Jan
03

Some thoughts on the Zipcar/Avis merger

By

As word of ZipCar’s impending $500 million merger with the Avis Budget Group spread throughout the Internet on Wednesday morning, few knew what to make of the deal. Mike Lydon, Principal of The Street Plans Collaborative, wondered why more urbanists weren’t discussing the deal, and I spent a lot of the day wondering why so many Zipcar users were upset by the pending merger. If anything, the deal should help ZipCar, and for city-dwellers living their lives without owning cars, that’s a positive.

I’ve been a Zipcar member for two and a half years now. It is, as my girlfriend called it yesterday, a necessary evil. We don’t own a car for various reasons: We have access to my parents’ car for long trips; it’s expensive to own, register, insure, maintain and park in Brooklyn; and we just flat-out do not need one regularly. We go months without a car with no problems, and when we do need our own vehicle, we can use ZipCar. Among our cohorts, this model is becoming standard, and car ownership rates are dropping precipitously, especially in cities.

Yet, despite the need and convenience of Zipcar my 30 months as a member have brought nearly as many problems as smooth rentals. I’ve had cars with expired registrations, cars with physical damage, cars with dirty interiors, cars with no gas and cars with broken headlights. The kicker came when the battery in the ZipCar we had rented for my grandmother’s funeral earlier this fall died during the ceremony, stranding us in the rain in Yonkers for 90 minutes and then fighting with us on the phone over refunding the ride for another 20 minutes the next day.

So when Avis and Zipcar announced the deal, I figured it would be a win-win. Zipcar gets some financial backing and access to more car stock and a better distribution network while Avis gets streamlined rental technology and a rising brand. As Ronald Nelson, Avis’ CEO, said in a statement, “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. We expect to apply Avis Budget’s experience and efficiencies of fleet management with Zipcar’s proven, customer-friendly technology to accelerate the growth of the Zipcar brand and to provide more options for Zipsters in more places. We also expect to leverage Zipcar’s technology to expand mobility solutions under the Avis and Budget brands.”

In other words, procurement, operations, maintenance and, most importantly, weekend availability will improve. Yet, so many Zipcar riders expressed concern, and when I asked my Twitter followers why they felt that way, I received a diverse range of answers. Some people have had bad experiences with Avis while others have pointed out that Zipcar’s marketing has been very effective in creating brand loyalty. As one long-time SAS reader said, the response seems to be a “reflexive dislike of a very corporate-feeling entity taking over a ‘fun,’ quirky-feeling one” which can “feel like losing a friend.” As Felix Salmon wrote, “People actually like Zipcar, which is more than can be said for any of the big rental companies.”

On a more practical level, Zipcar is easy. It’s a website with a very graphical interface that makes renting a car as simple as a few mouse clicks. On the other hand, while I’ve had good experiences with Budget, an Avis subsidiary, renting from them is never easy. Drivers never really know exactly what kind of car will be handed to them in the lot; website prices never reflect the actual total; and car rental agents try to upsell everyone. It’s not a particularly clean business, and it’s one that leads to a lot of user frustration and distrust. For those of us who would prefer to see cities with fewer car owners and more car sharing, the prospects of a rental car company taking over Zipcar should be worrying, if not alarming.

Yet, I find myself seeing the good in this deal. Maybe it stems from my overall annoyance at Zipcar and my slate of negative experiences. Maybe it stems from the hope that the car rental company will integrate Zipcar’s back-end platform and offer up its technical expertise, as they claim they will. Either way, this deal could be a game-changer for car-sharing or it could be the beginning of the end for Zipcar. Here’s to hoping for the former.



53 Responses to “Some thoughts on the Zipcar/Avis merger”

  1. Christopher Stephens says:

    I still don’t see how this takeover helps Zipcar’s users. Where exactly will the cars come from to help out with the issue of weekend availability? Avis’ city fleet is perennially booked solid, long in advance, as is the Zipcar fleet. Do you really imagine that Avis/Zipcar will bring in under-used fleets from the suburbs to alleviate this shortage? I sincerely wish that someone could explain this to me, as it is the one “benefit” that the (few) fans of the takeover keep citing.

    • Matt says:

      Two possibilities that I can think of:

      1. Zipcar’s growth is restricted because there are only a finite number of parking spaces in the lots they use. Having access to Avis’s dozen+ NYC locations should give them more spaces to park more cars.
      2. Thanks to its size, Avis can buy cars for less money than Zipcar.

    • boerumhillscott says:

      Traditional rental car companies tend to get more business than personal use, and therefore have excess capacity on the weekend.
      Picking two randdom dates in March, the daily cost (before fees and taxes, pay now) for a standard rental at Avis is 79.19 for Sauturday-Sunday, but 107.09 for Tuesday-Wednesday.

      Zipcar has the opposite usage and pricing patern.

      • TP says:

        I’m not a Zipcar member because I’ve never been in a situation where it wouldn’t have just been cheaper and easier to use a traditional car rental. The cheapest daily rental rate on Priceline for a traditional car rental for a weekend day in NYC is usually cheaper than the Zipcar rate for whatever trip I’m taking, and even when you factor the cost of gas for a lot of trips it comes out even, and you don’t have to pay a membership fee to get a traditional car rental. And I’m not too good to hop the PATH to the Avis in Newport Center Mall if I’m going West of Hudson anyway.

        Carsharing makes sense in theory but Zipcar isn’t a great deal. And I’ve heard so many horror stories as Ben recounts. I’ve also known people who’ve been charged for other peoples’ damage to the cars– it’s an “honor system” because nobody is inspecting the car when you return it. If somebody else calls in damage after you return the car, it’s your responsibility to prove you didn’t damage it. By phone. Speaking to a bunch of anonymous claims agents in other cities. I’d rather yell at the Avis employee and hash out the trumped-up charges there.

        People love to hate car rental companies the same way they love to hate airlines–yet they go for the cheapest flight and the cheapest car in both cases. It might be one of these stated vs. revealed preferences situations. In surveys people say they want great service, transparent pricing of extra fees, etc but in the real world they have no loyalty and just pick the cheapest one and then complain about it after-the-fact.

      • Christopher says:

        Not sure what location you were searching when you got those numbers. I just checked with avis.com for my nearest location (Manhattan, 90th and 1st) and got exactly the opposite price ratio – about $80 during the week, about $115 on the weekend, prices comparable to Zipcar.

        • boerumhillscott says:

          My numbers were for LGA.

          Getting decent single day weekend numbers close to me in Brooklyn is hard, because almost no rental car companies are open on Sunday.

          This is antother huge advantage of Zipcar – not being limited to staffed hours for pickup and returns.

        • sharon says:

          If you go to a car rental website or call they charge a far higher rate than if you name your own price on price line. Last year when I tried to live without a car (what a mistake in my part of Brooklyn) I was able to get a car from Hertz for $12 a day. The person who walked in off the street paid $75 a day for the same car

    • Bolwerk says:

      Traditional rental fleets have pretty rapid car turnover. By the end of 2012, most of the 2011s were probably sold on the used market. The companies like to keep the newest cars on the lots for business users, and maybe because they are least likely to have problems.

      I’m just speculating here, but it’s possible they will just shift some of that turnover to the Zipcar division. A car with 30k miles on it probably has a lot of life left.

      • Larry Littlefield says:

        Good point. They can recycle two or three year-old cars from Avis to Zipcar just by installing the Zipcar technology.

        • Bolwerk says:

          Yeah, I was thinking it would probably scale well if they could do that. Avis must have boatloads more cars than Zipcar.

        • sharon says:

          They would not. The rental car companies move cars out to the used car market before they start triggering repair costs and loose value. Keeping them for a few extra months or years makes it much harder to unload latter at a good price.

      • Ian says:

        There is a mileage threshold that rental car companies use to determine when to dispose of vehicles. I believe it is around 30K though I may be mistaken. I have rented cars before from major rental companies that were 2 model years old with low mileage (nothing beyond that).

  2. Matt says:

    From a value point of view, I’ve preferred Hertz On Demand due mainly to the fact that you can earn Hertz Gold Reward points, which can be used for traditional rentals when needed. (Pricing is roughly the same). For convenience, however, I prefer Zipcar, which has far more locations in Brooklyn…dozens, compared to a handful from Hertz. Hopefully the Avis tie up will bring them closer in the value department.

  3. Ian says:

    Has anyone tried the car share service from Enterprise (used to be Mint)? If so, any comments on the experience? I just signed up for Hertz On Demand but have yet to use it. I like that Hertz does not charge a monthly service fee, unlike Enterprise and Zipcar.

  4. Someone says:

    I don’t see how this helps Avis’ users. Or Zipcar’s users.

    • Ian W. says:

      It helps them compete with Hertz and Enterprise, who are now the only other major car rental companies, and both of whom have hourly offerings that compete directly with Zipcar.

  5. liz says:

    I have been a Hertz on Demand customer for about five years. Don’t use it frequently, but when I do I have never had a problem. Cars are clean, undamaged and while they sometimes need gas, that’s part of the price and only a problem in Manhattan where there are next to no gas stations. To those Zip Car users who fear a decline in service from the Avis merger, I say the opposite is more likely true if the Hertz experience is a guide.

    • Bolwerk says:

      I get that many of these search results are mistaken, but Manhattan doesn’t exactly seem to be lacking in gas stations if you don’t mind driving toward a river.

      • Someone says:

        There aren’t many gas stations in midtown, because having that would cause a lot of pollution.

        • Bolwerk says:

          Which still leaves drivers in Manhattan with a distance to the nearest gas station that is probably shorter than many suburbanites’ distances to a gas station.

        • BoerumBum says:

          I always thought the lack/dismantling of gas stations in Manhattan had more to do with the price of air rights than anything else. For safety reasons, I believe that gas stations must have open air above them. That is coming at an increasing premium in Manhattan, where one story stuctures are far from the norm.

          • Bolwerk says:

            Could be, but I think gas stations hold their own pretty well, at least going by real estate valuations. Therefore, I could see the Midtown business district not being an attractive place to put one because of a better/higher use, but in a periphery part of Manhattan a one-story gas station might be a competitive use.

            Obviously, they are smelly, noisy, and detract from other properties around them, so maybe there is pressure not to keep them around for that reason.

            • Matt says:

              The land in Manhattan is just too expensive for a gas station to be profitable.

              • Bolwerk says:

                In the Midtown business district, sure.

                Not so in periphery parts of Manhattan. Gas stations sell for at least seven figures, which implies a pretty strong earning potential.

                • Someone says:

                  There’s a gas station at 23rd St and Avenue C. That is not the periphery of Midtown.

                  • Bolwerk says:

                    Uh, I said “periphery parts of Manhattan.” But, isn’t 23rd Street the all-but-official border of Midtown?

                    • Someone says:

                      Actually, I thought 14th Street was the border of Midtown. Speaking of Midtown borders, there are actually several gas stations within Midtown, away from the water.

          • Someone says:

            Yes, but also because there have been buildings that have existed before gas stations were even invented. Most of Midtown has buildings that have existed since the early 1900s.

  6. ZipCar customer since 2006 but switched to Hertz on Demand this year because ZipCars just weren’t available when I needed one, and fees are fairer with Hertz. For example, ZipCar charges a $50 late fee: understandable if you disrupt someone else’s rental, but harsh if no one has the car booked after you. By contrast, as long as no one has the car after you, Hertz just continues to charge you in 15-minute increments until you return it. That’s an example of a part of the experience where Hertz seems to recognize that a few more minutes in the car (as long as it’s available) shouldn’t be penalized, and its safer for pedestrians, cyclists, and other drivers if Hertz on Demand members aren’t speeding back to return a car and avoid a hefty fee.

    Also, Avis and ZipCar may have each felt the need to do this because of growing competition: Hertz plans to equip all 375,000 of its vehicles with on-demand access (http://www.businessweek.com/ar.....ar-rentals).

    • Clarke says:

      Don’t forget: no monthly/yearly fees with Hertz! I just don’t understand why someone would choose Zipcar over Hertz (I suppose location factors in…) Does Zipcar offer one-way rentals?

      • Zipcar doesn’t do one-way rentals — which is also annoying but understandable. I went with Zipcar over Hertz because there’s a single Hertz On Demand location in Brooklyn. It is, by and large, useless for people who don’t live in Manhattan.

        • Josh says:

          Hertz On Demand is now up to five Brooklyn locations (still nowhere near as comprehensive as Zipcar, of course, but it’s a start), and they don’t have any monthly/annual fees. Worth signing up to supplement your Zipcar membership just on that basis.

  7. BBnet3000 says:

    A more diverse user base will help Zipcar and Avis make better use of the total fleet. From what I hear, as is Zipcar has shortages of cars on weekends. This is an issue for many rental car companies, but for others, business travel during the week is a secondary (or even the primary) peak. I dont know what the case is for Avis, but I see having more resources and access to a larger fleet (and better experience keeping cars clean and in good repair, etc) to be a plus for Zipcar.

  8. Nathanael says:

    Well, none of this will touch Ithaca CarShare, which was formed because ZipCar turned their noses up at Ithaca.

  9. Christopher says:

    One other major advantage that Zipcar has over Avis from a price perspective is that insurance is wrapped in the cost. As a life-long Manhattanite I have never owned a car and thus never had car insurance. When I travel, the insurance I need to pay is frequently higher than the rate of the car rental itself. (Truth be told, I have figured out ways around it by renting from Hertz with a combination of using a specific credit card and a specific corporate rate, but still, what a hassle). This is a huge incentive for car-less city dwellers. Zipcar’s rates are pretty transparent, and I never worry about getting nickle-and-dimed because, say, I re-feuled the car at a gas station that wasn’t within X miles of the airport.

    • TP says:

      Priceline has a $9 insurance option for NYS residents. That combined with the coverage provided by your credit card (Most Visa policies are good; AmEx often even better) should have you well covered.

  10. alen says:

    used zipcar one time a few years ago. my wife uses the car daily and i needed to drive from NYC to Philly for work for one day. I think it was $80 or so for the day.

    its OK for a few hours a month but once you get into the once a week rental you might as well buy your own car. its fairly cheap for something like a Civic.

    • scuds says:

      Thats exactly what I ended up doing – was using zipcar 4-5 days (a few hours at a time) plus and 1-2 weekends a month. did the math and its worked out to be about the same to buy a car, even including insurance and gas. Alternate side parking isn’t too bad around here (DUMBO) and I no longer have to think about weekend plans a month out to guarantee a car in my neighborhood.

  11. Zipcar user says:

    Corporations are always trying to make more money with less investment – it’s in their nature.
    So Avis will start to dilute Zipcar reducing lots in neighborhoods to save money and start raising rates so their investment will eventually mirror their current rental cars.
    In other words, they bought Zipcar so they can get rid of competition.

  12. Frank B says:

    I wish I could say try RelayRides, but some crazy woman tried to steal my car!

    The words “Grand Theft Auto” brought her to her senses pretty quickly.

  13. Jim D. says:

    In my experience, Avis is much easier and more customer-friendly than Budget. Budget seemed to be a franchise-type operation and service levels varied from city to city. I’ve used both companies over the years for business travel and never had an issue with Avis – I can say that I always get the car I expect and the website pricing is spot on (I always book online and as a rewards customer have my car waiting for me at all but the smallest locations).

    I’m not currently a Zipcar customer but issues such as dirty cars and unreported damage would be a major turn-off for me. The acquisition by Avis should be a net positive because it appears that Zipcar may not have had the right infrastructure in place to exercise proper quality control.

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