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Avis buys Zipcar, now what?

zipcar-boston-from-zipcar

Photo from Zipcar

There was a lot sturm und drang across the internets yesterday as it was announced that Avis plans to acquire Zipcar for approximately $500 million. My personally initial reaction was, yay, those are the two companies I go to when I need a car. I use Zipcar for when I need a car for a few hours locally, and Avis when I need a car for a few days and have to travel a greater distance. At times I think it would be good if they were combined somehow, booking, accounts, insurance, etc.

However, some of the initial reaction I saw was fear of a giant corporation (Avis) somehow destroying a friendly start-up (Zipcar). Personally, as a user, I actually interact at the counter with people at Avis and find them beyond friendly and accommodating, and my “preferred” member status gets me upgrades and such.

Zipcar on the other hand is completely faceless to me, I have more of a connection with the car I rent most often (Faber, who might have died!) than any people at Zipcar.

But what really matters is that I have a car when I need at a price I can afford, and that if I’m a loyal customer, I get some perceived perks out of it (I don’t care if everyone gets the same perks, just make me feel special damn it!).

So, not know the ins and outs of business well myself, what is the internet saying?

Wired: Why the Zipcar-Avis Deal Means You’ll Finally Be Able to Give Up Your Cars

For many of us, achieving the dream of not owning a car would necessitate near guaranteed access when we did need one.

Reaching this point requires a ubiquity that Zipcar’s 10,000-vehicle fleet, spread out across more than 150 cities worldwide, simply doesn’t provide. In its press release announcing the Avis deal, Zipcar says that its new parent company’s bigger fleet will give it more cars to meet demand and, in the company’s words, “accelerate the revolution we began in personal mobility.”

While I don’t ever NEED A CAR RIGHT NOW!@#%$, I can see the attractiveness in greater on-demand access. This was the thing I found the most promising about this merger. Zipcar’s biggest weakness now is weekend demand, and apparently Avis’ highest demand is during the week, so there is the possibility for Avis to shift the part of its fleet that is unused during the weekend to satisfy the Zipcar demand.

Slate: Avis Budget Group to Buy Zipcar for $500 Million

The strategic logic of the deal is very clear. A year ago, there were four major rental car concerns in America—Avis Budget, Dollar Thrifty, Hertz Global, and Enterprise. Hertz and Enterprise have both launched in-house hourly rental operations to compete directly with Zipcar. Avis Budget bought Dollar Thrifty a few months ago. So that left the rental car world with two players that do both hourly and traditional rentals, plus Zipcar and Avis. A merger gives Zipcar investors a nice exit while creating a very strong firm.

Zipcar turned its first profit last year, but investor demands probably are not met by merger profits, and it is not clear that in the face of increased competition in the sector, it can continue to turn a profit. A merger with Avis was probably not the only and maybe not the best way to keep Zipcar competitive and profitable, but it is clearly expedient.

The Washington Post: How Avis will ruin Zipcar

The only way for Avis to realize its over-promised cost savings will be to force Zipcar to consolidate the two operations and become more like Avis in everything it does. Eventually, all the old Zipcar executives will be fired or will migrate somewhere else. Auto purchasing will be centralized, as will the pickup points. The Zipcar Web site and computer system will be merged into the Avis Web site and computer system. Avis will want to do package deals with airlines and hotel chains and drag Zipcar customers into its loyalty program. They’ll even try to upsell Zipcar customers every time they reserve a car: Wouldn’t you like something bigger for only $2 more? Wouldn’t you like extra insurance?

Maybe I’m old (actually, I am old) but some of those things are actually what I find most attractive about the merger. I want one account and one website to visit when I need a car, I currently have to login to Zipcar, figure where, and when, and how much the car will be, then login to Avis to see if a daily rental there would end up being cheaper or if not cheaper, than at least not so much more expensive that I stick with the Zipcar. Example, recently I had to travel to Connecticut, I was sure how long I would be, but padded it at 5 hours or so. Between the amount of time, and the likelihood of exceeding Zipcar’s mileage limits on the trip, I decided to rent from Avis for 2-days and add a trip to the Cape to my weekend plans. The car cost more, but I did more, and the Zipcar option would have been almost as expensive as a one-day Avis rental (and with the added burden of sweating about the mileage and return time on top of the cost).

Zipcar already has premium cars they try to upsell you. They upsell you on insurance as well. I actually have no problem with the rental experience from Avis, and have no warm and fuzzies about Zipcar.

My biggest fear would be the erosion of the sweet spot. There’s a line where Zipcar becomes too expensive and it makes better sense to rent a car. Now that those two options are the same company, will it be better financially for Avis to maximize the number of people opting for a full day rental or the people who are renting hourly? I guess we’ll see.

Maybe this purchase will be the downfall of Zipcar, but consumer demand will have a lot to do with how things turn out. I’m cautiously optimistic that the combined entity will better serve my automobile needs, your mileage may vary.


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14 Responses to Avis buys Zipcar, now what?

  1. Jen Coleslaw January 3, 2013 at 1:35 pm #

    You went to Connecticut?

  2. Jef Nickerson January 3, 2013 at 1:43 pm #

    Yes, to see you silly.

  3. Ryan January 3, 2013 at 1:51 pm #

    I had actually inquired into how Zipcar works when I ran into some representatives trying to sell Zipcar at City Hall Plaza back in the summer up in Boston. It’s a great service in theory, but in practice, it has one terminal flaw.

    That is, you have to bring the car back to the same place you rented it from – there’s no option for a one-way rental. For a full-day or multi-day rental service a la Avis (which does offer one-ways, actually), I could understand the omission – but a lot of things that I would want to rent a car for a short period of time are greatly hindered by the requirement to bring the car back to where I picked it up.

    (The ubiquitous example here is using it to move things that can’t really be brought on mass transit: logic dictates I’d want to pick the Zipcar up as close to my point of origin as possible and drop it off as close to my destination as possible – that way, I can use only the part of the car that I actually need and ride transit back to where I came from.)

    The fact that Zipcar doesn’t offer what seems like such a no-brainer service, even if you’re restricted to a limited amount of time in exchange for being able to drop the car wherever (i.e. one or two hours), is enough to automatically preclude it from my mind.

  4. Jef Nickerson January 3, 2013 at 1:59 pm #

    Tim Worstall at Forbes points out that Zipcar is likely to see stupendous savings in fleet acquisition costs. The limited size of their fleet means they cannot get the same massive discounts the Avis’ of the world do from auto-makers. For Avis, fleet acquisition is a revenue generator (they can purchase cars for less than the depreciation value). For Zipcar, fleet acquisition is almost certainly currently an expense.

  5. Jef Nickerson January 3, 2013 at 2:04 pm #

    One-way Zipcars would be handy for me when I go to the Vineyard, but what would be handier is any public transportation option to any of the ports; Quonset, New Bedford, or Woods Hole… any of them.

    I did once rent a car, and pay to park it at the satellite lot in Falmouth for 3 days as I took the Steamship to the Vineyard. Out of all the options I researched, renting a car for three days and paying to keep it in a parking lot for those three days was the cheapest and easiest thing for me and the group I was traveling with to do (yes, it is as insane as it sounds).

  6. Runaway Jim January 3, 2013 at 2:08 pm #

    I hope they don’t centralize the cars. One of the biggest benefits of Zipcar is cars where you need them. Forcing people to a centralized location (which would have to be downtown within a very short walk of KP) would suck for many. A big reason they’re used is to buy stuff for home that you can’t easily carry and having to go downtown to pick up the car, buy stuff, drop it off at home, and then drop the car back off downtown will require people to possibly add extra time to their reservation.

  7. Tony P January 3, 2013 at 2:22 pm #

    One thing that bothers me about Avis in Providence is they have a screwball policy on debit cards. It’s why I deal with Enterprise to be honest.

  8. Ryan January 3, 2013 at 3:19 pm #

    One-way Zipcars would be handy for me when I go to the Vineyard, but what would be handier is any public transportation option to any of the ports; Quonset, New Bedford, or Woods Hole… any of them.

    Well, rail to Woods Hole at least is never coming back because the ROW’s been salted over with a bike path. http://goo.gl/maps/CRfjA As you can see, the existing rails abruptly stop and the bike path curves over, directly on top of where the rails were. So, bringing passenger rail down to Woods Hole would require ripping up the bike path – and even if you made it perfectly clear that you intended to repave the bike path next to the restored rails, you and I both know that there’s a false-flag NIMBY coalition ready and waiting to co-opt the argument that “evil [businesses/railroads/politicians] are trying to DESTROY our beloved bike path for their train!” and derail (ha) any progress towards restoring the ROW by trapping us in a bicyclists vs. transit-takers argument… you know, as it goes.

    Depending on how many transfers you’re willing to stomach for your trip to the Vineyard, though, you could conceivably ride the new CapeFLYER excursion service out of South Station (starting up this summer) down to Hyannis and then switch to the CCRTA’s SeaLine bus out to Woods Hole.

  9. Matt January 3, 2013 at 3:19 pm #

    Perhaps the new owners will consider being able to offer do non-same location returns, such as the car2go model. I have friends in Vancouver that use car2go and modo, but find ZipCar doesn’t offer what they need for flexibility because of their more on-demand needs (also amazing to see that city has 3 side-by-side car sharing systems in operation). There is nothing that says ZipCar couldn’t do that, but its a lot of work to make sure that the parking arrangements and vehicle positioning logistics are in place, similar to discussions about point to point bike share systems.

  10. Andrew January 3, 2013 at 6:33 pm #

    I’m a Zipcar customer (a “Zipster,” I guess) in Cambridge. A few months, Zipcar sent me a detailed survey asking about one-way service. They pretty much laid out how such a service would work: cars available for one-way service would be available in central locations and would be marketed to commuters and public transit users.

  11. Andrew I January 4, 2013 at 7:37 am #

    Paying the Zipcar rate for a trip is great. Paying for the hours zipcar is parked while you visit someplace, not so great. One way service should be possible if dynamic pricing can be perfected: A one way morning rush trip into the CBD will be very expensive but reverse commuters will luck out.

  12. Jack January 4, 2013 at 2:14 pm #

    Thanks for the balanced analysis. A lot of people consider Zipcar to be the panacea for everything when it’s just an hourly rental service. Not sure how the Avis deal will change it, but it’s nice to see Zipcar acknowledged for what it is rather than some revolutionary company.

  13. Jef Nickerson January 4, 2013 at 3:15 pm #

    The New Republic: If Avis Is Smart, It Won’t Stop With Zipcar

    Then Avis’ CEO explained his thinking during a call with analysts, convincing at least a few of them that he valued Zipcar’s model enough to leave it alone. Plus, Avis’ fleet, which is busier on weekdays, could cure Zipcar’s weekend shortages, and allow Zipcar to expand faster with the greater purchasing power of a massive company. With a bigger network of cars, point-to-point service—so you don’t have to return a car to its original location—becomes easier to implement. Maybe consumers won’t even care that Avis isn’t cool. By now, the conventional wisdom has gelled: This was a brilliant move, and unless Avis does something incredibly stupid, Zipcar users will be better off for it.

  14. Ryan January 4, 2013 at 3:40 pm #

    Paying the Zipcar rate for a trip is great. Paying for the hours zipcar is parked while you visit someplace, not so great. One way service should be possible if dynamic pricing can be perfected: A one way morning rush trip into the CBD will be very expensive but reverse commuters will luck out.

    I would suggest the model be based upon the number of cars available for rent at the point of origin and final destination, actually. The way I envision it working is that you’re charged a fee for every empty space (i.e., removed rental vehicle) in the lot as you leave, and receive a rebate for every empty space in the lot where you ultimately drop off the vehicle. In other words, it costs you more if you’re making Zipcar’s life more difficult by cleaning out a lot, and conversely, you get rewarded for helping them do their job by dropping your vehicle off in a mostly-empty lot instead of a full one.

    So, if you absolutely have to take the last car from a satellite lot in the middle of nowhere and fill the very last space in the KP Zipcar lot, you can do that, you’re just going to get charged a lot for it.

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