Although Zipcar no longer trades on the market as an independent entity, this car-sharing service continues to make the headlines as a threat to auto sellers. Alix Partners has found that the addition of a single car to a car-sharing service such as Zipcar, which is owned by Avis (NASDAQ:CAR), can result in 32 fewer car sales. This report brings bad news for companies that sell cars, but it could provide good news for companies that rent them out, such as Avis and Hertz (NYSE:HTZ).
Takeaways from the report
Without the presence of the car-sharing services, the total number of vehicles sold would have increased by 500,000; the press release from Alix Partners does not provide an exact time frame for this decline as it simply states that this is a to-date number, although the research group did mention that car-sharing services ramped up their operations in 2007. The research group also projected that the rise of car-sharing services could result in the loss of an additional 1.2 million car sales by 2020.
Using periods of 2007-2013, under the assumption that the bulk of car sales lost occurred during these years, and 2014-2020, the statistic for the latter period projects a 140% increase in car sales lost.
Impact on the auto industry
Alix's projection shows that car-sharing services could have a significant impact on the auto industry, but total annual sales figures suggest that the health of the overall economy remains a more important factor for auto sellers. Car sales in the United States hit a high of 17.4 million in 2000, the same year that Zipcar launched; although sales were lower in the following years, car sellers still sold 16.2 million cars domestically in 2007. Total domestic sales hit a low of 10.4 million in 2009; this drop appears much more drastic than anything that the car-sharing services could cause. The 2013 figure shows a total of 15.6 million cars sold as car sales have picked up coming out of the recession.
Dividing the total sales loss of 1.2 million by a period of seven years gives a figure of around 170,000 lost sales per year, although it's likely that this figure would gradually increase over the period instead of remaining constant. At slightly more than 1% of total auto sales for 2013, the lost sales from car-sharing won't destroy the auto market in the next few years, although this trend could be enough to cause a revenue or earnings miss for an automaker or an auto dealer.
A recent study by Zipcar
The bull case for car-sharing services relies on adoption rates by younger drivers; Zipcar has been releasing annual reports on this topic and it still does so as a part of Avis. Zipcar's survey released in 2014 provided even more evidence that younger respondents don't consider car ownership as important as their parents do; specifically, younger respondents see cars as costly and the rapid rise of mobile technology has reduced the importance of driving. The survey also found unmet demand for alternatives to car ownership, as drivers said they would switch if alternatives became available where they lived.
The benefits for Avis here don't just include additional customers for Zipcar; young drivers who don't own their own automobiles may need to rent vehicles for longer periods, which still costs much less than buying and maintaining personal vehicles over the long term. The car rental company also recently launched used-car service Avis Direct so it could more easily sell off its old cars, and a newer fleet could help the company appeal to younger drivers as well.
The report from Zipcar also offers good news for Hertz; with younger drivers less interested in buying cars and actively searching for alternatives to long-term car ownership, Hertz could also see higher demand for auto rentals. Hertz has its own car-sharing service called Hertz 24/7, with branding that shows customers that its short-term rentals are available at all times of the day -- this is important, because one of the main advantages of personal car ownership is that a car can be used at any time. Like Zipcar, Hertz also knows that wider access to car-sharing services could boost sales; Hertz plans to offer 24/7 car-sharing services across most of the United States by 2016, and the company offers its 24/7 car-sharing service internationally as well.
The reports from Alix Partners and Zipcar look like good news for both auto rental companies; however, Avis looks like the better pick here. Avis made a good move by purchasing a popular brand with a good reputation among younger drivers. In contrast, Justin Bachman at Bloomberg Businessweek reports that some customers are unsatisfied with Hertz's 24/7 car-sharing program. Lower rates of auto ownership could lead to higher sales for both Zipcar and Avis as a whole, which makes Avis look more appealing as an investment.
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Eric Novinson has no position in any stocks mentioned. The Motley Fool owns shares of Hertz Global Holdings. 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.