They Told Me Zipcar was a Good Investment
Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A while back, I wrote an article explaining why I didn't think Zipcar (UNKNOWN: ZIP.DL2) was a good investment. That article was my most commented upon article to date. The comments were mostly offering counter-arguments for my bear analysis. I've thought on these bullish reasons, and want to present them to you. Here are the three main bull arguments from the comments I received.
iPods are Better Than Cars
I'm starting with perhaps the most bizarre sounding case for Zipcar you've ever heard. Basically it goes like this: "Young people, if given the option, will buy an iPod and car-share instead of using the iPod money to buy a car." Don't believe that people actually think this? Suburu's publicist said "Smartphones compete against cars for young people’s big-ticket dollars..."
Without a doubt, Apple (NASDAQ: AAPL) iPhone and iPad are a buying craze phenomenon that puts Furby and Tickle-Me-Elmo to shame. People will do almost anything to get their hands on these Apple products. One survey found that 73% of men would go into debt for the iPhone 5, and 61% would give up intimacy with their partner for 6 months. We just might need to redefine the meaning of "hardcore devotion." While perhaps not to that same level of devotion, you can find similar fanaticism in the Samsung and Google crowds in regards to their smartphones.
I've never personally had to ask myself this question: "Should I buy a phone or a car..." The starting price for an iPhone 5 without a plan is $649. My used car I've been driving for years cost me $2,100. Really, I don't see where these purchases need to be mutually exclusive. However, my wife and I have been committed to staying out of debt no matter what it takes. The fact that 73% would go into debt to buy a smartphone calls attention to a decision making process based on values. Instant gratification is valued over debt-free living.
If this value carries over into other areas of life, you begin to see where this is a valid point. Is the younger generation more likely to eat out, or save the money and eat in? Do they want to work overtime, or relax with friends? Quickly you see how life eats away at disposable income and car ownership gets further and further out of reach. But you have to get to work somehow right? Car-sharing suddenly becomes an attractive option. My last analysis had focused on how American's value independence, and Zipcar didn't fit into that value model. But maybe the instant gratification value outweighs independence.
The Zipsters Themselves
In my bear argument, I spoke of how Ford (NYSE: F) became Zipcar's largest supplier. This signaled to me that Ford anticipated Zipsters forsaking Zipcar and buying a Ford outright. It is partly true that Ford partnered with Zipcar to get more people into a Ford. But I found a more important quote on the subject. Sheryl Connelly, who is head of Ford's Global Consumer Trends, said "I don’t think car-buying for Millennials will ever be what it was for Boomers..." That small statement is extremely significant. This is coming from the guys dealing the cars, not the people at Zipcar. Ford admits that the younger generation is more Zip-ish than their parents.
Zipsters are the people Zipcar appeals to. This could be a person of any age, but the target generation is the Millennials. What makes these people different from their parents? Some studies are showing that these people, even when financially able, are choosing to downsize their lives and live simpler. "About half of our members tell us they're choosing to sell a car or not buy a car because of Zipcar" said Zipcar chairman and CEO Scott Griffith.
Originally, I had called Zipsters "people, who for whatever reason don’t have the luxury of owning a vehicle, and therefore they are ‘stuck’ using Zipcar until such a time that they can get their own." The counter opinion says that Zipsters are people who are just smart with their money. Scott Griffith also said, "They also tell us they save on average $600 a month..." The statement needs to be balanced. As I said, I've been driving my $2,100 clunker for years now. I really doubt Zipcar would save me that kind of money, but for some this can be a smart move economically. Clearly, my original opinion is not true of the majority of zipsters.
The Urban Population
Zipcar works in an urban environment. It's hard to stretch the imagination to a scenario where Zipcar would be a workable model in a rural environment. Is that an issue? In the most recent US census, it was discovered that 80.7% of Americans live in urban environments. This was shocking for me. This data means that 250 million people in the United States live in an area where Zipcar is a workable model.
That means that potentially Zipcar has a lot more customers. I'm personally not one for the city. I can't stand the amount of people, noise, lack of parking, congested traffic, etc. But many of the people who actually live in urban areas feel the same way. The issue of parking is particularly a big motivator to switch from car ownership to car sharing. I imagine even the most vocally proud car owner could be worn down in an urban setting. Zipcar can simplify things.
Now, just because 250 million people are within Zipcar's reach, doesn't mean that even a majority of them will join. I don't even want to suggest that. But what it does mean is that Zipcar is positioned in the right place for these people should they decide to join.
In this article we've just looked at some reasons to consider Zipcar as an investment based on what my readers are telling me. There are many other things we could look at. I'm not convinced that Zipcar would make a good investment, but as you can see, there are several good reasons to believe that they could.
thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Ford, and Zipcar. Motley Fool newsletter services recommend Apple, Ford, and Zipcar. 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.If you have questions about this post or the Fool’s blog network, click here for information.