Zipcar: A Toast to the Death of Car Ownership

With metro areas becoming denser, gas prices on the rise, and the ever-growing effort to reduce one's environmental footprint, owning and operating a car doesn't carry the weight it once did. As fellow Fool writer Rick Munarriz eloquently put it, "auto ownership is a racket."

The testimony
It was circa summer 2005 when my (now) wife and I scored our first apartment in the heart of the city. With prime real estate, we sought to straddle the precarious line of recent graduates and young professionals. It wasn't long before we learned that the grass, true indeed, turns other shades than green. You'd expect the four-legged neighbors and cabin fever-induced disagreements, but the true excruciating detail about city living is -- without doubt -- parking.

Like a storybook, Zipcar (Nasdaq: ZIP  ) came to the rescue. The green dots with the big white Z came to represent the big S on the chest: the Superman-like answer to what seemed like a simple parking problem. Within a year after signing up for a Zipcar membership, I donated my old car for the tax deduction.

Zipcar estimates that its members can save up to $7,000 per year by car-sharing with the Zipcar community instead of owning a car. However, that's only a piece to Zipcar's puzzle. It was the ease of hopping online and booking a car whenever convenient that enticed me. It was the cost savings of not owning and operating a car that kept me.

The rub
Zipcar has turned its secret sauce into 33% average year-over-year top-line growth since 2008, and it's only getting started. The company has been at it since 2000, and it wasn't until 2007-2008 that traditional car rental companies got a clue. Hertz's (NYSE: HTZ  ) Hertz On Demand division is putting up the best fight, but its sweet offering may prove too costly for its own palate.

Predictably, others are following suit, including Enterprise Holdings' WeCar and Amerco's (Nasdaq: UHAL  ) U Car Share. Car sharing is a global trend. Peugeot has its Mu service, BMW has partnered with Sixt AG, and notably, Daimler AG's car2go initiative recently secured market share in the States.

However, I haven't seen a competitor in my neighborhood yet, while Zipcar has been here for 12 years.

The investment
The Goliath threat is real, but I'm not persuaded. It's been almost four years since Hertz entered the market. Subsequently, Hertz has rebranded and increased its investment. In contrast, Zipcar has increased its community from 258,000 to 650,000 Zipsters, increasing margins along the way and expanding to include 250 colleges and federal and local governments. Furthermore, Zipcar fully integrated its first international acquisition last quarter, Streetcar of the U.K., not to mention its majority stake in Avancar -- Spain's leading car-sharing service.

Zipcar provides a platform of easily accessible cars on demand, including gas and insurance, coupled with effortless reservations. It remedies the frustration of owning a car in the city for less money and more convenience.

It could be one of those classic disruptive American companies that would make Henry Ford blush -- the irony. I'm a believer in the company -- I first bought shares in July 2011. I invite skeptics to watch this story unfold by adding Zipcar to your Watchlist.

Fool contributor Greg Haygood is a shareholder of Zipcar. The Motley Fool owns shares of Hertz Global Holdings and Zipcar. Motley Fool newsletter services have recommended buying shares of 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.


Read/Post Comments (9) | Recommend This Article (9)

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 February 23, 2012, at 12:18 PM, DJDynamicNC wrote:

    Owning a car simply doesn't make economic sense any more, not while there are alternatives like Zipcar. Car sharing gets far more output out of each car, at far greater efficiencies for the users, while negating the loss in convenience that normally comes from embracing a car-free lifestyle.

    Such an improvement.

  • Report this Comment On February 23, 2012, at 12:54 PM, dbtuner wrote:

    Your research is shoddy. The biggest competitor is Avis who has been piloting car sharing for over 10 years with IDSY. Last August Avis announced a roll out of "On Location" with 25K cars going live by this June. Avis took a 9% stake in IDSY. Avis is targeting the Corporate user for now by rolling out at Corporate Campuses, hotels, airports, etc. Their plan is to eventually make their entire 300k car fleet have the capability for conventional rental or car sharing. Once they roll out to the non-corporate user, ZIP has no chance.

    IDSY has 66 approved patents and dozens of pending patents in this area. ZIP only has 2 pending patents that infringe on IDSY patents. If you like car sharing, buy IDSY, not ZIP.

  • Report this Comment On February 23, 2012, at 1:25 PM, dbtuner wrote:

    BTW - if car ownership is going away, why are car sales the highest in years? Why are the car and steel companies adding 3rd shifts?

    The only people who decry car ownership and those to poor to own cars. Maybe if you guys cut down on the $250/month you spend on phone and cable, you could afford a car. I love my cars

  • Report this Comment On February 23, 2012, at 2:11 PM, zimonja wrote:

    I understood the article as an overview of existing car-sharing services - not the ones in planning or in making.

    As such, it is really informative, since it points to a possible paradigm shift in densely populated urban areas, which may be illustrative of not only changing consumer's orientation but, also, of a slow but advancing cultural mutation.

    It would be greatly beneficial for all commenting "fools" to maintain a civic discourse and mutual respect even in disagreement. Because, we communicate to "educate, amuse and enrich".

  • Report this Comment On February 23, 2012, at 2:28 PM, dbtuner wrote:

    Avis has over 15,000 car sharing cars available now and will have 25,000 by June with plans for the entire 300,000 car fleet within the next few years. ZIP has 8900 cars available now. Which of those do you consider existing and which do you consider in the planning or making stage?

  • Report this Comment On February 23, 2012, at 2:30 PM, TMFDevilDog wrote:

    DB,

    As the famed Peter Lynch once wrote, "In this business, if you're good, you're right 6 times out of 10. You're never going to be right 9 times out of 10." I appreciate your thoughts, but I think the frustration (from owning your car perhaps) may be clouding your interpretation. If presented as research, this may be a better debate, but the article is written from a satisfied consumer’s perspective, so much so that I was persuaded to become a shareholder.

    To challenge your comments, if Avis has been investing in car sharing the last ten years, roughly the life of Zipcar, I’d say they did a shoddy job of building the brand. Moreover, with a target of 300k cars, their potential car sharing fleet would equal less than half of Zipcar’s 2011 total, not including partnerships.

    Regarding car sales, we’re coming out of a recession. If they’re not doing better than last year, or even the last two years, something’s wrong.

    As I wrote in the article, there’s no question that competition in this space will be fierce. However, I think it would be foolish (lowercase “F”) to declare a winner just yet. I’ll see ya at the finish line ;)

    Fool on!

  • Report this Comment On February 23, 2012, at 3:00 PM, dbtuner wrote:

    ??? [Avis] with a target of 300k cars, their potential car sharing fleet would equal less than half of Zipcar’s 2011 total, not including partnerships. ???

    Huh? ZIP has 8,900 cars. don't understand what you are going at here.

    I agree Avis has done a TERRIBLE job at building the brand. Simply awful. But look at from their point of view; they want to make as much money from each rental as possible. Can that be done with car sharing? Certainly their costs would be down. That is why I recommend IDSY as the go to investment in this sector; they are the technology enabler.

    You might be a satisfied consumer, but does not make it a good business model. Pets.com had satisfied consumers. Webvan had satisfied customers.

    If you bought in July, you are buried in this stock.

  • Report this Comment On February 23, 2012, at 4:50 PM, TMFDevilDog wrote:

    My first article followed by my first correction, awesome. In my last comment, I misquoted total cars with Zipcar’s total membership, great catch DB. Mistake aside, I believe the spirit of my argument remains. Zipcar is undoubtedly the best known, proven car sharing business in the US with a sharp eye overseas. The question here is who will be crowned winner. I argue it’s too early to tell, but I’ve personally chosen sides.

    I’m intrigued by your assertions but I’m not dissuaded. Fundamentally, I have double digit, multiyear top line growth and recent operational profitability in the face of increased investment in the core business. We’ve both argued increased competition in the space, which underscores: there is a business here.

    Personally, I have nine years of satisfied service and the growing trend in my personal community is undeniable.

    I caution against making strong conclusions too early.

  • Report this Comment On February 23, 2012, at 5:00 PM, mikecart1 wrote:

    Zipcar has never been profitable and the business model is flawed. I'm not sure why everyone keeps talking about Zipcar like it is going to save the world. This company has been around almost a decade and only recently was made public in 2011. It was used as a business case in my MBA program as a FAILURE not a success. They have continually tried to tweek the business model but they find it hard to make money when you have cars sitting around because people choose to find other ways that are far more convenient and cheaper to drive around.

    This and it dropping over 50% from IPO price makes me wonder why people have such high expectations for this company.

    ☆ツ☆

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