Will Hertz Run Zipcar Off the Road?

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A neat car-sharing initiative is being introduced at the San Francisco Airport Marriott Waterfront. Marriott (NYSE: MAR  ) guests, hotel employees, and even locals will be able to rent electric cars by the hour.

Petite EV Smart Car and Nissan Leaf models will be fueled by a pair of charging stations that the hotel recently installed. General Motors' (NYSE: GM  ) Chevy Volt will be added as more units roll off the assembly line.

If you're expecting Zipcar (Nasdaq: ZIP  ) or some eco-friendly Bay Area start-up to be behind this move, you're way off. Marriott is actually teaming up with longtime partner Hertz (NYSE: HTZ  ) .

Hertz On Demand -- formerly known as Connect by Hertz -- is stealing every page out of the Zipcar playbook. It also offers hourly rentals, covering insurance and throwing in 180 free miles of gas per outing. Unlike Zipcar, Hertz On Demand is actually free to sign up. There are no annual fees.

However, Hertz is in fewer cities and on far fewer university campuses than Zipcar. Is it because of Zipcar's first-mover advantage, or is it that the Hertz brand is more of a liability than an asset with the young renters who flock to car-sharing services?

Clearly there's enough market to go around. Zipcar's revenue soared 34% to $61.6 million in its latest quarter. Adjusted EBITDA margins are widening, and Zipcar's successful IPO four months ago is going to broaden brand awareness.

Hertz is putting up a good fight, but there comes a time when a company can't be its own disruptor. There's nothing stopping Hertz, Avis Budget (Nasdaq: CAR  ) and Dollar Thrifty (NYSE: DTG  ) from growing in the dynamic car-sharing business. However, the louder that Hertz gets about promoting its hourly rentals, the harder it will be to get conventional renters to continue paying up for marked-up fuel or get hoodwinked into paying a hefty premium for insurance coverage.

This is about as cool as Hertz can afford to get -- and even then it will have to brag about it very quietly.

Is car sharing a viable business or are Zipcar's nearly 605,000 members crazy? Share your thoughts in the comment box below.

The Motley Fool owns shares of Zipcar and Hertz Global Holdings. Motley Fool newsletter services have recommended buying shares of General Motors and Zipcar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz lives a short walk from several Zipcars, but he is currently not a member. He is a shareholder, though. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 24, 2011, at 5:10 PM, timeinthewind wrote:

    I would not casually dismiss Hertz or any other rental company with a not fully utilized fleet of cars. The opportunity to generate more revenue from those assets will be very tempting. Zipcar doesn't have much of a moat -- when it comes time to pay next year's membership fee why wouldn't members near a Hertz location think twice and consider a free membership with Hertz instead of a fee membership with Zipcar?

    I like Zipcar's early mover advantage but this is hardly like a mainframe company not being able to disrupt itself with PCs. The product is basically the same with simply different terms and pricing models in this case.

    I own Zipcar shares too and this gives me cause to think through the thesis and consider how vulnerable they are before deciding what to do in the future. Hertz isn't yet really competing much with Zipcar but this is as good a wakeup call as any to think about if and how the traditional rental companies might use their cash, fleets and profitable cash flow to be fast followers and crush the disruptor before it reaches profitability. Or, maybe one of them buys the memberships, parking spaces and business model...

  • Report this Comment On August 26, 2011, at 6:25 PM, Tealcosmo wrote:

    More Car Sharing competition is good at this point. It will help people get more used to the idea of hourly cars. The biggest barrier to Zip car and other's growth is Americans' reluctance to give up the car sitting in the driveway.

    Also there are already other smaller car sharing services all over the country, it hasn't affected Zipcar's profitability in those cities.

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