Once a target of mockery by the car rental industry, Zipcar Inc. is now Avis Budget Group Inc.’s $500-million (U.S.) acquisition.
When car-rental giant Avis announced Monday its acquisition of car-sharing leader Zipcar, Avis chief executive officer Ron Nelson reminded analysts that he had once ridiculed the emergence of car-sharing companies such as Zipcar.
Not any more. Traditional car-rental companies and even auto makers are now quickly recognizing that car-sharing networks are catering to a new kind of automobile user, underscoring the fact that our relationship to the car is changing quickly.
Drivers increasingly want convenient access to cars without actually owning them. Many want to be able to hop into cars located in neighbourhood parking lots or in general areas of the city. Many use car-sharing services, but rarely if ever bother with traditional car rentals. It’s akin to owning music in one format or another: MP3s or CDs.
Avis’s Mr. Nelson acknowledged this fast-changing environment Monday.
“Some of you may recall that I’ve been somewhat dismissive of car sharing in the past. What I’ve come to realize is that car sharing, particularly on the scale that Zipcar has achieved and will achieve, is complementary to our traditional car-rental model.”
Especially, “it enables us to serve new, younger, more wired consumers that our existing brands don’t always connect with,” he added. Avis’s acquisition of Cambridge, Mass.-based Zipcar is expected to be completed this spring.
Unlike traditional car rentals, car sharing works on a membership basis. Users pick up and return vehicles to designated parking spaces throughout a city. They then pay an hourly or daily rate. Payment, registration and car reservations are done online and through mobile apps, catering to customers with smartphones.
Kevin McLaughlin, president of AutoShare – Car Sharing Network Inc. in Toronto, a competitor of Zipcar, noted that car-sharing customers tend to reserve cars for three to four hours (such as a drive to see the in-laws or a trip to the local IKEA store).
Others, such as Daimler AG’s Car2go, have different market niches. Car2go’s service can be more expensive, although customers can simply park cars at their destinations, making it more suited to very short, one-way trips, like a self-driving taxi service.
In total, all car-sharing services in Canada surpassed 100,000 members.
One of the main draws of car-sharing services for traditional rental companies is their technology, in which customers hold their membership cards up to a card reader on the windshield to gain access to a vehicle.
This allows car-share cars to be rented at locations throughout the city, making for a very different experience than going to a staffed, centralized rental-car location.
“For rental companies, car-sharing is a natural extension to its current product offerings. Avis can also leverage the Zipcar’s [information technology] mobility platform to enable rentals using smartphones and bring that technology to its traditional business of car rentals and, in turn, have more rental pick up and drops flexibility in big cities, as opposed to owning expensive real estate space,” industry analysts Sarwant Singh and Mohamed Mubarak wrote in a report for research company Frost and Sullivan in Mountain View, Calif.
The report added that Avis has been struggling to get a foothold in this sector of the industry, while Hertz Global Holdings Ltd. has been building its Hertz on Demand car-sharing business since 2008 and Enterprise Rent-A-Car has been acquiring car-sharing companies.
The question is whether this is a growing industry.
Industry observers say that it is, while noting how much the rental trade is being fragmented. Users simply want access to cars in increasingly different ways.
“Is it going to grow at a rate to satisfy venture capital?” said AutoShare’s Mr. McLaughlin. “That I can’t answer.”