Mobility on Demand has become very popular over the past few years in developed countries with the rise of the likes of ZipCar, RelayRides, and Car2Go (see exhibit 1) in major urban centers. These programs have been able to provide certain segments of the population—college students and young professionals—with more convenience and a reduced need for private cars. However, government policies for private car owners needs to be tweaked in order to bring about a meaningful impact in increasing the “sustainability” of the city.
Exhibit 1 (clickable)
Source: Author compiled table based on information from company websites
Zipcar is by far regarded as the most successful Mobility on Demand program in the US, and it has gained quite a bit of hype and press in major urban centers. Yet, as of its 2012 10K filing, Zipcar only had approximately 673,000 users. After more than a decade, it had only been able to penetrate less than 0.3% of the urban population in the US (total population of the US = 315,299,632, 82% of the US population resides in cities and suburbs, which means 258 million people are the target audience). Even if we only account for the cities where Zipcar has operations (see exhibit 2), the market penetration is just over 2%. And that is not to mention that the 2% is an optimistic upper limit, as many Zipcar members – myself included (thanks to a free membership from my summer employer) – do not use the service more than once or twice a year.
Exhibit 2 (clickable):
|Data source: US Census Bureau
The key here is not whether the likes of Zipcar are doing well. These companies have great concepts. However, it is not enough to just have car-sharing services in order to make cities more “sustainable.” Even with the existence of these services and cheap public transportation, people want cars because it raises their social status. Moreover, the tendency for humans to be overpowered by bad events over good ones is a well-documented phenomenon. People remember best the times when they had very unpleasant experiences from not having a car, rather than when they had good experiences. Therefore, individuals usually overestimate the value of car ownership to themselves.
There needs to be higher costs to effectively overcome the exaggerated values people place on car ownership. Unless governments properly reduce implicit subsidies for private cars, car ownership will not decrease significantly. One such example is the availability of cheap parking in cities. Roadside parking and dedicated parking lots take up a large amount of land that are otherwise very valuable, especially in areas with prime real estate. However, most parking fees are not priced to match the fair value of the land. While there are many social, economic development, and political arguments for why it makes sense to charge significantly lower fees, we cannot expect to change the behavior of consumers unless such implicit subsidies are reduced.