Car rental giant Hertz (NYSE:HTZ) plans to fit its entire fleet with car-sharing compatible Eileo technology by mid-2013. This could be a serious challenge for Zipcar (NYSE:ZIP) whose current fleet of 9K is 30 times smaller than Hertz’s 375K cars. The entry of many large players into Zipcar’s niche car-sharing market has been a major worry for Zipcar’s investors this year as most of the competitors offer relaxed membership fee and other benefits like one-way rentals to compete with Zipcar.
Hertz On Demand Gearing Up With Eileo
One of Zipcar’s most formidable competition in the U.S. is car rental giant’s Hertz’s new On Demand car-sharing service. Hertz plans to make its entire 375K-strong fleet compatible for online reservations and hourly rentals by 2013. With its usual car-rental business, Hertz also has access to sufficient parking spots across the U.S. In addition, it charges much lower membership fees than Zipcar and gives its members the option of one-way rentals.
Apart from Hertz On Demand, Enterprise’s WeCar and Daimler’s Car2Go have recently been launching their services into new markets every month this year with distinct new features and attractive pricing, threatening to chip away Zipcar dominance in the car sharing market.
A Bet On Zipcar Is A Bet On Adoption Of Car Sharing
While the aggressive entry by competitors threaten to steal away Zipcar’s market share and slow down its membership growth, we believe the real threat to Zipcar in the long run is not competition, but the low adoption of car-sharing among urban drivers as an alternative to car ownership. According to a recent RAND report, currently just 0.27% of urban drivers have taken to car-sharing. If this number increases to 4.5%, the U.S. car sharing market could expand to 7.5 million.
Zipcar presently dominates the car sharing market and should be able to manage at least 20% of this market, which would imply a huge upside to its current market price of $11. In fact, Hertz’s aggressiveness in the car sharing market might in fact help widen the popularity of car sharing among American drivers.
We have a $18 Trefis price estimate for Zipcar.