The Changing Landscape of Car Sharing and where to Invest
Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the major advantages of car sharing is that it saves money for the drivers. Car sharing also contributes to sustainable transport and reduces car ownership at an estimated rate of one rental car replacing 15 owned vehicles, according to The Economist.
In late June, Hertz (NYSE: HTZ) launched Hertz 24/7, a new rental service available at any time. Customers can rent a variety of vehicles for any length of time, ranging from hourly to monthly. Currently, Hertz 24/7 service is available in 1,800 neighborhoods and airport locations throughout U.S. and several European countries, where 2,000 more locations will be added by year end. By 2016, Hertz 24/7 is expected to have around 500,000 vehicles for sharing, which is more than ten times the size of current car sharing industry.
Besides the user-friendly and 24/7 services, Hertz 24/7 also provides additional features, such as self-serve mobility solutions, allowing customers to contact and get help from a Hertz service representative from the car. Hertz was also the first company to introduce the one-way rental concept in 2009.
Zipcar and UhaulCarShare
Early in January, Hertz’s major competitor, Avis Budget Group (NASDAQ: CAR) acquired car-sharing network Zipcar for $500 million in cash. Right after the acquisition, Zipcar showed up at NYC airports. This is the first step for Zipcar’s expansion plan as it ventures out from its traditional locations in college campuses and cities. Although Zipcar was never profitable before the acquisition, more growth potential can be realized with the support from Avis to better serve a greater variety of consumers and commercial transportation needs, according to Avis Budget Group CEO Ronald Nelson. The acquisition deal is expected to generate $50 to $70 million in annual synergies while complementing the traditional car rental services provided by Avis.
After the acquisition, Zipcar can lower its vehicle purchase cost and negotiate better insurance rates with Avis’s scale. By integrating with Avis, Zipcar can also utilize its vehicles better and increase revenue by increasing its offerings for corporate clients, one-way rentals and airport bookings. However, the integration of two companies may face certain challenges as Zipcar and Avis have been serving different target groups with highly distinctive brand images. It may take a while for Zipcar to fully adapt to and leverage Avis’s platform.
Another major competitor to Zipcar and Hertz 24/7 is UhaulCarShare. UhaulCarShare, offered by U-Haul (NASDAQ: UHAL), is available in nearly 21 states in the United States. UhaulCarShare still limits its locations to communities with colleges or universities nearby. Similar to Zipcar, UhaulCarShare provides gas, insurance coverage and 24/7 roadside assistance.
Different from the acquisition strategy taken by Avis, Hertz is rolling out its own car sharing service, Hertz 24/7, to upgrade its game in the car sharing industry. With the launching of Hertz 24/7, the competition in the car sharing industry is expected to heat up. While it will take time for Zipcar and Avis to integrate to fully attain their leverages, Hertz 24/7 can immediately expand its car sharing operation with a simple, focused strategy and one fully integrated, recognized brand image. Hertz is fully committed to Hertz 24/7 and is ready to expand aggressively into the car sharing business.
While UhaulCarShare still has a lot of room for growth, Avis’s Zipcar and Hertz 24/7 are expected to dominate the car sharing industry in the United States. While the integration of Avis and Zipcar can create strong synergies, investors are yet to see if the new operation can attract different groups of customers. Hertz, on the other hand, has a solid expansion plan and maintains a strong edge with its fully integrated operation and brand image. For now, Hertz presents a better buy over Avis when it comes to car sharing business.
The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.
Nick Chiu has no position in any stocks mentioned. The Motley Fool owns shares of Hertz Global Holdings. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!