Millennials drawn to car-sharing services, but eventually, they buy

Car- and ride-sharing services make it easy for consumers with mobile devices to get a set of wheels. The services' apps are, clockwise from left, Zipcar, Lyft, Uber and Car2Go.
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Car- and ride-sharing programs -- called upon via smartphone applications -- are changing the way city dwellers get around and the way millennials think about car ownership.

The convenience is indisputable. Pull up the app for Zipcar or Car2Go and reserve a nearby car for short-term use. Or use the Uber app to summon a driver and a car.

The new services seem ready to conquer the world: Uber has been valued at $17 billion by investors. Automakers have noticed and are experimenting with ways to adapt -- creating partnerships with car-sharing services or offering their own transportation services.

But do these services pose a serious threat to the traditional automotive market? The short answer is no, most observers say. The trend is mostly urban, and millennials still buy cars, but they're typically waiting until they start a family to do so.

Still, the industry acknowledges that younger drivers are postponing car ownership in favor of less expensive memberships with urban car-sharing and ride-sharing services.

"I've seen a trend -- probably over the last two years or so ... first-time buyers are around 25, and before, they used to be 18, 19," said Steve Loya, sales manager at Capitol Kia in Austin, Texas. "Hasn't hurt sales at all. Actually, we've increased."

Millennials are plagued with mounds of college debt while entering a fiercely competitive job market, making them less likely candidates for car ownership. Curtis Hamilton, a sales manager at Acura of Boston, said many first-time buyers are cost-conscious college graduates in their mid-20s.

Young buyers "are thinking more efficiently," Hamilton said. "They're thinking about downsizing costs."

Austin and Boston, urban college towns, are the kinds of areas where car-sharing and ride-sharing services thrive. Consumers in cities like them are exactly the demographic targeted by these services. In fact, Austin is the U.S. birthplace of the car-sharing service Car2Go, while Boston is the birthplace of Zipcar.

Although the uptick in transportation service memberships is noticeable in urban areas, Susan Shaheen, director of the Transportation Sustainability Research Center at the University of California, Berkeley, has predicted that the U.S. car-sharing market will include about 3.8 million users by 2020 -- just 1 percent of the population at that time -- based on the current estimates of about 25 percent growth in car-sharing memberships annually.

Even with the millennial generation putting off car ownership in favor of transportation service memberships, the car market in the United States is better now than it has been since the recession. Analysts forecast more than 16 million light-vehicle sales in 2014. The average dealership's sales volume is 20 percent higher through June than it was in 2006.

In 2007, the 34-44 age group dominated with a 28.7 percent share of the new-car buyer market, according to IHS Automotive. At the end of 2013, the 45-54 age group held the largest share of the market, at 23.5 percent.

Ford's chief U.S. sales analyst Erich Merkle said even the company's millennial buyers are on the older end of the generation.

The company's market share of the millennial demographic rose to 12 percent in 2013 from a little more than 9 percent in 2009, but those buyers tend to be in the 25-34 age bracket, according to Merkle.

He said the Explorer contributes most to Ford's market share of the millennial segment. Of the millennials who purchase the Explorer, 98 percent are between ages 25 and 34.

Even though millennials are waiting longer to have children than their parents did, starting a family remains a trigger for car buying.

"As we start to see the emerging family among millennials, needs for millennials will change dramatically in terms of cars," Merkle said.

John Krafcik, president of TrueCar, is skeptical about car-sharing services becoming a primary form of transportation in the United States. "I don't know that those are necessarily going to be long-term substitutes for cars," he said.

Krafcik said American car buyers tend to prioritize occasional use over everyday use when vehicle shopping. American buyers want cars that will take them on long trips and family vacations, for instance.

"I think that's something that is fundamentally different about the American car buyer," he said.

More sharing
The car-sharing segment is growing, affecting auto ownership

• 3.8 million users by 2020 (projected)

• 25% of users sell a car

• 25% of users postpone ownership

• 1.9 million cars sold/purchases postponed in 2020 (projected) by car-sharing members

Source: Susan Shaheen of UC Berkeley Transportation Sustainability Research Center

Urban transportation


Car sharing and ride sharing have the biggest impact in urban areas.

Uber, the king of ride-sharing services, secured $1.2 billion in funding from several investors, led by Fidelity Investments, and was valued at $17 billion by investors last month. It operates in 42 countries, including 86 cities in North America, solidifying the strength of the movement from traditional forms of transportation to smartphone-centric transportation services.

Lyft -- the David to Uber's Goliath -- is the newest of these services, founded in 2012 in San Francisco. Its model is similar to Uber's in that members summon rides via a smartphone application, but Lyft adds a touch of familiarity to the process. Riders and drivers connect to the application via their Facebook profiles, giving the company the tag line "Your friend with a car."

Zipcar, which was purchased by Avis Budget Group in March 2013 for about $500 million, is in more than 400 cities and towns globally and is continuing to expand, according to President Kaye Ceille. The company has more than 30 makes and models, offering different fleets from city to city.

The common impetus in the growth of urban car sharing and ride sharing is congestion, IHS Automotive analyst Phil Gott said.

"People in urban areas are getting rid of their cars, but we're not anti-car as a society," he said. "It's good to drive when there is room to drive -- there's nowhere to park in the city. Congestion is the big problem here."

Ceille said her company's service becomes part of a city's transportation ecosystem, relieving congestion. She said every Zipcar takes 15 personal cars off the road and supports 50 people in a city.

New players

Leading car-sharing, ride-summoning companies

Zipcar
• Car sharing
• Founded in 2000 by Robin Chase and Antje Danielson
• Launched in June 2000 in Boston
• Acquired in March 2013 by Avis Budget Group
• Operates in 400 cities and towns globally
• 850,000 members as of January
• Prices: Memberships start at $6/month; rates vary by city. In New York: $8.33-$9.25/hour; $75.60-$84/day

Car2Go
• Car sharing
• Founded in 2008 in Germany by Daimler AG, but most popular in Austin, Texas, where it launched in March 2010
• Expanded to 26 cities globally since 2010, including 10 in U.S.
• More than 700,000 members
• Prices: 41 cents/minute; $14.99/hour; $84.99/day; 45 cents/mile after 150 miles

Uber
• Ride summoning
• Founded in 2009 by Travis Kalanick and Garrett Camp
• Launched in 2010 in San Francisco
• Operating in 42 countries, including 86 cities in North America
• Prices vary by city. In New York:
 BaseMinimumPer min.Per mile
UberX*$3$840$2.15
Uber Black**$7$1565$3.75
Uber SUV$14$2580$4.50
*Low-end sedans **Black-car service


Lyft
• Ride summoning
• Founded in 2012 in San Francisco by John Zimmer and Logan Green
• Operates in 65 cities/counties in U.S.
• Drivers and passengers sign up by connecting Facebook accounts
• Prices vary by city. In New York: $8 minimum; 40 cents/minute; $2.15/mile; $3 pickup charge
Note: Prices and locations as of July 23
Source: Companies

"We have every expectation that we'll continue to grow this very rapidly, not only in new markets but in existing markets," says Nicholas Cole, Car2Go CEO.

'Mobility providers'


Thilo Koslowski, an analyst at the technology research firm Gartner Inc., said automakers need to develop new ownership models in the changing transportation market.

"They need to become mobility providers, not just automakers," Koslowski said. "They need to rely on a combination of vehicle sales and selling mobility on demand."

Some automakers already are offering more than vehicle sales.

Daimler AG, parent company of Mercedes-Benz and Smart, has begun diversifying with its car-sharing service, Car2Go, which operates in 14 cities in North America and 12 cities in Europe. It is the first car-sharing program that uses electric vehicles only, offering Smart ForTwo cars.

Car2Go CEO Nicholas Cole said the service's broad appeal was a pleasant surprise.

"Five years ago, when we launched in Austin, our first thought was: Who's going to use the service? Is it going to be the 18- to 25-year-old who's moving into the city and doesn't want to own a car?" Cole said. "One of the greatest [lessons] that we've had is that Car2Go is for everyone. ... We have to market to all types of people within our operating area."

Car2Go has not yet reached the heights Zipcar has. At the end of May, Car2Go pulled out of the United Kingdom after it failed to gain traction in London. Cole said the company is committed to the United States, where it just opened its second California location, in Los Angeles' South Bay area.

"We have every expectation that we'll continue to grow this very rapidly, not only in new markets but in existing markets," Cole said.

Likewise, Ford is launching its own pilot car-sharing program in Europe dubbed Ford2Go. Partnering with DB Rent -- the company behind the European car-sharing service Flinkster -- Ford is using 600 to 700 cars in the program run through the German Ford dealers association. Participating dealers offer shared cars to customers in their area.

"The German team wants to talk about expanding it," Stephen Odell, CEO of Ford of Europe, told reporters this month.

Teaming up


Other automakers are working with existing car-sharing services to build awareness for their brands.

Ceille said Zipcar is working closely with auto manufacturers because her company gives consumers the opportunity to drive in its partner automakers' cars.

Merkle said Ford and Zipcar have partnered on college campuses to put young potential buyers in Ford vehicles. In 2011, Ford and Zipcar signed a two-year deal to integrate Ford vehicles into Zipcar's college campus fleets, or ZipcarU.

Toyota also sells fleet vehicles to Zipcar to get exposure to potential buyers.

"Fleet vehicles are good for business and the industry," Toyota spokeswoman Amanda Rice said. "Zipcar has purchased some fleet vehicles ... but has also purchased from dealer stock to meet their needs."

Those at the older end of the millennial generation are starting families, which sometimes drives them out of cities. That's when consumer exposure to car-sharing fleets pays off for automakers.

"If someone moves out of the city, in more instances, they will consider car ownership," Ceille said. Their time with Zipcar "gives them context, and they may purchase a car they drove with us."

San Francisco is the heart of the new urban transportation empire, but Brook Margraves, a general manager at Nissan-Infiniti San Francisco, said he hasn't seen a decline in the number of young buyers.

He doesn't think urban consumers will completely forgo car ownership: "Uber has its place, but it doesn't replace owning an automobile."

Gabe Nelson and David Barkholz contributed to this report.

You can reach Nora Naughton at nnaughton@crain.com.


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