Zipcar (NYSE:ZIP) may be set to lose 80% of its reserved parking spaces in Washington D.C. in a new blow for the nation’s largest car sharing company which is beginning to face stiff competition from other car sharing companies such as Hertz (NYSE:HTZ), Enterprise (NYSE:EPD) and others. We recently launched coverage of Zipcar in our note titled New Coverage Zipcar – $27: A Maturing Business Model That Holds Promise.
We have a price estimate of $27 for Zipcar, which represents an upside of about 35% to the current market price.
Prime Parking Spots Are Key to Adoption
The ease of accessibility and pricing are the most crucial criteria for the successful adoption of car sharing. This becomes a bigger deal for those consumers who are using car sharing as a replacement for car ownership. The better the accessibility of vehicles, the greater the customer penetration in the market and hence higher profitability for companies such as Zipcar as members are able to book cars easily through their mobile phone or Internet.
Zipcar entered the Washington DC market in 2007 through its acquisition of Flexcar and has been running highly profitable operations recently. As a result of its first mover advantage it has locked up key parking spots at convenient locations near mass transit hubs as well as in major residential areas.
The District Department of Transportation (DDOT) recently announced its decision to open up the districts car sharing market to other competitors by enabling them to bid on parking spaces with a minimum bidding price of $3,600. The move attracted interest from several players like Hertz, Daimler and Enterprise. Prior to this the firm rented 84 spaces in the district for an annual fee of $200. As a result of the bidding process, Zipcar was able to receive only 12 spaces of the original number of spaces it had held prior to the bidding.
Impact on Zipcar
The development is expected to have little impact on Zipcar’s business as the company operates a fleet of over 850 cars in the city. Most of the cars are still parked in accessible private lots, garages and alley spaces.
Nonetheless, this reflects the reality that Zipcar will have to continue to deal with stiff competition that it faces in the popular car sharing market. Zipcar differentiates itself based on its better quality of service, fleet size and presence and thus will have to soon find convenient parking facilities as replacements.