What Happens When These Companies Collide?
Ford (NYS: F) is hoping that college students will eventually make the switch from car-sharing to car-owning. And when they do, the automaker really hopes they'll buy a Ford.
To hedge its bets, Ford has partnered with Zipcar (NAS: ZIP) on college campuses nationwide, making it the first car manufacturer to tackle the ownership-eroding threat of car-sharing companies head-on. But will this intriguing move turn out better for Ford, or for Zipcar?
Zipcar has more than 605,000 Zipsters (its zippy nickname for members) nationwide, and a fleet of 9,000 cars in the U.S. and U.K. It currently serves 250 college and university campuses throughout the United States. College students account for approximately 10% of the Zipcar business.
The Ford-Zipcar pact will run for two years, with Ford providing up to 1,000 sedans and SUVs, subsidizing the hourly rental rate for students who use their cars, and offering a discount for the first 100,000 new customers who sign up for Zipcar.
The arrangement is a safe bet for Zipcar. Ford's incentives to join the car-sharing program won't cost Zipcar anything, and the first 650 cars will be available this year, with the rest potentially available later in the two-year agreement. Zipcar estimates that program could give college-age drivers as many as 2 million hours behind the wheel of Ford vehicles. The company offers 30 types of vehicles to members, who weigh in on preferred brands and features. Ford put particular emphasis on the Focus and Escape after Zipsters said they preferred vehicles with fuel economy and cutting-edge technology.
The latest model
This agreement creates two really intriguing business opportunities. First, Ford now has a car-sharing model that it can roll out to Zipcar's competitors, and possibly its own sale lots. Offering reasonable renting options of each car type -- essentially charging for prolonged test drives -- might be an effective way to sell cars.
Secondly, Zipcar now has a model for partnering with car manufacturers. Rolling out that plan to companies such as Toyota, Nissan, or Honda, will lessen the impact of the agreement with Ford, to be sure. However, even if there's an exclusively clause in the current agreement, the current agreement is only good for two years. It's merely a matter of time before other partnerships are made.
0-60 in ... far too long
Ford's got a head start with Zipcar, but it won't last. Other manufacturers have already made their laps around the car sharing track, but have only marginal leads. In June, Toyota (NYS: TM) announced a condominium-based car-sharing program in Tokyo and Aichi Prefecture. Honda's (NYS: HMC) KahShare program stresses the flexibility of access to different cars for different needs. Daimler (OTC BB: DDAIF) operates Car2Go out of Austin, Texas. Nissan (OTC BB: NSANY) worked with city officials to launch a car-sharing program for commuters in Quebec. Peugeot's (OTC BB: PEUGF ) Mu program advertises not only short-term rentals, but motorcycle, scooters, equipment add ons, and the like.
Why it might make tracks
Zipcar's got a huge head start, brand awareness, the cool factor, and that awesome nickname. The other manufcaturer-initiated car-sharing programs are limited in scope.
There's relatively little actual risk for either company. The agreement has high visibility, but college students account for a mere 10% of Zipsters nationwide, and Ford has less than 1,000 cars on the line. The biggest hit either company could take would be to its reputation, and both could rebound quickly from that.
Crossing the finish
While it's certainly a good deal for Ford, this is a great deal for Zipcar. From partnering with Zipcar, Ford is gaining some cool points, buzz from having its newest models parked in high-traffic campus locations, and a mindshare of potential customers. However, Ford will sell several million cars this year, and any conversion of college-aged Zipsters into Ford owners will have a miniscule, if any, impact on their bottom line.
In contrast, Zipcar is a sub $1 billion market cap company that hasn't yet turned a profit. Since Ford is essentially subsidizing this deal in exchange for some valuable brand exposure, Zipcar stands to gain more without having to shell out to make it happen. Keep an eye on both Ford and Zipcar going to see which company will more effectively leverage this partnership.
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At the time this article was published Fool contributor Molly McCluskey doesn't own shares of any of the companies mentioned. You can follow her on Twitter at @mollyemccluskey. The Motley Fool owns shares of Zipcar, Hertz Global Holdings, and Ford Motor.Motley Fool newsletter serviceshave recommended buying shares of Zipcar and Ford Motor. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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