Last year, both Hertz and Enterprise entered the car-sharing business to compete with Zipcar, the small company that pioneered the service. But now they'll compete head-to-head with Avis, which has jumped in with an offer to buy Zipcar (Nasdaq: ZIP).
Avis, the third largest US rental car company wants to buy Zipcar for $491 million, a 49% premium over its share price as of December 31 ($12.25 per share).
Along with rising gas prices, car sharing has grown into a $400 million business in the US and is expanding quickly into major cites around the world. It enables people to pay for the use of a car by the hour instead of owning one.
Avis CEO Ron Nelson says that he was previously dismissive of car sharing, but changed his mind when he realized the growth and profit potential in providing hourly rentals to "younger, more wired consumers" in big cities and on college campuses worldwide.
"With more city living, more expensive gas, with it being more expensive to insure and buy cars, car sharing is a long- term business rather than just a flash in the pan," Fred Lowrance, an rental car industry analyst told Bloomberg.
Zipcar leads the industry it created with more than 760,000 members globally in 20 major markets in the US, Canada and Europe. It went public in April 2011, raising about $174 million and showed its first annual profit last year.
"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. 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," says Avis CEO Ronald Nelson.
Enterprise bought several small car-sharing firms that operate on the East Coast and as of June 2012, it had about 58,000 car-sharing members, the second largest network after Zipcar.
Hertz is positioning itself through its Global Electric Vehicle (EV) plan, which will provide a range of EVs and charging stations on a rental and car-sharing basis globally. Its car-sharing service, Hertz on Demand, will be available for all 375,000 of its rental cars in about a year.
Daimler is expanding its EV car-sharing service nationwide this year, and U-Haul has a car-sharing service in Berkeley. BMW's DriveNow program launched in the San Francisco area last year with 70 luxury EVs.
Zipcar launched a pilot EV program in Chicago last year.
The Avis-Zipcar deal is subject to approval by Zipcar shareholders and to other customary closing conditions. The transaction is expected to be completed in the spring.
The transaction could generate between $50 million and $70 million annually as a result of synergies between the two businesses, says Avis. It anticipates significant cost savings through fleet utilization and lifecycle cost reductions related to procurement, operations, maintenance, disposition and financing.
"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," says Scott Griffith, chairman and CEO of Zipcar.
Zipcar says it will retain its existing corporate culture and brand identity after the buy-out.