Prius at Zipcar

While industry observers focused last week on the lofty initial price of Zipcar’s stock, a larger question looms: How many Americans are willing to give up owning a car and instead use a car-sharing service?

Zipcar offer its members the ability to rent vehicles by the hour—for as little as $7 an hour, including gas and insurance. Customers reserve cars over the Internet or smart phone and pick them up at local parking lots, using a pass card to get access to the vehicle. Zipcar has been quick to add hybrids, plug-in hybrids, and electric cars to its fleets—giving everyday drivers fuel-efficient options and sometimes their first exposure to alternative drivetrains and fuels.

Conversations about sustainable transportation usually put technology—hybrid, clean diesel, electric, etc.—in the spotlight. But entirely different transportation modes that focus on reducing the number of cars that are manufactured and operated on U.S. roads is an equally important and often overlooked green strategy.

Many observers questioned the value of Zipcar shares, considering that the company has not earned a profit in its 11-year history; that is has nearly $100 million in debt; that it posted losses of more than $14 million last year; and that it expects to lose money again in 2011. Furthermore, the company is facing new competition from major auto rental companies, such as Hertz, that are adding car-sharing services.

Zipcar’s prospectus warned, “We do not know if our business operations will become profitable or if we will continue to incur net losses in 2012 and beyond.” Proceeds from the IPO, about $175 million, will be used to reduce debt.

In congested cities such as Boston, New York City, San Francisco and Washington—where Zipcar generated 60 percent of its revenue last year—car-sharing can be a smart economic alternative to owning and operating a personal vehicle. Zipcar currently operates in 14 cities—12 in the United States, plus Vancouver and London—and 230 college campuses. Its fleet stands at around 8,000 cars, and its membership at 560,000.

The key to Zipcar’s future will be expanding to markets beyond America’s major cities, locations where drivers might not be as immediately amenable to car-sharing schemes. The size of the North American car-sharing market was about $250 million in 2009. It is forecast to grow to more than $3 billion in the next five years.