Car2Go Arrives To Challenge Zipcar’s Dominance In Toronto

ZIP: Zipcar logo

After San Diego and Washington D.C., European automaker Daimler has extended its Car2Go service to Toronto, posing a further challenge to Zipcar’s (NASDAQ:ZIP) monopoly. The recent hastened entry of car rental giants like Hertz and Enterprise and the European car sharer Car2Go has sharply hurt investor confidence in Zipcar’s stock, which has already lost 30% value since the beginning of this year. Zipcar faces serious competition from these new entrants who are offering flexible membership terms and one-way rentals.

See our complete analysis for Zipcar’s stock

Daimler’s Car2Go

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Car2Go is a subsidiary of automotive maker Daimler AG, which entered the car sharing market in 2008 with Germany and currently provides car-sharing services in six cities in Europe, four in the U.S. (Austin, Portland, San Diego and Washington, D.C.), and two in Canada (Vancouver and now Toronto). It also launched its first all-electric car sharing network in Amsterdam and San Diego in November 2011.

It Differentiates Itself From Zipcar With Greater Flexibilty

Car2Go offers rentals by the minute (unlike Zipcar’s hourly rentals) at charges that include fuel, insurance, parking and maintenance using its fleet of around 1,000 vehicles. It charges no membership fee, apart from one-time registration fee of $35 (compared to Zipcar’s annual/monthly membership fee of $60/$6, plus $25 one-time registration fee). Its services also come loaded with the RFID technology and smartcards, similar to Zipcar.

To attract more people interested in car-sharing away from competition, Car2Go has been trying to negotiate parking permits with the city of Toronto to serve its one-way rental facility – “free floating” cars on-demand that can be picked and dropped at different locations. Car2Go will enter the market later this month with 250 cars parked at 200 locations, compared to Zipcar’s Toronto fleet size of 425. With this, there will be 1,000 cars available for short-term rental, among 30,000 Toronto car sharers.  Car2go has positioned the service to complement other modes of transportation.  It is also expected to launch in Calgary (Canada) and Miami (U.S.) this summer.

Car2Go Entry Makes Make Zipcar’s Monthly Membership Experiment in Toronto Interesting

Last week, as it added Zipvans to its car sharing service in Toronto, Zipcar announced a new and flexible monthly membership pilot program in Chicago and Toronto to attract a wider member base by tapping summer travelers and those interested in trying out car sharing before an upfront annual commitment with a lower entry point. However, the entry of Car2Go in Toronto, with its one-time registration sans membership fee and one way rental option, is likely to moderate Zipcar’s membership growth in the market.

Apart from Car2Go, the recent arrivals of car rental giants like Hertz and Enterprise in the hourly rental segment with new market launches every month have strongly challenged Zipcar, which solely led the niche car-sharing market till sometime ago. As competition continues to grow, Zipcar is likely to feel the need to further push growth investments to establish first-mover advantage in new markets while facing increased customer acquisition costs in its existing markets. This will adversely affect the future profitability of the young company that hopes to post its first profits this year.

We have a $18 Trefis price estimate for Zipcar.

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