Avis, Zipcar, and the spectrum of car-sharing services

Old Avis ad in Australia - CC image from Bidgee

Last week’s big transportation news: Avis purchased Zipcar for a cool $500 million.  Reaction to the sale is all over the map, with some analysts praising the move and some hating it.

On the ‘pro’ side of the ledger – Felix Salmon:

The acquisition solves a number of problems with the Zipcar model. For one thing, it gives Zipcar easy access to the one thing it needs more than anything else: money. The car-rental business is at heart a financing business: you need to be able to finance the acquisition of new cars, efficiently dispose of them once they get too old and too used, and generally make profits by juggling enormous cashflows both coming in and going out. When you’re a small and risky company like Zipcar, that kind of fleet and cash management is much harder than when you’re a giant like Avis Budget.

The other big problem that Zipcar had was that it couldn’t meet demand at weekends: the company’s slogan is “wheels when you want them”, but in practice the cars tended to be sold out at precisely the times that members really wanted them. By merging with Avis, Zipcar gets to offer its members Avis cars when dedicated Zipcars are unavailable

On the ‘con’ side, pretty much anyone who hates the standard car-renting process – Sarah Lacy:

That’s how much I loathe Avis. As far as I’m concerned they only “try harder” to piss me off. And thanks to a tightly controlled oligopoly, the rest of the rental car world isn’t much better. There’s little innovation or even need to innovate, when a few players control the entire market.

People hate renting cars – myself included.  The process stinks all around.  Pricing is anything but transparent or simple; even with a reservation you must wait in line; employees are constantly pushing insurance packages of dubious value; you constantly feel like you’re about to get nickel and dimed for a small scratch or a gas tank that’s not quite full – the entire process feels kinda sleazy.

With that in mind, it’s easy to understand the angst of some users (see the concerns voiced in Ben Kabak’s post).  From the ‘man on the street’ in this Dealbook summary of the sale: “Please don’t let them screw it up.”

So far, Zipcar is looking to reassure folks they won’t lose that innovative spirit, with the CEO expecting Zipcar to remain a standalone subsidiary, also while announcing plans to offer memberships to the service without the annual fee.

For me, however, Zipcar use is way down.  My personal membership expired several years ago.  I maintain an account so I can be a member of my employer’s business membership (and will use that service for business trips that require a car), but my personal use is almost non-existent.  Conversely, I’ve been using Car2go‘s point-to-point carsharing far more frequently in DC (and I’m not the only one).

Car2go’s service isn’t an exact analogue for Zipcar, however.  If you think of carsharing services as a spectrum, between traditional car rentals on one hand (longer terms, frequently used during travel) and short trips within the city on the other (as Car2go’s trips have more in common with taxi rides for DC users than car rentals), there is room for a whole host of products and services, each tailored for a different segment of the travel market.

The spectrum of car-based transport would look something like this:

  • Car ownership
  • Traditional car rental (home space; by the day)
  • Zipcar-type car-sharing (home space; by the hour)
  • Car2go-type car-sharing (point-to-point; by the minute)
  • For-hire service (taxi, sedan services, etc; by the minute/mile)

Note: there are lots of other models out there, including ones where car owners can offer up their personal vehicle for rentals when they are not using it – sort of an Airbnb for cars.

Zipcar’s current model (where every car rental must begin and end at the same ‘home’ parking space) is more similar to the traditional rental car model, just dispersed to locations around the city, and with the details of the rental handled online and with standardized pricing.   Lydia DePillis notes this might not be the cutting edge in carsharing services anymore, but offering a wide variety of useful vehicle types (including the Zipvan) is valuable.

The next evolution for a service like Zipcar would be to offer point-to-point car sharing (rumors hint that Zipcar is interested in this market as well). Fears of Avis turning Zipcar into something more Avis-like are valid, but the opposite could be just as valuable – airport car rentals with the ease of a Zipcar online reservation.   Others are working on this very concept as I type.

Even without tailoring a business model to this market, there’s opportunity for disrupting the standard airport-car-rental-while-traveling model. On a recent trip from DC to San Diego, I found myself stuck at my downtown hotel, wanting to get to the beach without the burden of a large taxi fare – an Car2go’s all-electric San Diego fleet (and a membership that works across the country) was there to serve.

No need to deal with the hassle of renting car – my hotel had a free shuttle from the airport.  On trips like this (where the beach trip is the only one I wanted a car for), why bother?  Perhaps this is a place where a company like Avis can learn from car-sharing.

5 comments to Avis, Zipcar, and the spectrum of car-sharing services

  • charlie

    As usual, a thoughtful post. Your ending example is excellent, but I don’t think AVIS is interested in that. Mostly, as F.S. shows, it is about the desire to merge and accounting. I don’t argue with the accounting but zipcar has benefited from using non-standard rental cars.

    Most ZIPcar users that I know want to have the ability to use it longer term and still not pay insurance. The zipvan could sell me along – yes, I could drive out to uhaul or home depot for slightly cheaper, but I’d rather have a van on every block for moves.

    car2go is a great success but not a viable long term model. I’m sure they are losing tons of money, and nobody else would want to get into that game.

  • […] that sprawl could consume 34 million acres of forest by 2060 if current trends continue. And City Block says Zipcar and other car sharing services, including long-term rentals, fall somewhere on a […]

  • Dominica

    drive a user SUV

  • Fred

    If you keep changing the car rental company every time you travel to a new location, then you may have to face a lot of hassle. After some good research, I have found a company that serves well and I make it a point to make/cancel reservations well within time. Its a good relationship I’ve developed with Dan Dooley car hire in Ireland. They are available in Belfast, Dublin so I know where all I can use them.

  • Wow, I didn’t realize Zipcar was purchased for $500 Million. That really shows just how well Zipcar has been performing in the market.

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