The latest knock on the rapidly growing car-sharing service is a CNNMoney article that takes Zipcar to task for its policy on damage liability. A technology consultant writes that he took out a Zipcar and was charged $750 for damage done after he'd returned the vehicle.
As the article states, every new renter is asked to report any damages before taking the car out. The liability for any incident involving the unattended vehicle rests on the previous renter.
That may not seem fair, especially for a service where insurance and gas are presumably covered in the hourly rental rate. But is this really a deal-breaker of a problem?
Zipcar went public at $18 in April and hit an intraday high of $31.50 on its first day. The stock surrendered 7% of its value after the article was published yesterday, hitting a new post-IPO low of $23.15.
Yesterdat was a down day for the market in general, and a freshly public growth stock is going to feel the sting in that kind of environment. However, the more I think about the incident, the more I come to the conclusion that the reaction is overdone.
Let's compare Zipcar with the traditional ownership experience. There are 577,000 people sharing a fleet of 8,200 Zipcars. Compare that with a sample of 577,000 drivers who privately own at least 577,000 cars. Unattended vehicles will get smacked around, vandalized, burglarized, and otherwise damaged. If anything, I think the Zipcar logo would be a deterrent to theft, because Zipcars are in very visible areas, and car thieves know that no one will leave personal belongings inside.
However, the chances are far greater that one of more than 577,000 cars will be damaged while unattended than one of Zipcar's 8,200 will. The costs of ownership aren't the only thing being divided by Zipsters. Risk also gets divvied up. The CNNMoney writer was just unlucky.
This doesn't mean the policy is perfect, though Zipcar does offer a damage-waiver option for $75 a year for safe drivers. Had the CNNMoney writer taken out that option, this incident would have been avoidable. Until technology improves to the point where liability can be perfectly pinned, not having the policy in place would encourage Zipcar drivers who do get into accidents or bang up their vehicles to lie about it. Yes, insurance is covered, but members will get booted if they rack up enough incidents.
Meals on wheels
If a car weren't a big-ticket item, Zipcar could be expected to take a hit from time to time (and it does, anyway, since damage claims can be appealed). Netflix
Zipcar's popularity is a delicate thing, but the numbers show that most members are happy. Less than 2% of its members cancel during any given month, a churn rate half as high as you'll find at Netflix and Ancestry.com
Zipcar's user base has jumped by more than 200,000 members over the past year, and its first quarter as a public company was promising. Revenue soared by 48%, though a good chunk of that figure was related to an overseas acquisition. The company is sporting healthy margins in its established markets, though expansion into new cities, countries, and college campuses will keep profitability in check for the near term.
The traditional auto-rental market has seen a big bounce off recessionary lows. The bidding war between Hertz
Zipcar isn't perfect. Auto-sharing isn't for everyone. But without much churn, one unlucky report isn't going to sink a concept that makes sense financially, environmentally, and logically.
Is car-sharing a viable business, or are Zipcar's 577,000 members crazy? Share your thoughts in the comments box below.
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Longtime Fool contributor Rick Munarriz lives a short walk from several Zipcars, but he is currently not a Zipcar member. He is a shareholder, though. He also owns shares in Netflix and is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.