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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.