Avis buys Zipcar: A match made in heaven?

The deal has plenty of upsides, though some analysts warn it's the beginning of the end for Zipcar.

By TheWeek.com Jan 3, 2013 10:52AM

Customers Checking in Car Rental Agency Lawrence Manning CorbisAvis (CAR), the car-rental chain, announced on Wednesday that it was acquiring Zipcar (ZIP), the car-sharing upstart, for $500 million in cash. The deal is seen as a quick and easy way for Avis to gain a good chunk of the growing car-sharing business, in which cars are usually rented out by the hour. Zipcar is mostly popular in urban areas, and its customer base of about 760,000 subscribers tends to be young. Some of the company's hip super-fans even call themselves Zipsters, according to reports.

The deal has several upsides for both companies. The car-rental industry, like the airline industry, is in the midst of a consolidation boom. Avis only recently lost a bidding war for Dollar Thrifty to rival Hertz, and Avis had to bulk up if it wanted to be a serious competitor. In addition, both Hertz and Enterprise already have hourly rental operations, which meant Avis had to play catch-up.

The merger will also help Zipcar meet its inventory problems. As Matthew Yglesias at Slate puts it, "Demand for spot rentals is very highly concentrated on the weekends, which makes it hard for Zipcar to manage inventory efficiently. Avis says that combining its fleet with Zipcar's will make it much easier to meet those demand peaks." Indeed, Zipcar has struggled to post profits even as its popularity has grown, and Avis' vast reach "could be exactly what the hourly car rental specialist for urban centers needs to become solidly profitable," says Antoine Gara at The Street.

Some analysts are more pessimistic about the deal. Zipcar tries to appeal to a hip, urban set, while Avis is a hoary rental car company that seems to care about little but the bottom line. It's inevitable that Avis will "force Zipcar to consolidate the two operations and become more like Avis in everything it does," writes Steven Pearlstein at The Washington Post:

Oh, sure, Avis executives will say how they respect Zipcar — its culture and its way of doing business — and promise to preserve it. But a year down the road when it comes to some decision in which they will have to forgo some cost savings or some revenue increase in order to maintain those differences, the decision will be to do it the "Avis" way. And that will be it: Zipcar as we know it will be history.
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