The Avis-Budget rental car company announced Wednesday that it would be purchasing rent-by-the-hour upstart Zipcar. The $500 million deal is expected to bring some stability to the beleaguered Zipcar, whose fortunes since the company went public in 2011 have consistently failed to meet expectations.
Zipcar’s got a good model for a niche business, and the popularity of simple, hourly-rental vehicles available locally has been undeniable. The popularity of car-sharing services has grown tremendously in the past couple of years, making it a $400 million business. That hasn’t been enough to keep Zipcar profitable, however, even though the company boasts over 760,000 customers. Avis hopes to change that by allowing Zipcar access to more cost-effective operation and by using the companies’ fleets to complement each other.
The business of hourly car rentals is growing, with numerous small startup companies similar to Zipcar operating around the country. Car-sharing services, as they’re also called, are popular with college students and hipsters in urban areas where vehicle ownership can be prohibitively expensive, and the need for a car is reduced.
The deal has sparked debate as to whether Avis’ traditional rental-car business model will be compatible with Zipcar’s simple-is-better philosophy. Ronald L. Nelson, Avis Budget Group chairman and CEO, says, “We see car sharing as highly complementary to traditional car rental, with rapid growth potential and representing a scalable opportunity for us as a combined company. We expect to apply Avis Budget’s experience and efficiencies of fleet management with Zipcar’s proven, customer-friendly technology to accelerate the growth of the Zipcar brand and to provide more options for Zipsters in more places. We also expect to leverage Zipcar’s technology to expand mobility solutions under the Avis and Budget brands.”
Will it work out? The skeptics fear that Avis will run Zipcar into the ground by abandoning the company’s cutting-edge practices, eventually morphing it into just another rental-car company. That said, Zipcar’s current president is expected to remain with the company, so perhaps the buyout will prove to be beneficial.