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I Was Wrong About Zipcar

By Molly McCluskey – Updated Apr 7, 2017 at 11:47AM

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Misjudging the competition could have disastrous results for the car-sharing company.

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 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 Follow her travel and finance tweets on Twitter @MollyEMcCluskey. The Motley Fool owns shares of, Google, Zipcar, and Hertz Global Holdings. Motley Fool newsletter services have recommended buying shares of, 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.

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Zipcar, Inc. Stock Quote
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Avis Budget Group, Inc. Stock Quote
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