Enterprise Holdings Inc., the largest U.S. car-rental company, is making a move into hourly car rentals this year, joining No. 2 Hertz Global Holdings Inc. in going after the growing niche created by Zipcar Inc.
Enterprise, the closely held rental giant, last month acquired Mint Cars On-Demand, an hourly car-rental firm with locations in New York and Boston. It already owned two smaller brands and this year it plans to bring them all together as Enterprise Car Share. This month, it’s looking to increase its New York fleet by about 50 percent.
Zipcar created the business of hourly car rental in Cambridge, Massachusetts, in 2000 and is still the leader in the segment, with about 500,000 U.S. members and about 9,000 vehicles. Hertz plans to equip its entire 375,000-vehicle U.S. fleet for hourly rental within about a year.
“Today, nobody can compete with its network,” Ryan Johnson, who heads Enterprise’s hourly car rental business, said of Zipcar in an interview. “We understand we have some ground to make up before we are that viable competitor to them, but we think the rest of our network and the rest of our strength will give us the advantage.”
Researcher IBISWorld estimates the market for hourly car rentals to be about $1.8 billion, or 6 percent of the $30.5 billion U.S. rental-car market. Hourlies may reach $3.3 billion in North America by 2016 and $10 billion globally, market researcher Frost & Sullivan forecasts.
Zipcar’s shares have dropped 30 percent this year under the threat of new competition. The company has more than 2,500 locations, some with just a single car, in 15 major U.S. cities and at more than 250 universities.
Zipcar’s membership expanded 25 percent in 2011 after 55 percent growth the year before. Zipcar reported a loss for the first quarter after its first two profitable quarters. It’s expanding in Europe and has forecast its first annual profit for this year.
The added competition isn’t Zipcar’s biggest concern, said Fred Lowrance, a Nashville, Tennessee-based analyst at Avondale Partners. If anything, it validates the appeal of Zipcar’s short-term rental model. The bigger risk, he said, is that Zipcar already has saturated markets with the highest concentration of potential customers and must look for growth in second-tier U.S. cities and in Europe, where car-sharing is more entrenched and competition is stiffer.
“There’s a longer path to profitability,” Lowrance said in an interview. “They’ve picked off the low-hanging fruit in cities like New York and D.C., but their growth focus is on smaller big cities in the U.S. and there’s no guarantee that those work as well. And Europe is even more competitive.”
Daimler AG’s Car2go and Bayerische Motoren Werke AG’s DriveNow, a joint venture with rental-car chain Sixt AG, rent cars by the minute and hour in Europe, competing with Autolib in Paris and other car-sharing networks.
Lowrance in April lowered his rating on Zipcar to market perform from market outperform. In 12 months, he projects the shares to be worth $13; he had previously predicted $20. The shares have declined 48 percent since its April 2011 initial public offering. Over the same time, the Standard & Poor’s 500 Index slipped 2.2 percent. Zipcar rose 2.5 percent to $9.33 at the close in New York.
The number of Zipcar shares held by short sellers -- investors betting on a decline in the stock -- has risen by 76 percent since the end of January.
Hertz began directly competing with Zipcar in 2008 after considering buying the startup. The original effort, Connect by Hertz, was renamed Hertz on Demand last summer. The Park Ridge, New Jersey-based company has been trying to solidify its No. 2 spot in the traditional rental market behind Enterprise with an acquisition of Dollar Thrifty Automotive Group Inc.
With PhillyCarShare, a company Enterprise acquired last year, and its own WeCar, Enterprise now has 58,000 car-sharing members and more than 540 locations. Mint brought 8,000 members as well as cars in 40 locations. By the end of the month, Enterprise will have replaced about 80 percent of Mint’s vehicles with newer models.
“We are now confidently the second-largest fleet size in the U.S. and we are growing rapidly,” Johnson said of models equipped for short-term loans. “To move forward and create a unified network has always been our plan, but we wanted to make sure when we did that we had a very viable product and were confident in it.”
Enterprise, based in St. Louis, also operates the Alamo and National car-rental brands.
The company has hourly rental cars available in New York, Philadelphia, Boston and at about 50 college campuses. It is considering expanding to Washington, D.C., Chicago, San Francisco and Toronto, as well as secondary markets such as Seattle and Atlanta.
“Today, car-sharing has not been a mass market product offering,” Johnson said. “We really believe it can be.”
Enterprise is betting that its network of neighborhood branches will be a differentiator. With 5,500 locations, the company says 90 percent of the U.S. population is within 15 miles of one. Zipcar says about 10 million people live within a 10-minute walk of its cars.
Will Handsfield, 31, abandoned his car four years ago. Most of the time he takes the bus, subway, bike or just walks. Zipcar parks four cars less than a five-minute walk from his house in Washington’s Capitol Hill neighborhood.
“For 95 percent of my daily or weekly routine, I don’t need a car,” he said in an interview. “It’s that 5 percent -- the weekend grocery run -- and that’s what Zipcar helps solve.”
While Handsfield, who describes himself as an “avid” Zipcar user, said he’s loyal to the company, Hertz or another competitor could catch his eye with discounts as long as the cars were parked nearby.
“More than $1 or $2 difference, that adds up,” he said.