Will Zipcar Be Taken Down by the Rental Giants?

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Zipcar (Nasdaq: ZIP  ) is one of those sexy hipster companies you can't help but love. It's great in theory; rent a car as you need it, hourly or daily, with insurance, gas, and parking included. It's great for urban areas, ideal for college campuses. A good idea all around.

But that great idea has caught on, and major car companies have eaten away at Zipcar's market share. And while customers are more passionate than ever, investors have reason to be concerned.

All hourly car rentals are not equal
While Zipcar brought the concept of rent-by-the-hour to the mainstream, other rental agencies are quick to point out that they've offered hourly rates for years. Enterprise, for example, has been offering hourly rentals since 2005 and car-sharing since 2007.

I recently asked Ned Maniscalco, manager of corporate communications for Enterprise, about the company's competitive edge, and whether it can compete with Zipcar in the long term. Via email, Maniscalco said that Enterprise is competitive because of its wide network of cars and 5,500 branch offices located within 15 miles of 90 percent of the U.S. population. But he wouldn't comment on how Enterprise is competing in terms of price or service.

Hertz (NYSE: HTZ  ) , however, is a little more forthcoming, and not shy about tackling Zipcar head-on. Paula Rivera, manager of public affairs, said, "Hertz on Demand empowers members with greater choice, further simplicity and unequalled customer service. Break-through initiatives include no annual or membership fees, no late fees, and increased control over the car-sharing experience."

And Avis (Nasdaq: CAR  ) announced last year that it would be dramatically expanding its hourly rental capacity in Europe.

It sure sounds good. And if it were true that these other companies could provide better rates, more flexibility, and a better selection, Zipcar investors should run for the hills.

There are no Hertzers. Or Avis-iators. Or Enterprisers.
But there's more to renting a car than just the rack rate. Insurance. Gas. Service. How long it takes from reservation to getting out onto the road. Service, both customer and maintenance, when needed. And of course, parking, that elusive commodity in urban areas.

The rental agency that will win the hourly race will have these down pat. And to find out which one does, one only has to turn to social media.

Zipsters are passionate and dedicated. They name their favorite cars. They tell all their friends. They get involved in elaborate social media campaigns. They post on the company's Facebook page where they're driving their rental. They keep thanking Zipcar.

In comparison, the Facebook and Twitter pages of Avis, Hertz, and Enterprise, which all offer hourly rentals, are a little less enthusiastic, filled with complaints ranging from the mundane to the outraged.

Cars that don't work. Rude customer service agents. Long lines to drop off and return rentals. Extended hold times when calling for reservations. Changed or misplaced reservations, or a car other than what was requested. (Think that doesn't matter? Try reserving an economy car for a vacation and getting an SUV with significantly fewer miles per gallon.)

It's possible that for every unhappy questioner there is a happy one who's too busy to tweet. And it's equally possible that for every happy Zipster there's an unhappy one. But there's no doubt that Zipcar wins the social media race. And that its tweeters, posters, and commenters are sharing the love.

And of course, no zippy nicknames. There aren't Hertzers. Or Avis-iators. No one's calling themselves an Enterpriser.

The Foolish bottom line
While traditional rental car companies have felt threatened by Zipcar, the industry where Zipcar will truly do damage will be to car manufacturers, as those who can rent a Zipcar by the hour to run errands or for the occasional weekend trip will be less likely to buy a car. Ford (NYSE: F  ) has recognized this, and gotten on board, with a comprehensive partnership designed to put Zipsters behind the wheels of Ford's new models in cities and on college campuses.

It's just one of many ways in which Zipcar is continuing to grow. The company recently expanded into Austin, Texas, and White Plains, N.Y. It also just bought Austria-based Denzel Mobility Carsharing to expand its overseas share, with the deal bringing Zipcar into its third European market, after London and Barcelona.

There's no question that the larger companies have bigger fleets and can provide rates that, on the surface, appear more competitive. But Zipcar continues to grow through strategic market development and smart partnerships, and will be able to hold its own in its urban and collegiate niche markets, while expanding its reach internationally. The hourly rental market will continue to evolve, but Zipcar will continue to lead the pack.

Zipcar isn't the only American company expanding overseas; even Ford expects 60%-70% of its sales growth to come from some of its emerging market operations. Read more about Ford's opportunities and threats in our latest premium research report, written by one of the Fool's own industrials analysts. Click here to learn more.

Molly McCluskey owns shares of Zipcar. Follow her travel and finance tweets on Twitter @MollyEMcCluskey. The Motley Fool owns shares of Ford Motor, Zipcar, and Hertz Global Holdings. Motley Fool newsletter services have recommended buying shares of Zipcar and Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (7) | Recommend This Article (6)

Comments from our Foolish Readers

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 July 16, 2012, at 3:00 PM, Brettze wrote:

    Many people drives less than 2-5K miles a year which means that it is very uneconomical to own or lease a car.. Car dealers wouldnt allow you to lease a car at 5K miles annually.. they insist on a minimum of 10K annually and the payments is based on high mileage usage... They frown at you for claiming to drive only less than 5K miles a year for various reasons like high gasoline prices, maintenance, etc.. Insurance companies give you a limited discount on low mileage usage but not enough to justify having a car on a very low mileage basis.. This is where Zipcars fit.. For any of you who drives endlessly like commuters , then you are better off owning or leasing a car. What about retirees, low income people, even kids who cannot afford to maintain even an old used car... Costs are outta sight these days.. Why Zipcar still dont park cars in almost town, I will never understand... I see a need for a Zipcar on almost every block in America.. Not everyone needs a Zipcar but there is still millons of us out here who do... Now the problem is some people are real slobs and will stink up Zipcars because they are not theirs... as if they are public cars.. There probably need to be a modestly high price of entry as a Zipcar member so to discourage lowlifers from messing around in Zipcars somehow.. maybe Zipcar can set aside old used cars for those do no gooders , I dont know..

  • Report this Comment On July 16, 2012, at 5:30 PM, TMFSpeck wrote:

    I'm no hipster, but a 53-year-old who works from home and doesn't need a car for day-to-day errands. I'm a Zipster and I own stock in ZIP. I've rented Zip cars in Portland, Washington DC and Vancouver, BC all (mostly) trouble-free. They have a nifty and useful iPhone app that reminds me of my bookings, allows me to unlock the car with my phone and gives me directions to find the car, all with an easy-to-use app. Did I mention a less-than-trouble-free experience? I was on my way to pick up a car to go to an appointment to which I was running late, only to find that my ZipCard wouldn't unlock the door. Panicked, I called the ZipCar customer service folks. They asked me a couple of simple verification questions then remotely unlocked the car and directed me to a new card that they stashed in the trunk. They then remotely activated the card. Start to finish with my problem was under 3 minutes and I was on my way, making it to my appointment in the nick of time. That sort of customer service goes a long way toward building loyalty and word-of-mouth recommendations -- especially since I can get free hours for such ;-) One competitor in town (Car2Go) offers nearby car pick-up but have an advantage in that they offer point-to-point rentals. The big downside is that their coverage area only includes the inner city, which doesn't include the airport -- a huge deal-breaker for me. They also only offer one model of car, whereas Zip allows me to rent snow-ready SUVs to take to the mountain for cross-country skiing and snowboarding (even includes the Sno-Park pass!!). When Zip offers point-to-point, they will be hard to beat, even by the long-established car rental companies. They have a ways to go, but I remain bullish on Zip.

  • Report this Comment On July 16, 2012, at 5:47 PM, rhealth wrote:

    Analysts who dont look very deeply into the industry see big problems with the heavyweights trying to come into the picture. It's certainly concerning for shareholders like me, but your points are spot on Molly, just because Hertz can talk a big talk, doesnt mean they can run this kind of business. I'll bet you dimes to dollars they never do in fact.

    Car2go, now that's a different story. They are a serious competitor, albiet with a very different model. I think we will be seeing great surprising things from Daimler in the future.

  • Report this Comment On July 18, 2012, at 10:53 AM, dbtuner wrote:

    Avis now has 25,000 car sharing vehicles equipped in the US. More than all the other companies combined. The author did not even mention this.

  • Report this Comment On July 18, 2012, at 12:37 PM, XMFAlaska wrote:

    Hi folks. Thanks for all your great comments.

    TMFSpeck, I think your experience exemplifies why this company continues to be so popular with customers, and why that will eventually turn it around for shareholders. That combination of technology and service is something that I just haven't heard or experienced personally with any of the other agencies.

    Brettze, I hadn't thought about issues with messiness, but it makes sense. Do you have an experience you could share with us? I'll reach out to the Zip team to see how they deal with it, and will post again if I hear back.

    Rhealth: Thanks for the compliment. I agree; these agencies are running different businesses, and trying to compete with each other could prove distracting and damaging to everyone. While 15 miles within 90% of the population is impressive for daily or weekly rentals, 15 urban miles is a long way to go for short-term or hourly rentals. Especially in gridlock-ridden areas like DC, San Francisco or New York (all places I've lived and been car-free).

    DBTuner: Once again, you post a pro-Avis comment on a TMF article about Zipcar. Your opinion is always welcome, but if you work for Avis, the polite thing to do is to disclosure it.

  • Report this Comment On July 23, 2012, at 2:05 PM, dbtuner wrote:

    Once again, you MF guys ignore Avis. The polite thing to do is post facts, not propaganda. I get that you guys are long ZIP and buried in it at much higher prices, but get real.

    How do you ignore the fact that Avis has more car sharing cars than everyone else combined by a huge number? I don't work for them or for anyone in the industry

  • Report this Comment On August 02, 2012, at 8:27 PM, dbtuner wrote:

    hey molly, if you loved this at $11, you must really love it at $8!! HAHAHA

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