Zipcar Inc., the largest car-sharing company in North America, and its investors emerged from an initial public offering last week with $174.3 million.
But while Wall Street has embraced the company and car sharing, questions remain on how much the market will spread and nibble away at new-car sales.
Zipcar started in 2000 with a lime-green Volkswagen Beetle in Boston. It has expanded to an 8,000-vehicle fleet available to 500,000 members in 50 cities in the United States, Canada and the United Kingdom.
But the company has never posted a profit as costs have grown with fleet size. Zipcar had revenue of $186.1 million in 2010, up 42 percent from the year before. But high costs led to net losses of $4.7 million in 2009 and $14.1 million in 2010.
The typical Zipcar user lives in an urban area with extensive mass transit and is unable or unwilling to make car payments or simply doesn't need a vehicle every day.
Other car-sharing companies are sure to follow Zipcar's lead, eventually eroding some auto sales, says Mary-Beth Kellenberger, a Frost & Sullivan automotive analyst.
A Frost & Sullivan study says every car-sharing vehicle replaces nine purchased personal vehicles.
Some automakers are meeting the challenge by heading into the market themselves. Daimler has introduced a Smart ForTwo car-sharing plan similar to Zipcar's model in Austin, Texas, and two German cities. BMW AG will join the mix this month in Munich.
The success of car sharing will depend on convincing people it's convenient and cost-effective.
Kellenberger says: "What you're trying to prove to the average vehicle driver is that there is a cost savings so significant that it's worth altering your behavior completely in order to capitalize on major savings or lifestyle changes."