There’s really something odd about the latest deal from Ford Motor Co. (NYSE: F) to team up with Zipcar, Inc. (NASDAQ: ZIP). Ford will provide up to 1,000 of its Escorts and Escapes to Zipcar over the next two years as the Zipcar expands its program on university campuses around the US. The deal may be good for Zipcar, but Ford’s rewards are tougher to spot.
Zipcar, which came public in April, makes money by selling memberships and by renting its cars by the hour. Having more cars available on university campuses should attract more memberships, which the company hopes will eventually contribute about 17% to its top line.
That will help Zipcar certainly, but most of the company’s costs are related to purchasing or leasing its fleet. It’s not clear how this deal will help there. Ford has agreed to subsidize new memberships for the first 100,000 new members at a total cost of $1 million and to offer a $1 discount to Zipcar’s hourly rate for the first 1 million hours of usage. That’s another million bucks.
So Ford is paying $2 million to Zipcar in exchange for Zipcar’s agreement to add 1,000 Fords to its stable. That wouldn’t be such a bad deal if the whole idea behind Zipcar was to sell more cars for Ford.
But that’s not what Zipcar is about. In the announcement of the deal Zipcar’s CEO says, “We’re targeting a generation that only knows how to buy music by the song so paying for a car by the hour is a natural for them.” How does that help Ford’s sales?
For Zipcar to succeed the company needs to produce some large number of drivers for every car, say 10. For Ford to prosper, it would prefer to sell one or more cars to every driver.
Perhaps Ford has a subtler strategy that involves convincing renters that owning is a better way to be mobile. But it’s hard to see how this deal advances that strategy. The obvious answer is that it hopes to get people talking up Ford and its efficient vehicles. It is also probably being deemed more effective than advertising on billboards and newspapers.
So far this morning Ford’s shares are up nearly 2%, at $11.07, in a 52-week range of $9.81-$18.97. Zipcar’s shares are up nearly 8%, to $21.92, in a 52-week range of $17.03-$31.50. That about sums up the balance in this deal.