I Was Wrong About Zipcar

Every time I write about Zipcar (Nasdaq: ZIP  ) , my detractors tell me that I'm crazy, that the rental car giants getting into the hourly game will be the death of Zipcar, that the car sharing company isn't the innovator that I think it is, and that it will be dead within a few years.

Possible? Let's take a look.

Hourly? Sometimes.
There's no doubt that Enterprise Avis Budget (Nasdaq: CAR  ) and Hertz (Nasdaq: HTZ  ) are attempting to get in the game. But how effective those attempts are remains seriously in question.

While traveling this month, I popped into several Enterprise, Avis, and Budget storefronts in both urban and suburban areas. I asked salespeople at all three locations the same question: Do you offer hourly rentals?

In Providence, R.I., the employee at the Budget location told me they only offer daily rentals. And then, to clarify, that they only rent by the day. (Helpful, thanks.) Employees at both Enterprise and Avis suggested that I go to Zipcar. The Enterprise employee told me how to create a Zipcar account; the Avis staffer pointed out Zipcar locations nearby.

In Union Station, D.C., I waited 40 minutes at a Budget counter, only to be told they were out of cars despite my reservation. I went to the next location across town, to find 20 customers waiting in line and one counter clerk. After an hour, I gave up there as well. Hourly rentals? Not if there aren't any cars, or staff.

And in suburban New Jersey, an Enterprise employee told me that the only time they charge by the hour is when a customer returns a car late. I asked Ned Maniscalco, manager of corporate communications for Enterprise, about this, and he told me that car sharing is only offered in Boston, New York City, and Philadelphia, with hourly rentals in Chicago and "a few other metropolitan areas."

"Admittedly, our car-sharing business is in its early stages," Maniscalco said, before continuing that he expects Enterprise to be "very relevant" in urban areas.

Where I was wrong
Zipcar is not going to kill traditional rental companies. The industry is not going away. The daily rates from a place like Budget or Enterprise, especially when factoring in discounts and promotions, are simply better than Zipcar's in most markets. When including gas and parking, it may come out about even, but for customers who know they'll need a car for a full day, or a weekend out of town, hourly isn't going to cut it.

And while Budget clearly poses no threat to Zipcar -- at least judging from my experience -- I'll keep my eye on Enterprise, which seems to be making small, deliberate strides.

Where I'm not backing down
Despite my mea culpa, I still believe Zipcar will prevail. Not by crushing the traditional car rental agencies, not in spite of them, but alongside them. Because although Zipcar is regularly listed as a car rental company in publications like the Auto Rental News, putting Zipcar in the same category as Enterprise and Avis is like putting Amazon.com and Google in the same category, under "websites." While there may be some overlap of customer base, they serve different needs.

And if my experiences in the past month are any indication, the traditional companies are a long way off from having the staff, inventory, and know-how to pull off the hourly rental game with any real conviction. After all, I spent four hours chasing down a rental across town in a major market on a weekend.

The Foolish bottom line
I may have lost nearly half of my investment in Zipcar to date, but I'm still not giving up. I'm looking at this company over the next five years, and expect it to continue to carve out its own niche. And I'm not alone: Despite Zipcar losing nearly 40% of its stock price since its IPO, 92% of our CAPS players expect it to outperform the market. Check it out.

Think Zipcar's here to stay or a flash in the pan? Tell me below.

Molly McCluskey owns shares of Zipcar and Amazon.com. Follow her travel and finance tweets on Twitter @MollyEMcCluskey. The Motley Fool owns shares of Amazon.com, Google, Zipcar, and Hertz Global Holdings. Motley Fool newsletter services have recommended buying shares of Amazon.com, Zipcar, and Google. 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 (10) | 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 September 25, 2012, at 6:35 PM, Jerry2014 wrote:

    I live in Santa Cruz, California and I see Zip Cars on the streets all the time. Of course UCSC is here but during the summer I see tourists using Zip.

    I will wait the 5 year period to see the real world results.

    When I ask young drivers if they know the name Zip Car they smile and say, I don't live on the moon.

  • Report this Comment On September 25, 2012, at 6:42 PM, eibe wrote:

    When talking competition everyone seems to focus on the traditional car sharing companies.

    But what about those started by carmakers in Europe? BMW's Drive now and Daimlers Car2Go. Sure, they don't offer a full fleet, only the smallest car (Smart or Mini) and Drive now doesn't even operate anywhere in America. But still something one might want to watch.

  • Report this Comment On September 25, 2012, at 6:44 PM, eibe wrote:

    Oops, I meant traditional car renting companies in my post above.

  • Report this Comment On September 25, 2012, at 8:55 PM, rhealth wrote:

    The daily rates from a place like Budget or Enterprise, especially when factoring in discounts and promotions, are simply better than Zipcar's in most markets."

    nope. Not if you dont own a car and need to purchase insurance. Even with great discounts, the gas, taxes, insurance and hidden fees will put you even or worse.

  • Report this Comment On September 26, 2012, at 9:02 AM, dbtuner wrote:

    Avis rents by the hour to business customers without the need to wait in lines. Cars are parked at corporate campuses, hotels, and airports and can be reserved via smartphone, unlocked via smartphone, and returned to any Avis site. They have 30,000 of these cars in the North East with plans for their entire US and Canadian fleet.

  • Report this Comment On September 26, 2012, at 11:05 AM, hilsonvalli wrote:

    Your blog completely ignores the fact that will keep Zipcar a footnote in the industry -- the costs of acquiring and maintaining cars. Their costs will always be much higher than the big players, who can squash Zipcar like a bug on a windshield if they ever choose to, just by temporarily lowering margins for a year or two in the hourly business.

    Not to mention the ridiculous multiples Zipcar still exhibits. Your investment is dead money for a long time (or forever), I'm afraid.

  • Report this Comment On September 26, 2012, at 3:26 PM, dbtuner wrote:

    BTW - how many pro-ZIP articles are you going to write before you throw in the towel? The cardinal rule in investing is to set a stop loss after no-more than 20%. You are down like 50%. That's what rookies do, not people who write articles that try to influence others.

  • Report this Comment On September 26, 2012, at 4:22 PM, simontzu wrote:

    I think zipcar is very interesting and have just taken a position. I think there are 3 key converging trends which combine to make a very positive rising tide for Zipcar.

    Electric vehicles (see Tesla's recent announcement of free charging for life?). ZIPs fleet management software can cleverly route which cars need to be charging and which can be available. No gas costs improve their margins big time.

    Autonomous self-driving Cars. They are on the roads now. http://www.quora.com/Autonomous-Driving/Which-industries-wil... . This is a big deal and will change everything. It is a ways away but who is best positioned to take advantage of this trend when it starts happening? ZIP.

    Peak Oil. We will still want to use cars (its hard to do grocery shopping with a bicycle) when they cost a fortune and gas is $10 a gallon but we may not want to own them ourselves.

  • Report this Comment On September 26, 2012, at 6:27 PM, XMFAlaska wrote:

    Folks, thanks for all your comments. I have to add a correction, as I misquoted Ned from Enterprise. His actual quote was: "“We only offer car sharing on a retail basis in Boston, NYC and Philadelphia.” He then pointed out that Enterprise has business-to-business car-sharing programs on college and corporate campuses across the country. My apologies.

  • Report this Comment On October 09, 2012, at 4:07 AM, Clint35 wrote:

    So you went to Budget to get a car that you reserved and they still didn't have a car for you? That's terrible! I have no idea who will win in the rental/sharing competition but I'm rooting for ZIP. Not just because I own shares either.

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