Can Hertz shake up car sharing?

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Good, but not great, growth has Wall Street punishing car sharing market leader Zipcar, which IPO’ed at $ 18 last year, zoomed to $ 28 and now sits at around ten bucks. But the question on many people’s minds is: What is Hertz doing?

The argument for Hertz successfully competing with Zipcar goes like this: Hertz doesn’t require an annual membership fee (Zipcar charges $ 60), has no late fees (Zipcar charges $ 50 per hour), it allows one way rentals in some locations, and yeah, it already has a massive fleet of diverse cars.

On paper, Hertz getting into the car sharing game doesn’t sound good for Zipcar, even if you believe there is room for multiple players and that this is a market with considerable future growth. There aren’t good market projections for this nascent industry, though a recent analysis from RAND Corporation took a stab at it, suggesting that with improving tech to locate and rent vehicles combined with favorable government policy, the industry could include 7.5 million users, more than ten times where it currently sits.

Hertz’s CEO Mark Frissora made news in March when Bloomberg reported that he had considered buying Zipcar. But confident that he could leverage Hertz’s existing fleet of 375,000 cars and its customer relationships, he ultimately decided to launch Hertz’s own service. Referring to the New York market, Frissora has said Hertz has 35,000 cars there and once they’re all enabled for hourly rental, Zipcar will “have a real problem.”

In 2009, Hertz acquired Paris based car sharing technology developer Eileo, which makes the Zibox that Hertz is relying on to convert its fleet. The Zibox immobilizes the engine and interfaces with the reservation system to allow drivers to enter and start the car. Hertz offers drivers a key fob that acts like an RFID card. In testing it found drivers wanted a key that they could take with them on their key chain that controls entry to the car. Drivers wanted to feel like they were carrying a car key. The actual car key that starts the car is tethered to the car so that customers don’t take it with them when dropping off the car.

How Hertz will do it

I caught up with Jordan Reber, the VP of Hertz On Demand, who is overseeing the global ramp up of Hertz’s hourly rental service. In our discussion about Hertz’s entry into the car sharing market, Reber noted, “It’s what people tend to ignore when they compare us to competitors, it’s the size of our logistics and parent infrastructure. The issue of car sharing is scale. When those cars are tech enabled, we’re able to put them where our customers want them, be it Omaha or New York City.”

And it’s this scaling up that will ultimately prove whether Hertz can be a market leader in car sharing. Zipcar currently has 709,000 members and 9,300 vehicles in the U.S. and Europe. Hertz has been fairly measured in its ramp up so far with 160,000 worldwide members and about 1,100 cars available. On the question of how much of the Hertz fleet would convert to hourly rentals, Hertz’s Public Affairs Manager Paula Rivera would only say that it would occur over the next 12-18 months and that Hertz is “aiming to get a significant amount of the fleet installed with the [Eileo] technology.”

If the ramp up feels slow, it’s partially because Hertz is being very careful not to cannibalize its core car rental business and Reber made a point of saying that internal data shows that 70 percent of Hertz On Demand users use the service for hourly rental or after hours use.

Moreover, if most in the car sharing market view car sharing as a discrete business, Hertz is far more inclined to view it as a potential source of incremental revenue where it can gradually pick off markets like New York where it’s well positioned with a high volume of locations and available cars. There are likely to be regional advantages that flow toward any player with good logistics in a given city.

You also don’t get the sense that Hertz wants to launch whole hog with national campaigns and run into the car sharing space (it has minimal presence in other markets like San Francisco). It’s not as if Zipcar is making money hand over fist right now as it hopes 2012 will be its first year of very modest profitability.

What’s interesting about the figures is that Hertz has racked up 160,000 members worldwide (90,000 in the U.S.) with a fraction of the number of hourly vehicles in circulation as Zipcar. Sure a big reason for this is that joining Hertz On Demand is free, but that doesn’t make it any less real that the company has millions of existing customers to market to, so that it can get RFID enabled key fobs into those hands so they can easily rent a car. Reber added that Hertz is open to enabling cars to be opened with smartphones when he believes near field communication technology and mobile payment systems are more mature.

Whatever the rate of Hertz’s ramp into car sharing, it’s not likely going away as a priority for the company. Reber was frank in saying, “Car sharing is closely controlled and watched by our CEO [Frissora]. It’s a big focus for us here, not because of me but because of our CEO.” At this point it’s just a question for Hertz of incrementally executing in key markets, which should be enough to give Zipcar a minor headache.

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