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Cherubino then persuaded her husband to sell their car and rent out the parking space. She now earns $350 a month by renting that space, and spends about $200 a month in fees for using the hourly rental service. Monetary prudence won out over sentimentality. “I thought I would really miss it,” she recalled. “But I can remember signing the papers, watching someone else drive away in [our car]. We got on the T and rode home and never really looked back.”

A Profitable Solution to Urban Transportation Problems

Cherubino’s cost savings are an example of how two newly created companies are reshaping how city residents pay for mobility. The companies, Zipcar, based in Boston, and Flexcar, based in Seattle, currently provide a web-based service in nine American cities that is not exactly traditional car rental and not exactly car sharing. Urban residents who need a car for a matter of hours can reserve one over the web, walk to the neighborhood garage or lot where it is regularly parked, wave a security pass over an electromagnetic reader, start the car and drive away.

The companies, founded in the dot-com boom, say that they provide for more efficient use of capital than traditional car rental companies, and that greater convenience makes their cars more accessible than those at car rental counters, even the ones in residential neighborhoods.

By blending traditional car rental with short-term car-sharing techniques, these companies are creating something fundamentally new. While older American car rental companies are noticing that more customers are visiting counters far from their airport locations, and are moving resources to serve them, these new companies take the convenience of the neighborhood car rental counter to a new level by eliminating the need to speak with a rental agent. They share ideological strands with the dozens of idealistically motivated car-sharing networks in the United States and Europe, but unlike them, they seek to make a profit.

Officials at both companies said that the more people in a particular city begin using the service, the more profitable it becomes. Fees for the service are based on hourly rates that vary from $5 for the least expensive Zipcar locations in Boston to $10 for the basic Flexcar plan in Los Angeles and San Diego and some Zipcar locations in New York. Both companies maintain the cars and pay for gas.

Of the two, Flexcar has pursued a more ambitious growth strategy, expanding from Seattle, where the first car started rolling in January 2000, to Portland, Oregon, and Washington, D.C., in 2001, and to San Francisco, Los Angeles and San Diego in 2002.

In Seattle, Flexcar has 80 cars and 6,000 members and recently turned its first profit, according to John Williams, the company’s director of marketing. Flexcar expects that their Washington and Portland branches—each of which has about 2,000 members and forty-five cars—will become profitable in the next quarter or two. The three cities in California combined have 350 members and thirty-three cars, including 11 in an experimental Bay Area commuter-rail program. They are still in the early stages of development and are not yet profitable, Mr. Williams said.

Zipcar debuted its first car in Boston in June 2000, and has since expanded to Washington, D.C., and New York. It has 3,700 members in Boston, and 1,000 each in New York and Washington.

Robin M. Chase, Zipcar’s founder and a passionate believer in its business model, said that the company’s Boston operations began turning a profit in October 2001, once the company had gained a critical mass of customers in the city and its nearby suburbs.

What makes a city a viable car sharing market, Ms. Chase said, depends first on mass transit use. Zipcar customers do not use the cars to get to work, but rather for errands or weekend getaways. Profitability also depends on the costs of renting out parking spaces in a given city, which is proving to be a considerable expense.

“D.C. is approaching profitability,” she said. “New York is farther away.”

New York is the most expensive city to rent spaces in garages for storing Zipcars between uses. According to Chase, average parking costs in New York are three times higher than in Boston, and insurance rates in New York are double the rates elsewhere because of a New York insuring technique called ”vicarious liability” in which the owner of the car is liable for damages no matter who is driving during an accident.

Fewer Parking Spaces, More Development Opportunities

Washington is the only city where the two firms compete neighborhood by neighborhood. The companies have slightly different pricing plans, and it is possible that one company will drive the other out of business. But according to Flexcar’s Williams, it is more likely that the two firms’ efforts will reinforce each other, expanding the overall market for car sharing services in Washington. “There’s plenty of room in any market for two companies,” Williams said. Right now, we’re thrilled if someone’s heard of either one of us.”

To a large extent, the proliferation of web-based car-on-demand customers is mutually reinforcing. Like mass transit but unlike highways, the service that these companies provide is a good that becomes more attractive as more people use it. As more customers appear in an area, more cars are placed there, which means that there’s a better chance that a car within walking distance will be free when you want it.

Zipcar’s dream is a bold one: ”Imagine cities with few private vehicles: Zipcars parked on every block; no need for reservations. You’d walk up to a Zipcar, unlock it with your Zipcard, and go!”

While the dream is a long way off, it is a tantalizing possibility. Think of the number of parking spaces that could be freed up if cars did not have to sit unused for most of the day. This, in turn, would free urban land for better uses than car storage and would help dense city neighborhoods make gains against suburbs in an area where suburbs enjoy a significant advantage—the arena of automotive convenience.

In fact, Zipcar reports that it has already made a tiny dent in the number of parking spaces Boston needs. According to Chase, each Zipcar can replace seven to ten privately owned cars. At the Massachusetts Institute of Technology, 600 people use 24 cars, some as many as four times a week, others as infrequently as once every two months. “We’ve probably taken away the need for 12 parking spaces,” she said, “It’s a number you can count now. It’s not negligible.”

Whether 12 spaces is negligible in a in a metropolitan region of nearly six million people is open for debate. But other Zipcar statistics are encouraging for people tired of seeing the vast parking lots that ring many downtowns. Chase reported that 15 percent of Zipcar members sell their car when they become Zipcar members, and that about 30 percent of the company’s members say they can avoid buying a car by signing up. “We know that we’re a car substitute,” she said.

Urban real estate developers are taking note. Both companies report that the service is popular with residential and commercial developers. “They’re saying, ‘This is a great tenant amenity. Your lease with us comes with wheels.’”

The 1,049-foot tall Bank of America Tower in downtown Seattle is home to 5,000 workers and 2,000 visitors per day, but has parking spaces for only 709 cars. Equity Office Properties Trust, the building’s owner, put two Flexcars in reserved spots in the garage, allowing for greater flexibility for tenants who, say, need to leave the building for meetings.

A car in a mixed-use neighborhood, such as the area around Newark’s Pennsylvania Station, could conceivably be put to use for 18 hours a day as commuters use the car to get to work, rail travelers or employees at nearby offices use the car to go to morning or afternoon meetings, and residents use the car for errands in the evening. With a system of payment that resembles more closely the fare structure of taxis than rental cars, Zipcar seeks to encourage such intensive use of its cars because its profitability rests in part on putting them to the most efficient use possible. “You’re paying by the hour,” Chase said. “When it’s sitting for an hour undriven, you’re not taking on that meter without good reason.”

Both Flexcar and Zipcar recognize that there is great potential for growth in membership with companies who are looking to replace their fleet cars. It would not be much of a leap to imagine a mixed-use community with car-sharing vehicles used during the day by businesses and during the night by residents.

Not for Commuters

The companies are considering whether the service can be of use to commuters, but so far these solutions require cars to sit unused for hours and are therefore less promising.

Zipcar is considering a deal with Metro-North, which provides commuter rail service to suburban New York and Connecticut, in which Zipcar would maintain its cars in commuter rail lots in exchange for free publicity and parking space. “Transportation guys are dreaming that this is their saving grace for the Last Mile Problem,” Chase said, using the name transportation experts have given to a seemingly intractable problem—getting car-less passengers from train stations to destinations that are beyond walking distance. “But these cars are assets and have an hourly value. If you’re going to drive it a mile and a half to sit all day, from an economic standpoint, I’m hard pressed to think that that’s a good solution.”

In the Bay Area, Flexcar has 11 cars in a Last Mile Problem experiment that seeks to serve resident commuters and workers at the same station, but it can work only in those rare instances where commuting and reverse commuting take place with relatively equal numbers. For example, Williams said the plan could work if a Palo Alto resident drove the car to the rail station there and left the car, while a short time later, a San Francisco resident arrives on a train and drives the car the remaining distance to her job in Palo Alto. “We’re one of the few companies in the country that still has that one in play,” Williams said. “You need a lot of coordination, you need consistent corporate and individual users.” Even though it’s less expensive to use Flexcar or Zipcar than it is to buy a new car, it seems unlikely that these services will catch on as a means for the car-less inner city poor to access jobs in the suburbs. Leaving the car to sit in a parking lot during an eight-hour workday is prohibitively expensive.

Indeed, a map of Zipcar customers’ residential patterns shows as clearly as a map of real estate values the divide in wealth in Manhattan at East 96th Street (the border between Spanish Harlem and the Upper East Side). There are many Zipcar customers in SoHo, Cambridge and Dupont Circle, but few in Bedford-Stuyvesant, Roxbury or Anacostia.

According to Williams, Flexcar would be willing to entertain a government subsidy to help provide transportation options for the poor. Flexcar has already pursued a number of public partnerships that involve the donation of public parking spaces, while Zipcar, funded nearly entirely by private investors, has focused less on the public sphere.

Bullish on Car Sharing

Christy Conrad, a spokeswoman for Enterprise Rent-a-Car, which has the lion’s share in the off-airport car rental market, said that there was little chance that these companies would have a significant impact on Enterprise’s business. According to Ms. Conrad, their markets don’t overlap because Enterprise typically serves day-long renters, while Zipcar and Flexcar rent by the hour.

But one Zipcar investor said he thought the company would succeed precisely because it would cut into the traditional car rental companies business. “I used to have to go to Logan Airport to rent a car,” said Peter Aldrich, an investor in Zipcar who was previously chairman of AEW Capital Management in Boston. “You used to have to put up with the hassle of returning the car to the counter, having it inspected, having them ding you because you got nicked by some parking lot jockey. Now you bring it back to your home.” Mr. Aldrich declined to say exactly how much money he’s invested, but said it was “in the mid six figures.” After a lifetime of running pension funds and investing in real estate, he said he knows how to spot a good investment. “If these guys don’t dominate the market in the urban sectors,” he said, “it will be because one of the big guys bought them.”

This article appeared in the June 2003 issue of Next American City magazine. SUBSCRIBE NOW!