Thursday, January 3, 2013

Rental Car Formats

Avis is buying Zipcar. Where will the value be created? Avis is a traditional rental car company catering mostly to business travelers. Zipcar specializes in hourly rentals in dense cities for car-less residential customers to get errands done. Avis Chief Executive Ron Nelson claims three possible sources of synergies.
Avis expects the deal to lower the companies' combined costs by $50 million to $70 million a year. Mr. Nelson said the synergies were tied to three components: lower fleet costs, better fleet utilization and increased revenue by targeting corporate clients, one-way rentals and airport bookings.

In particular, there could be a cost complementarity as Avis's traditional business customers tend to rent during the week while Zipcar's tend to rent during weekends. A merger could decrease both units' idle time of their the chief asset, cars.

2 comments:

  1. Hiring a car on rent becomes very vast from last few many years and there are many people who are looking for hire a car on rent.Plenty of choices as well as opportunities that they can get from there.

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  2. Avis's acquisition of Zipcar is bad news for rental car consumers. This is normally the case when companies that dominate an industry with an old business model purchase upstart competitors with a business model that is new or threatening to them.

    Owners of Zipcar are happy because it allows them to cash out with a premium. The obvious alternative is to attempt to hang on and compete against Avis, Hertz and other industry leaders as they try to respond to the upstart challenge by building their own businesses to compete against Zipcar and similar upstarts.

    The real issue in this deal is culture. Zipcar has a way of conducting business that is particularly appealing to the young, hip urbanites who walk, bike and use public transportation most of the time and don't own a car. They like the types of compact/cool cars that Zipcar provides, the convenience of picking them up in their neighborhood, and the business concept of sharing cars with people like themselves. Everything about Zipcar from its marketing to its customer interface are unique to their particular brand.

    Avis executives will attempt to preserve Zipcar's culture and business model, but I am sure that in time, decisions will be driven by cost savings and a desire to increase profits. Such acquisitions almost always result in management resignations and terminations of the acquired company, closure of locations that compete directly with the larger brand, and an overall change of culture that eventually wipe out all concepts originally implemented by the smaller (acquired) company.

    Worstall, T. (January 2, 2013) Explaining the Avis takeover of Zipcar. Forbes Magazine. Retrieved from: http://www.forbes.com/sites/timworstall/2013/01/02/explaining-the-avis-takeover-of-zipcar/

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