Avis Budget Group Buys Zipcar For $500 Million

by Derek Kreindler

Published: January 2nd, 2013

avis budget group buys zipcar for 500 million

Zipcar, the leading player in car sharing in North America, is about to be acquired by Avis Budget Group for $500 million in cash. The rental car firm will pay $12.25 per share, a whopping 49 percent premium relative to Zipcar’s closing price on December 31st.

Rivals like Hertz and Car2Go, a Daimler-backed car sharing service are slowly expanding into urban areas in the United States and Canada, looking to establish a presence in markets where Zipcar is already an established player. Zipcar is on the verge of 1 million subscribers in North America, and rolled out innovative new services, like a by-the-hour cargo van service. The firm’s financials are starting to even out as well, after years of less-than-solid profitability. From a mobility standpoint, car sharing has a lot to gain given Generation Y’s apprehensive attitude regarding car ownership. In my hometown, Zipcar is a popular alternative for young people who still need a car for trips to Ikea or the grocery store but are unwilling – or more often unable – to deal with the annoyances of parking, insurance and fuel prices in a city that is increasingly hostile to motorists.

#CarSharing #Finance #GenerationY #Zipcar

Derek Kreindler

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9 comments

PintoFan on Jan 02, 2013

The growth in these services isn't being driven by Gen Y. It's being driven by people that can think. You can't tell me that if this hadn't been introduced in Manhattan, L.A. and San Francisco 20 years ago, it wouldn't have succeeded. A car has always been a boat anchor for somebody that lives in an inner city; this is true even in Midwestern and Northern cities with much lower population densities. As long as lots of people want to live closely packed in urban areas, cities will always be "hostile to cars." Modern L.A. was designed around the fallacy that more highways were the solution to every problem of transportation. How did that work out?

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- Steven Lang on Jan 02, 2013
  
  20 years ago cell phones were still a rare high end luxury and the internet was little more than a bunch of bulletin boards and email services. GPS modules for cars were also virtually non-existent. So a car sharing services would not have worked out as well as imagined. However this... "A car has always been a boat anchor for somebody that lives in an inner city; this is true even in Midwestern and Northern cities with much lower population densities." That sentence absolutely nails the issue for where car sharing services work best. College towns. Large cities. Areas with population densities and environmental issuezs related to car ownership (rust, inspections, etc.) As someone who has engaged in this business with reasonable success, I can tell you that most folks living in suburbs and ex-urbs still want to have a car of their own. However, I can easily see Googles self-propelled cars working in a system that is similar in design to the Zipcar model. Pay per hour. A convenience focus. Less overall cost for those who only need a car once to twice a week.
  
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- Dtremit on Jan 02, 2013
  
  @Steven Lang "As someone who has engaged in this business with reasonable success, I can tell you that most folks living in suburbs and ex-urbs still want to have a car of their own." Oh, very true. But how many do they want? And how big do they want them to be? Granted, I live almost walking distance from Zipcar HQ, so my perspective is a bit skewed -- but a significant proportion of the people I know who are Zipcar members use it to substitute a second car, not a first one. I signed up myself for access to SUVs and vans, which I need once or twice a year.
  
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- Pch101 on Jan 02, 2013
  
  "You can’t tell me that if this hadn’t been introduced in Manhattan, L.A. and San Francisco 20 years ago, it wouldn’t have succeeded." ZipCar hasn't been particularly successful. It's been a fairly consistent money loser (although it has been turning a corner as of late.) Its market share is a tiny sliver of the overall rental car market. You need to put this into perspective. The car rental market is consolidating, and Hertz beat Avis in the bidding war to acquire Dollar Thrifty. Car rental is not a particularly profitable business, and the remaining players are attempting to make it profitable by controlling large chunks of market share. Most of the major car rental brands are now owned by just three companies. ZipCar was about the only thing left for Avis to buy.
  
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- Ellomdian on Jan 02, 2013
  
  @Pch101 Was kind of expecting to see a lot of this response from the BnB. Avis is just expanding their rental brand.
  
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- Nikita on Jan 03, 2013
  
  Modern Atlanta or Dallas may have been laid out based on the automobile, LA and its surrounding communities certainly were not. Streetcars and interurban rail is what started suburban sprawl, even before a single street was paved. Then, the freeway system roughly paralleled the Spanish trails, which followed the river beds.
  
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Acuraandy on Jan 02, 2013

Wow. Take that, hippies!

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R H on Jan 03, 2013

I'm not sure how Zipcar is supposed to attract people. I've lived in Chicago most of my life, until about 3 years ago. EVERYONE I knew either had a car or took the cta/bus/train with a daily, weekly, or monthly pass. I can't name a single person, in a large urban area, that I know that EVER used/subscribed to a car sharing service. There are 2-3 enterprises, even NOW that I can rent a car from for under $30/day and they'll actually come & pick me up! Isn't it like $8-$10/hour? Why wouldn't I just rent something for $30 for the day with unlimited miles? For me to go downtown & back during the day from the north side of Chicago is 2-3 hours. To just get OUT of the city from a lot of places, it's an hour+ with traffic. If I'm inside the city I'm better off just using the train or bus. Even if you absolutely must have a car, how many people/friends/family couldn't spare you a car for a day? Maybe I'm not the target market or never was, but I just don't get it.

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- Corntrollio on Jan 03, 2013
  
  It probably also depends on what you're looking for. I too have rented cars from Enterprise within large cities for $30-40/day on occasion, and I've also used ZipCar before. In both cases, it was because I had started a new job in a new city and hadn't brought my car yet. If I had needed the car for more than a couple hours, I would have used Enterprise. However, ZipCar pays for gas and insurance within the hourly cost, so you must factor that into costs. If you don't ordinarily have a car, like some people I know in various cities, the value of that insurance is not insignificant and comparable to what you'd pay Enterprise. I believe the full day rate for ZipCar is around $60-70, and that would be decently competitive with Enterprise when you consider insurance + gas, plus you would probably get a better car from ZipCar (in my case, relatively new Volvo S40 around the corner that I swiped my card and jumped into vs. POS Chevy HHR where the Enterprise guy had to drive me to the mechanic where its oil was being changed and I had to wait for them to pull the car around).
  
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