35:30

After selling his San Francisco high-tech start-up several years ago, Murtaza Hussein decided to reward himself by buying a new BMW Z4 roadster, but he quickly realized the two-seater had limited functionality and was sitting unused in his garage most days.

So Hussein decided to rent it to friends who wanted to drive the Z4 for a day or so. And that gave him the idea that other folks might like a similar opportunity — the chance to get behind the wheel of a dream car without actually buying one.

Three months ago, he launched his own twist on the car sharing concept — a company called HiGear that connects owners of high-line automobiles with people who want to drive them.

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“A lot of carsharing companies focus on people who need a car to go shopping,” Hussein explained. “Our business model is for people who want to be in a car like an Aston Martin for their birthday or some other special occasion.”

Shelby Clark’s new company was also created out of personal need. He was frustrated when, on a cold winter day in Boston, he had to ride his bicycle several miles to rent a car. Why not connect with car owners who are willing to rent their own vehicles, he wondered. Unlike, HiGear, Clark’s new firm, RelayRides, focuses on mainstream automobiles, but the basic concept remains the same. The two new companies are the latest twist on a concept called “carsharing” — an idea that’s quickly gaining traction in crowded urban centers like New York, Paris and San Francisco, and also in college communities like Ann Arbor, Mich., home to the University of Michigan.

“It’s a fact of life in those places that people want the convenience of a car, but don’t want the hassle of owning one,” said Dr. David Cole, chairman emeritus of the Center for Automotive Research, or CAR, which is based in Ann Arbor, Mich. “So, I think the carsharing concept is going to work.”

Perhaps the best-known name in the emerging business is Zipcar, which was founded in 2000 in Cambridge, Mass., and which now operates in dozens of markets in the U.S., Canada and the U.K.

Zipcar’s model is more conventional than either HiGear or RelayRides. It’s a sort of hybrid adaptation of the conventional car rental business. The firm owns its own fleet of vehicles, but makes them readily available in cities like Seattle and over 230 college communities by parking them in dedicated locations that can be scattered across town or campus.

A customer gets a Zipcard, which allows them to line up a rental on the fly, 24 hours a day, 7 days a week, online, by phone, or even at the vehicle itself using a smartphone app. The Zipcard will unlock the vehicle, where the customer can find the keys tucked inside. The typical rental is for a matter of hours, rather than days, as with more conventional rental car companies.

Zipcar has formed alliances with several major automakers, including Ford, which in August agreed to put 1,000 of its vehicles in use on college campuses across the country.

“We’re targeting a generation that only knows how to buy music by the song, so paying for a car by the hour is a natural for them,” explained Scott Griffith, Zipcar’s chairman and CEO.

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Earlier in the year, Zipcar lined up a deal with Toyota to offer a small test fleet of the automaker’s new Prius Plug-In Hybrid, which it will formally bring to market later this year. The carsharing service is betting that younger buyers, in particular, will be drawn to the opportunity to try out new green vehicles.

In Paris, meanwhile, a new carsharing service, launched at the beginning of the month, will scatter a fleet of up to 250 small battery-electric vehicles around the city that can be rented on the spot, much like the city’s successful public bicycle rental program.

While green-minded consumers, especially those on college campuses, are a potentially lucrative target, carshare companies like Zipcar also target older customers, notably those commuters who might occasionally need to use a vehicle for a few hours during the business day to run errands.

“You have a lot of business models in what is a work in progress,” said CAR’s Cole, referring to the emergent carsharing business.

A challenge for a company like Zipcar is supporting a large fleet of vehicles with rentals that may only run for a few hours.

RelayRide’s Clark — like HiGear’s Hussein — thinks he has found a viable alternative -- simply serving as the middleman between vehicle owners and those who occasionally need to use a set of wheels.

Last week, RelayRides lined up a partnership with General Motors’ OnStar division that could greatly expand the number of vehicles it has to share. As part of an exclusive relationship that will begin in early 2012, the carsharing service will focus on GM vehicles equipped with OnStar, which means the vehicle has a built-in data link that can be used to remotely unlock its doors for an authorized RelayRides user.

The service is particularly appealing in socially active communities, according to Clark, not only because a user might find a vehicle to rent in the same housing complex or campus, but because users “love that their dollars are going back to support the local community.”

RelayRides claims the average vehicle is generating $250 in rental fees a month, with an owner keeping 65 percent of that — enough to help pay a chunk of a car loan, or maintenance costs.

HiGear, meanwhile, reports the average rental cost for vehicles — ranging from BMWs to Lamborghinis — is topping $410. HiGear gives the vehicle owner back 70 percent of that amount, although the owner also has to cover the car’s insurance costs.

Few expect carsharing to significantly reduce the number of people buying cars. If anything, says analyst Cole, automakers see the concept as a way to get potential customers exposed to their products. Eventually, echoes Ford Chairman Bill Ford, if they have a good experience they may eventually buy one of the products they first drove using a carsharing service.

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