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Kevin McLaughlin, in driver's seat, in one of the AutoShare vehicles.
Kevin McLaughlin, in driver's seat, in one of the AutoShare vehicles.

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The AutoShare saga: A long, strange trip Add to ...





Kevin McLaughlin, owner of AutoShare.





AutoShare had 16 members and three cars when it launched in October, 1998. “It was so mission-driven in the early days,” recalls McLaughlin, seated in his bare-bones office in a downtown Toronto loft building, where he and his 14 staffers moved last fall. The first members were true believers who treated their $500 insurance deposit-cum-membership “like giving us a donation or buying a share in a windmill,” he says.

Those fees were AutoShare’s primary source of capital, the biggest chunk of which went toward leasing cars. No bank would lend to such an untested venture, so board members signed the leases personally.

During the taxing early years of the company’s life, the two partners’ relationship grew toxic. One morning in April, 2002, McLaughlin arrived to be confronted by Reynolds, accompanied by a security guard and businessman Dan White. The pair announced that Reynolds was taking over.

In the ensuing legal battle, Reynolds and McLaughlin appeared before several judges — including Justice James Farley, who was also presiding over the Air Canada bankruptcy and couldn’t hide his incredulity at AutoShare’s teapot tempest. Eventually, an auction was held, McLaughlin won and, with begged-and-borrowed money, bought out Reynolds. The struggle had cost him $40,000 in legal fees. “The first thing any entrepreneur should be taught in business school is, have an exit agreement,” says McLaughlin ruefully. (Reynolds and White launched a short-lived rival, Dashcar, in 2003. She is no longer in the industry.)

Growing the company proved more difficult than McLaughlin expected. “This is an immensely, ridiculously capital-intensive business to start as a small operator,” says McLaughlin.

AutoShare pays about $1,000 a month for every car it has on the road, to cover the lease, insurance, parking, maintenance and gas. The original business plan had AutoShare breaking even with 200 cars after three years, but while the company did start breaking even, the fleet goal kept getting pushed out. McLaughlin was particularly disappointed that, for all their green tub-thumping, governments gave AutoShare little help. “I would go to the City [of Toronto]every year for five years, but they didn’t see us as credible,” he says. Meanwhile, American car-share companies received millions of dollars in public support.

McLaughlin tried to raise venture capital, but couldn’t deliver a big enough business plan to attract interest. Meanwhile, he kept tweaking the operating model. AutoShare started off charging $2 to $3 an hour because that’s what the co-ops charged, but it soon had to raise rates to survive. The company was thinking too small, too narrow, and McLaughlin believes this tunnel vision cost AutoShare the opportunity to raise funding that it could have used to expand beyond Toronto.

Still, by 2005, AutoShare was profitable, and later that year, Zipcar sent out feelers about a partnership. McLaughlin squired around CEO Scott Griffith and his entourage, showing them his operation, the choice neighbourhoods harbouring eco-conscious, condo-dwelling hipsters and the parking lots that rented space to shared cars.

Since Zipcar was an ally in the car-sharing cause, McLaughlin was amenable to coming under its umbrella. Zipcar’s purchase offer of $450,000 and 220,000 shares, however, was so low as to be insulting, he says. “They lowballed me, and two months later, they launched here.”

Zipcar, now in its pre-IPO quiet period, refused to comment on financial specifics, other than to say, “As the market leader, Zipcar keeps in touch with other players in the market.”

Zipcar didn’t lack a grand vision. Since its launch in 2000, the firm has raised a reported $50 million (U.S.) in venture funding, enabling it to require minimal upfront membership fees. When research showed that Americans weren't big on sharing, the company dropped the word from its promotional material in favour of a convenience sell: “wheels when you want them.” The firm grew fast, spending up to $4 million (U.S.) to launch in each new market and snapping up rivals like Flexcar, the second-largest American player.

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