Avis Purchases Zipcar: End of Car-Sharing Concept or Salvation for the Model?

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Zipcar-sfDespite some early missteps by the city with regard to the Zipcar contract, and heavy criticism in particular by a prominent columnist of the local newspaper, Zipcar has been a heavily successful car sharing program in the city of Davis.

Initially the city was asked to subsidize the program, paying roughly $9000 – a very small amount, given the fuss.  Once the vehicle usage topped 40 percent, the fee was dropped and the service was provided to Davis at no cost.

This year, the program proved so successful that Zipcar actually agreed to pay the city rent for the parking spots it uses – bringing in about $4500 a year in revenue.

Yesterday, car rental giant Avis announced it was acquiring Zipcar.

“Avis Budget Group has agreed to acquire Zipcar for $12.25 per share in cash, a 49% premium over the closing price on December 31, 2012, representing a total transaction value of approximately $500 million,” Avis announced in a statement.

“Car sharing has grown to be a nearly $400 million business in the United States and is expanding rapidly in major cities around the world. Zipcar has led this industry, leading in innovation and world-class service,” the statement continues.  “Zipcar now has more than 760,000 members, known as Zipsters, with a market-leading presence in 20 major metropolitan areas in the United States, Canada and Europe, and fleet positioned at over 300 college and university campuses. Zipcar has combined leading-edge technology, an outstanding customer experience, and clear brand messaging to develop strong loyalty and advocacy among its customers.”

“By combining with Zipcar, we will significantly increase our growth potential, both in the United States and internationally, and will position our Company to better serve a greater variety of consumer and commercial transportation needs,” said Ronald L. Nelson, Avis Budget Group chairman and chief executive officer.

“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,” he continued. “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.”

“We are delighted to announce our intention to join the Avis Budget Group family of companies, and we believe this combination is a win across the board for our members, shareholders and employees.  We will be well positioned to accelerate enhancements to the Zipcar member experience with more offers and additional services as well as an expanded network of locations,” said Scott Griffith, chairman and chief executive officer of Zipcar.

“As the leading global provider of car sharing services, with a brand that is synonymous with the category, we remain committed to the values and vision that have driven us forward for many years, grounded by our passion for delivering a superior experience to every member for every trip, every day,” he continued.  “By combining Zipcar’s expertise in on-demand mobility with Avis Budget Group’s expertise in global fleet operations and vast global network, we will be able to accelerate the revolution we began in personal mobility.”

“Avis Budget’s existing infrastructure, scale and experience with managing multiple brands make us uniquely positioned to accelerate the growth and profitability of Zipcar,” Mr. Nelson added. “At the same time, we are committed to retaining the elements of the Zipcar brand and culture that have allowed Zipcar to achieve such rapid growth and success over the last twelve years.”

The car sharing program – at least in terms of usage – proved to be highly successful.  Proponents argued that the availability of Zipcar would reduce the need for car ownership by students who have only periodic need for vehicles.

Opponents questioned why the city was subsidizing one business at the potential expense of another.  Bob Dunning argued that the contract was tantamount to a subsidy to a private company and that the city was advantaging an out-of-town car rental company over existing business, and that the city could face liability in the case of an accident.

Despite the success in Davis, some, however, have viewed the acquisition as an admission of failure.  Kyle Alspach, the VC Editor of the Boston Business Journal, argued that the planned acquisition marked an admission: “Zipcar hasn’t yet reached the potential it saw for itself in upending personal transportation.”

He writes, “After all, if car-sharing had caught on the way Zipcar had once hoped, the Cambridge-based firm would be the one acquiring the traditional car rental companies it’s sought to disrupt – not the other way around.”

He notes that, while car rental in general has suffered, and Zipcar remains unprofitable, “the bigger reason for the drop [in share price since April 2011] is that investors just didn’t see the long-term potential for car-sharing.”

“Zipcar’s fall has been more about expectations than a huge weakness in the business,” another analyst wrote.

On the other hand, while it is not Zipcar’s ideal choice, Mr. Alspach noted, “one can see the advantages for Zipcar in becoming a part of Avis” as “combining the two companies could lead to faster and cheaper expansion for Zipcar.”

“It’s safe to say that Zipcar inspired a whole generation of entrepreneurs. The idea – hatched a dozen years ago – seems irrepressible today. But at the time it seemed convoluted, difficult…if not impossible,” writes Dennis Berman of the Wall Street Journal.

“And yet today Zipcar announced it is being acquired by Avis Budget Group for $500 million,” he continues.  “It sounds like a big number, but it’s really not. The company was worth more than $1 billion not long after its IPO.”

He argues, “Zipcar was a prodigious money-loser. Funding growth around the world, it never once turned a profit, losing about $55 million since 2007.”

“The odd thing is that Zipcar came pretty close to perfecting its technology and customer experience. Its problem was that it just couldn’t find a cost-efficient way of luring still more customers. Over the last three years, for instance, Zipcar kept adding members, but the rate of growth was declining. There just weren’t enough people who wanted to use a Zipcar, despite chief executive Scott Griffith’s estimate that his was a $10 billion market,” he added.

The question is what this means for Davis where it seems, at least in terms of numbers, Zipcar was successful.

Those who wish to blame the council or city for investing in Zipcar miss the point – the program largely worked in Davis, at least in terms of Davis’ end – providing a convenient and inexpensive means for someone’s short term usage of a vehicle.  And the city did it at no cost to itself and at a very low level of risk.

The question is whether Avis can save the concept.

As Mr. Berman points out: “Zipcar was a great idea, but not just much of a public company. Sometimes the small, precious thing really is better in larger, if indelicate hands.  It’s the brutal difference between being a ‘business model company’ and a plain old money-making business.”

We shall see.

—David M. Greenwald reporting

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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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12 thoughts on “Avis Purchases Zipcar: End of Car-Sharing Concept or Salvation for the Model?”

  1. SouthofDavis

    David wrote:

    > Initially the city was asked to subsidize the program,
    > paying roughly $9000 – a very small amount, given the fuss.

    It is not a huge amount of money, but I bet that many on the left would make a “fuss” if Davis gave the $9,000 to a company that rented SUVs to Yolo County duck hunters.

    I’m a fan of car sharing, but I don’t see the concept having much success on a large scale since there are so many cars in America and since most people have no idea what it costs to operate a car and “rent” their cars to friends at a loss (thinking they are coming out ahead).

    According to AAA it costs $0.45/mile for a small car and costs $0.75/mile for a full size SUV so a ~300 mile weekend trip to Tahoe from Davis will cost a car sharing firm at least $135-$225 when there are plenty of people that will loan their car to a friend for less than half that (as long as they return it after a wash at Cable Car Wash and a full tank of gas).

  2. David M. Greenwald

    “It is not a huge amount of money, but I bet that many on the left would make a “fuss” if Davis gave the $9,000 to a company that rented SUVs to Yolo County duck hunters. “

    I understand your point to mean that the money doesn’t really matter if it’s a philosophical opposition to the cause. That’s fair.

    I think the idea of car sharing works in some situations. For example, a college campus, or a big city like NY or DC where the public transit is good enough to not need a car except on some rare occasions. When I worked in DC, I never had a car except a few weekends where I rented one to drive to visit family and friends.

  3. GreenandGolden

    David’s comments are right on. Had it not been for Dunning, I would not have educated myself about what a great deal the City of Davis has provided us with Zip Car.

    David =”Those who wish to blame the council or city for investing in Zipcar miss the point – the program largely worked in Davis, at least in terms of Davis’ end – providing a convenient and inexpensive means for someone’s short term usage of a vehicle. And the city did it at no cost to itself and at a very low level of risk.”

    South, as per usual, makes good points as well.

  4. Rifkin

    Steven Pearlstein, a blogger for the Washington Post, thinks Avis will destroy Zipcar ([url]http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/02/how-avis-will-ruin-zipcar/[/url]): [quote]Zipcar has a way of doing things that is particularly appealing to the young, hip urbanites who walk, bike and use public transportation most of the time and don’t own a car. They like the types of cool cars (Mini Coopers, Toyota Priuses) that Zipcar provides, the convenience of picking them up in their neighborhood and the very idea of “sharing” cars with people like themselves. Everything about the company — from its marketing to its customer interface to its rules — supports that brand identity.

    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. ….[/quote]

  5. Rifkin

    [i]”~300 mile weekend trip to Tahoe from Davis will cost a car sharing firm at least $135-$225 when there are plenty of people that will loan their car to a friend for less than half that …”[/i]

    When I was an undergraduate at UCSB–Christmas break, 1983–a bunch of friends and I rented nearly brand new cars (I think from Budget-Rent-A-Car) for a week of skiing and other fun in the N. Lake Tahoe area. The rental rate was $29.95 for each car for the week with no mileage charge. We (fortunately) paid the extra $5/day/car for insurance, also. And of course we paid for the gas.

    Due in part to frozen freeways, black ice, a massive snow storm, uncautious and excessively fast driving, and having put our chains on the back tires of cars we did not realize were front wheel drive, we had a series of spin-outs resulting in minor body and fender damage. A saintly driver who helped tow one of our cars back to the road from the guard rail it was stuck to used a giant hammer to bend the metal away from the tire it was rubbing up against, before he rope-towed that car over an ice field it had slid across.

    By the time we got the cars back to the rental agency in So. California, the two cars were not just extremely filthy, they were probably worth half what they were worth when we first got them.

    In that exchange, with about people (7 big guys and 4 girls) splitting the modest bill, we got our money’s worth. Budget did not.

  6. SODA

    Sorry David, just back on….
    My point was referring to the case that Bob Dunning stressed (some would say ad nausem) that the Zipcar deal was not fair to the Avis branch in town bc the city was subsidizing the deal, etc.
    My point was that IF the local Avis dealer was a franchise, and now that Avis owns Zipcar, it would be ironic and I think very unfair for the parent company of Zipcar to now be in somewhat unfair competition (tho less now that city not subsidizing) with its franchisee…..
    Make more sense?

  7. Edgar Wai

    One thing I hope Zipcar could do, is to allow one-way reservations, so that if you drive 1 hour to a different city to attend a function for 6 hours, then drive back, I would only need to reserve 2 hours, and the car will not be idle during the 6 hours in between.

    If Zipcar is paired with an actual car rental company, then this might become how Zipcar can work. This can also mean that for your traditional car rental, you can go to a convenient location closet to you out of many locations in the city, instead of the parking lot of the car rental branch.

  8. Edgar Wai

    If you like the concept and/or the philosophy of Zipcar, when you read this article, it might help to think with the mindset of constructing a future instead of judging a decision–to think not in terms of [i]whether[/i] that was a good move, but [i]how[/i] could Zipcar grow in socially responsible and self-sustainable ways.

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