Avis And Zipcar Partnership Could Reshape Rental Business

Avis, the car rental giant, is buying Zipcar for $500 million. Zipcar pioneered car sharing, a term that implied a membership and rentals as short as an hour. Zipcar grew fast for years, but that trajectory slowed in recent years and it became a takeover target.

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AUDIE CORNISH, HOST:

From NPR News, it's ALL THINGS CONSIDERED. I'm Audie Cornish.

ROBERT SIEGEL, HOST:

I'm Robert Siegel. And here's a case of an old business colossus buying up a scrappy innovator. Avis, the traditional car rental company, is buying Zipcar for $500 million. Zipcar is the car-sharing company with the slogan: Wheels when you want them. NPR's Jim Zarroli reports the deal illustrates how car sharing is reshaping the rental business and drawing in a new demographic.

JIM ZARROLI, BYLINE: Avis CEO Ron Nelson told analysts today that he had long been skeptical about the car-sharing business. But as this deal suggests, he's come around to the idea.

RON NELSON: Like all businesses, we will need to evolve with changing consumer lifestyles. And Zipcar represents one of the best opportunities to capitalize on that dynamic today.

ZARROLI: Zipcar rents cars by the hour, and customers can pick them up at predetermined locations on the street instead of going to a rental agency. Zipcar has nearly 800,000 customers called zipsters, who pay an annual fee to use the service. It's been popular in big U.S. cities like New York and San Francisco, but in recent years, it's been expanding into Canada and Europe.

(SOUNDBITE OF ZIPCAR AD)

UNIDENTIFIED WOMAN #1: Zipcar is so easy.

UNIDENTIFIED MAN: You sign up online.

UNIDENTIFIED WOMAN #2: You type in the date and time.

ZARROLI: Until last year, Zipcar lost money almost every year it's been in business, which isn't unusual for a new company, but a lot of people think the Zipcar concept has potential. That's why it's generated a lot of competition. Hertz and Enterprise have started car-sharing subsidiaries, and there are a lot of smaller companies modeled on Zipcar in big cities such as Philadelphia. Steven Spivey is an auto analyst at Frost & Sullivan. He says linking up with a big company like Avis helps Zipcar fend off its rivals.

STEVEN SPIVEY: They're looking at the future and realizing this is going to be, you know, a very competitive marketplace, a very competitive industry, and we need to make sure that we're, you know, strongly positioned in terms of how we're capitalized and, you know, the resources that we have at our disposal to take advantage of the market opportunities that are coming.

ZARROLI: The acquisition will mean cost savings for both companies. For example, Avis tends to rent more vehicles during the week. Zipcar does more business over the weekend. Merging means the companies can share their fleets so their cars won't sit idle as much. More important, Avis is acquiring a car-sharing pioneer with an established brand name, one that's got a foothold with young wired customers. Jade Lewis(ph) is a Zipcar customer in Boston.

JADE LEWIS: And I only recently turned 25, so I wasn't able to rent a car before. So if I needed a car for a couple of hours to go pick up a piece of furniture or go out to IKEA or something like that, it was - so it's really a good deal.

ZARROLI: Still, there are questions about Zipcar's business model. The company has succeeded in big, densely populated cities where people can get by renting cars only occasionally. It's not clear how much of a market there is for the concept in other parts of the country that are more car dependent. But so far, Zipcar has gotten people to rethink their relationship to cars. And with this acquisition, Avis is betting that the Zipcar model has a lot of room to grow.

Jim Zarroli, NPR News, New York.

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