Does the Avis Purchase of Zipcar Spell the End for the Car-Sharing Service?

by Nick Trenchard | January 6, 2013


Just two days after Avis made headlines with the purchase of Zipcar, the company has received some hard-hitting backlash over the direction in which it could take its new service.

The acquisition’s biggest critic is no other than Steven Pearlstein of the Washington Post, who believes the purchase discourages a competitive market in the ride sharing industry.

“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. … Auto purchasing will be centralized, as will the pickup points… 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. … Zipcar as we know it will be history.”

Pearlstein offers up a good point. With Avis’ inevitably looking to cut corners to seek a bigger piece of the pie or coming under budget constraints — as any business endures throughout its lifespan — chances are the company will leave behind the very convenient features that appeal to the young, urban class that depend on it so much. As such, the ride-sharing service will eventually evaporate into the larger, more corporate (i.e. stale) Avis business plan.

Zipcar has been rapidly expanding through major cities around the world with a large presence in the Bay Area. In fact, there’s over 6 locations that span from San Jose, into San Francisco and up towards Sacramento (not to mention the thousands of different Zipcar-only parking spots located throughout the area). But if Avis does cut some corners to turn a profit, the Bay Area — along with the thousands of users — could see its widely-loved ride-sharing locations dissipate.

Avis purchased Zipcar for $12.25 per share or approximately $500 million, which accounts for a 49% premium over the closing price at the end of the year. In turn, Avis hopes to generate between $50 to $70 million in annual revenue with a larger fleet of company cars to meet more users’ weekend demand, which has been the company’s biggest mountain to climb.

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