Many college students and young city residents are taking advantage of car sharing and other similar services to make car usage and ownership more affordable. The fleet of luxurious black cars available in minutes from Uber beats flagging down a cab from the street corner after a late-night movie. Reserving a Zipcar and paying only for time behind the wheel is preferable to renting a car and paying for parking during a weekend getaway. And soliciting the assistance of RelayRides to find responsible neighbors that sometimes need wheels, too, is a way to help cover insurance, gas, and related expenses for a dream car.
There are car services today that meet nearly every transportation need, making the appeal of full-time car ownership dim in comparison. According to an article in Bloomberg BusinessWeek, former America Online CEO Steve Case bought the car-sharing company Flexcar in 2005 because he sees, “a generation shift from ownership to shared use and experience and community.” Flexcar merged with Zipcar in 2007; in early 2013, Avis Car Rental bought Zipcar for nearly $500 million.
Zipcar, one of many on-demand services, touts the benefit of offering “wheels when you want them.” Membership costs $6 per month and driving rates range from $7.50 to $12 per hour. Members need a valid driver’s license and active credit or debit card on file. They make reservations online or through the Zipcar mobile app and pick up and drop off Zipcars at a number of participating locations.
Despite outward appearances, according to CEO Scott Griffith, the business model actually competes more closely with car ownership than rental services. There are no fees, no paperwork, and no maintenance costs. There’s even a gas card. According to Zipcar, it has access to more than three million students through its Zipcar University program available on nearly 350 college campuses. That’s a lot of car buyers that now have the option to put off such a major purchase.
“This has the ability to impact our business in the longer term, and we are doing things now to position ourselves to deal with the unknown future,” says Keith Troup, chief financial officer of Washington State Employees Credit Union ($1.9B; Olympia, WA).
Through June 2013, the credit union auto loan portfolio grew 9.7% annually to $185.5 billion, according to Callahan & Associates’ Peer-to-Peer analytics. This was the highest growth since the recession and goes to show auto lending is still a credit union stronghold. The industry holds nearly one-third of its total loan portfolio in auto loans and originated 14.7% of all auto loans or leases in the country through June 2013.
Auto loans are a staple of the credit union lending strategy. They are also a gateway into the institution for younger members. Says Troup, “The auto loan has historically been one of the preferred loans for younger borrowers.”
These are the same members that Zipcar and other ride-share companies are now courting. However, such services tend to concentrate on urban areas and locations where adoption can quickly hit critical mass. The need to own a vehicle in more rural credit union markets does not seem to be fading.
“I can’t say we’ve seen noticeable impacts in this area,” Troup says. “We see and are watching other channels where members make purchases outside the traditional franchised dealer network … and are closely watching this area because we see both the frequency of auto purchases and how these purchases are happening changing in the future.”
Auto-sharing companies don’t eliminate the need for auto loans among all younger members and they don’t affect consumers in all areas of the country, but they do highlight the benefits of addressing old business models. As times change, it is essential credit unions roll out new products to meet the new needs and preferences of members.
“The needs of younger members and potential members now is different from those 20 years ago,” Troup says.
Are you ready for what’s on the horizon?