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Muscling in

Hertz is expanding its hourly rental service, posing perhaps the biggest challenge to Zipcar in its history

By Katie Johnston
Globe Staff / September 18, 2011

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NEW YORK - For nearly a century, Hertz Corp. has led the rental car business, catering to vacationing families and businesspeople who need cars for a few days or weeks at a time. Now the $8 billion powerhouse is making a big push into the hourly car rental market dominated by Cambridge-based Zipcar Inc., a $240 million company that has yet to make a profit.

Hertz, which has car-sharing operations in a handful of US and European cities and on 60 college campuses, is opening five new locations in the Boston area this month as part of a broader expansion that will also launch hourly rental operations in San Francisco and Washington, both key Zipcar markets.

Over the summer, the New Jersey-based rental car giant rebranded its hourly service, naming it Hertz On Demand; increased its one-way service that enables drivers to pick up a car in one location and drop it at another; and cut membership and late fees, making it considerably less expensive than Zipcar. Ultimately, Hertz officials say, the company plans to equip all of its cars with technology that enables hourly rentals, with the goal of becoming the first choice for rentals, whether by the hour or month.

“What we are exploring is the next generation of car rental and what car rental will look like in the future,’’ said Jordan Reber, senior director of Hertz On Demand.

Hertz’s expansion represents one of the biggest potential challenges in Zipcar’s 11-year history. Hertz has just 850 active on-demand rental cars, compared with Zipcar’s 9,000. But with 3,000 cars already equipped for hourly rentals, 600,000 cars in its worldwide fleet, and the marketing power of a multibillion-dollar corporation, Hertz is looming large in Zipcar’s rear-view mirror.

“I think Zipcar has to be worried,’’ said Chris Brown, executive editor of Auto Rental News. “Hertz is really taking it straight to Zipcar.’’

But Bill Aulet, senior lecturer at MIT’s Sloan School of Management, said Zipcar may have the upper hand. The Cambridge company is nimble and highly focused on car sharing, whereas hourly rental is just one of Hertz’s many businesses.

“I would not bet against Zipcar,’’ Aulet said. “In fact, I would bet on Zipcar against the bigger company.’’

Zipcar chief executive Scott Griffith doesn’t seem concerned. “I think Hertz’s entry will largely just expand the market,’’ he said. “We think of our competition really as car ownership.’’

Car sharing has existed in Europe for years, but Zipcar pioneered it in the United States, targeting young, carless urban professionals who need vehicles for short periods to run errands or visit friends. To get access to the 1,000 Zipcars around Greater Boston, people pay a $60 annual membership and a $25 enrollment fee; reserve a car in a desired location for as little as $7.75 an hour, including gas and insurance; and use a smart card to unlock the car.

Zipcar has yet to turn a profit, but it has captured three-quarters of the North American car-sharing market and continues to expand. Zipcar bought the largest car-sharing company in the United Kingdom last year, completed an initial public stock offering in April, and last month announced that a partnership with Ford Motor Co. will add up to 1,000 new Fords to its fleet on college campuses over the next two years.

In North America, car sharing is a now a $350 million industry with more than 500,000 members - a sector that is projected to grow to 4 million members and $3 billion by 2016, according to the research and consulting firm Frost & Sullivan.

Global positioning systems, mobile applications, and other technologies are helping drive this growth, allowing companies to remotely track mileage and vehicles and giving renters access to cars with key cards and smartphones. The weak economy is adding to demand as people rethink the expense of car ownership.

Not surprisingly, Hertz isn’t the only traditional rental car company getting into the action. Avis Budget Group is offering car sharing at office parks; Enterprise Rent-A-Car brought its hourly WeCar service to the University of Massachusetts Amherst this fall.

In New York, where Hertz and Zipcar have competed since late 2008, Zipcar says it is making a profit, with 2,600 cars in 365 locations. Hertz On Demand says it’s breaking even with 300 cars in 90 places. In Boston, Zipcar has 1,000 cars in 340 spots; Hertz will have 20 in seven locations.

Zipcar has capitalized on being the first to introduce car sharing to the masses in the United States, earning it a flock of followers who are loyal to the green, communal vibe behind its brand. Members wear “I’m a Zipster’’ T-shirts and sign up in New York in a lounge with orange shag carpeting, squat green stools, fake plants, and Apple computers.

Danny Astoria, a 27-year-old publicist in New York, was in that lounge recently to join Zipcar after his car was stolen. When he learned about Hertz’s service, he was skeptical. “This isn’t what they’re known for,’’ he said.

Even after he researched Hertz’s lower prices and gave its on-demand service a try, Astoria wasn’t sold. Hertz is more practical, he admitted, but Zipcar’s creative, playful brand is more appealing.

Indeed, the two companies market themselves in drastically different ways. Zipcar presents itself as an environmentally friendly, community-based lifestyle choice.

“What members want is a brand that represents the values that they align with,’’ Griffith said. “Look at our mission statement: ‘To enable simple, responsible urban living.’ That’s a stretch for Hertz.’’

It’s a stretch Hertz doesn’t necessarily want to make. Reber, the company’s car-sharing director, noted the company’s most popular on-demand car in New York is the gas-guzzling Dodge Challenger R/T muscle car - not the fuel-efficient Prius.

“We really are trying to define the space not as a communal experience but as a self-service, technology-enabled, rental experience,’’ Reber said.

The “leading-edge, inner-city hipster’’ who gravitates to car sharing is only a small part of the potential market, said Brown, the Auto Rental News editor, and Hertz is smart to target a more mainstream crowd.

But the price and convenience of Hertz are winning some people over. Sara Teague, a 25-year-old administrative assistant in New York, recently started using Hertz’s one-way program to visit her boyfriend in Boston. She dropped the car off when she got here, and rented another one to drive back a few days later for a total cost of $125, including gas purchases. If she had taken a Zipcar, which doesn’t allow one-way rentals, the trip would have cost hundreds more.

Said Teague: “I will definitely give up my Zipcar membership if this works out.’’

Katie Johnston can be reached at kjohnston@globe.com.