Commentary: One Corporate Transaction = Sustainable Alternative Transportation?

"We're not going to be bullied by the cars over at The U. They are going to have to try harder…" Photo by Randy Stern

"Hello carsharing subscribers! Welcome to the world of corporate Pac-Man!"

That was my first reaction to the announcement that Avis Budget Group acquired the biggest carsharing enterprise in North America, Zipcar.

For the uninitiated, Zipcar is the largest carsharing service in the world with over 767,000 subscribers, 11,000 vehicles located in five countries. Their fleet range from converted plug-in hybrids and MINI Coopers to Ford Escapes and BMW 3-Series sedans. In several markets, Zipcar competes with other carsharing service, including ones owned by other rental car giants – Hertz and Vanguard Group’s Enterprise, namely.

The perception of a carsharing service used to be one of an enterprise – preferably a non-profit one – that had a care for the environment, wanted to create a public service by putting out the most sustainable vehicles on the planet within blocks of your home. These were vehicles that either met public transport at particular hubs or positioned in locations where the population density was high and the rate of vehicle ownership was low.

It was supposed to be an alternative to car ownership, while augmenting the transportation system of a given community.

As Zipcar subscribers found out, their "alternative" was merely a for profit company that had some of these ideals, but hoping to capitalize on an entrepreneurial bent. Zipcar went as far as to make deals with municipalities to place vehicles on the street or public garages to further access in turn for security and a public-private partnership adding to the transportation mix of a metropolitan area. Zipcar went on to place their vehicles practically every two blocks from each other – in the case of downtown Portland, Oregon – and on select publicly funded university campuses.

The Avis Budget deal provided some advantages to Zipcar that might not have been available under the current structure. Potentially, Avis Budget maintenance centers would open up to servicing Zipcar fleets – provided that a market is accessible one of the bases. It would mean positioning a Zipcar market preferably near an airport.

The flip side to the deal is that while possibly maintaining Zipcar's fleet, Avis Budget will see these vehicles as older, though some with fewer miles per year on them. One thing you will not see at Zipcar is a form of cross breeding with the Avis Budget fleet. To balance the advantages and challenges, Avis Budget may have to learn about the carsharing business from Zipcar to understand why they bought them in the first place.

Though Hertz and Enterprise already have similar operations in key markets, corporate-controlled carsharing firms may be the wave of the future in this segment. After all, they are mere rental cars, right? Not in the traditional sense, but a subscriber made an agreement to access a vehicle on a temporary basis – even for a few hours – with a vehicle provided and maintained under that subscriber agreement. The one thing you do not have to pay for is gas at the end of the time with the vehicle – at least with some carsharing firms.

So, how does a deal between Zipcar and Avis Budget affect other carsharing firms? A good example is here in the Twin Cities where Zipcar's presence at the University of Minnesota competes with the locally operated carsharing service HOURCAR. While Zipcar’s four hubs have eight cars located between the East and West Bank campuses, HOURCAR operates 39 vehicles across the metro’s core locations. This includes locations on four private college campuses in Minneapolis and St. Paul – along with five vehicles just outside of the University of Minnesota’s main campuses.

It is not just a numbers game that is in play here. The point being is whether a non-profit, community-based carsharing program can compete on the same level as a corporately run service. It would depend on the market. For example, Twin Cities consumers would prefer to patronize local businesses or businesses headquartered in the region. There is also a high level of support for non-profit organizations per capita in The Cities when compared to other similarly sized metropolitan areas. The market would point to a preference towards a carsharing service, such as HOURCAR over the corporately owned alternative.

What kind of potential impact the acquisition of Zipcar by Avis Budget might have on the car hire business? Could this single corporate transaction actually change the way we travel? It would depend on whether Avis Budget change the way Zipcar does business within their markets.

One such issue is driver qualification. While Zipcar allows 18-year-olds to gain access to their vehicles through memberships in conjunction with a university campus, they would not be able to gain access to the Avis or Budget rental fleet. The standard minimum age for a renter at Avis and Budget is 21-years-old – with a surcharge on top of the daily rate. There are some exceptions in some markets and pertinent exceptions, but one would expect some 18-year-olds might be turned away at the Avis or Budget counter.

In several markets, there are more than enough options for the carsharing user that would probably create a real impact by the Zipcar deal. Would it mean that Avis Budget would leverage a more competitive and aggressive strategy in terms of pricing and membership costs against Hertz On Demand or Enterprise Car Sharing? Would it also mean leverage to enter into markets through acquiring independent competitors?

I certainly hope not.

In many ways, non-profits and corporate entities can co-exist. In this business, it has to since some carsharing users equate this service as a sustainable transportation option. On the Zipcar-Avis-Budget/Hertz/Enterprise side of the argument, they back up the sustainable claim as they do provide a transportation alternative to urban dwellers, university campus communities and budget travelers alike. Non-profits will argue that they are, indeed, sustainable by nature and have a following that share the same beliefs as the organization behind the carsharing service.

Do not think that the Zipcar deal will change the way we see car hire services. Nor, would you fear that it would signal a consolidation of carsharing services across the country – including local non-profit providers. Change, however, is looming on the horizon. How that change in car hire services will manifest is not as clear as one might think. It will depend on how each service and its subscribers define in the phrase "sustainable alternative transportation" in terms of the future of carsharing.

The Zipcar deal might be good for carsharing. It might also be beneficial for Avis Budget Group. Then again, it might be cause for concern for its competition – non-profit or corporately owned – as to the direction carsharing may end up when it is all said and done.