If You Can't Beat Them, Acquire Them!

Josef Ray is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As everyone is aware, car ownership doesn’t end with buying a car and driving it. Ownership means one has to pay for the high cost of maintenance and improvement, insurance, and fuel and all the other hassles that attend owning the vehicle. The idea of car sharing came up to address the concerns of urban car ownership, offering an alternative solution.

Zipcar Zipped its Way in the Car Sharing Business

Zipcar (UNKNOWN: ZIP.DL2) is a pioneer in car sharing. The company has a network that provides self-service vehicles located in reserved parking spaces throughout the neighborhoods where its 700,000 members, called Zipsters, live and work. These vehicles, which are comprised of 30 makes and models, are available for use by the hour or by the day. A reservation system through phone, internet, or wireless mobile devices through mobile apps was put up by the company to make reservations easy for its members, most of whom use smartphones now. Once a Zipster has reserved a vehicle, it can be unlocked using a keyless entry card. The good thing about using Zipcar’s car sharing scheme is that one can immediately estimate the cost of his/her trip since Zipcar’s rate is inclusive of gas and insurance. The company has these self-service vehicles in the United States, United Kingdom, Canada, Spain, and Austria. Aside from its self-service network, Zipcar also offers fleet management solutions to organizations that have their own fleet of vehicles.

Change That Affected Zipcar’s Market

Not so long ago, the upstart car-sharing business was mocked by the car rental industry, as it may not be economical nor is it practical. Car-rental companies and automobile makers nowadays observe and realize that people’s relationship to the car is changing rapidly. Back in the old days, people own a car and think that it will serve them for many, many years, taking a special sentimental affinity to their vehicle. These days, the trend now is the perfect opposite where changing cars are becoming ordinary. These drivers increasingly want easy access to different cars without actually owning them. And they like the convenience of a car-sharing scheme than the traditional car-rental procedures.

How Avis Plans to Play in a Different League

It is in this manner that the car-rental giant Avis Budget Group (NASDAQ: CAR) got interested in acquiring Zipcar for $500 million. Industry analysts Sarwant Singh and Mohamed Mubarak reported for the research company Frost and Sullivan in Mountain View, California: “For rental companies, car-sharing is a natural extension for its current product offerings. Avis can also leverage Zipcar’s information technology mobility platform to enable rentals using smartphones and bring the 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.” The stiff competition to get a foothold in this sector of the industry, a proof that it is indeed growing, is not only displayed by this acquisition, but also by the struggle of rival companies such as Hertz Global Holdings (NYSE: HTZ) in building its Hertz-on-Demand car sharing venture. Enterprise Holdings Rent-A-Car has also been buying other car-sharing companies to gain advantage of the growing market. The Avis deal with Zipcar, expected to close in spring 2013, will position Avis as the market leader in the fast-growing car-sharing services in the United States.

A Partnership That May Go Smooth-sailing

As a combined complementary company, Avis and Zipcar have greater opportunities for rapid growth. Avis is already a major player in the car rental industry while Zipcar controls more than 70% of the car-sharing market. The opportunity is made greater by the high demand for car sharing because of rising gasoline prices that may never go down again. This partnership is one that is happening at the right time. They are bound to cruise nowhere but up. The trends surrounding this team-up may likely last for a long time. 

JosefRayDagatan has no position in any stocks mentioned. The Motley Fool recommends Zipcar. The Motley Fool owns shares of Hertz Global Holdings, Inc. and Zipcar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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