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Avis Budget expands into a new market with major purchase

Is it possible to find some synergies from combining a traditional car rental company with a membership-based car sharing service? Avis Budget Group, the parent of Avis and Budget, aims to find out with a new acquisition.

Avis Budget Group said it has agreed to pay $491 million to purchase the assets of Zipcar, subject to shareholder approval. Twelve-year-old Zipcar has some 760,000 members who pay for the right to access its fleet of cars for short-term use—usually a few hours or a day. Zipcar operates in 20 major cities in the U.S., Canada and Europe, and also has cars available at 300 colleges and universities.

By focusing on major cities and colleges, Zipcar is targeting the market of individuals who might find it too much of a hassle to own their own car, but still want access to one for occasional getaways or chores.

“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,” said Avis Budget Group CEO Ronald Nelson. “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 (i.e., Zipcar members) in more places. We also expect to leverage Zipcar’s technology to expand mobility solutions under the Avis and Budget brands.”

Avis Budget said it expects to see $50 to $70 million in annual synergies from the acquisition. The company said it will save money by increasing fleet utilization, and will increase revenues “by leveraging Avis Budget’s fleet to meet more of Zipsters’ weekend demand, which is currently constrained by fleet availability.”

The acquisition also gives Avis Budget a leg up in competition against Hertz’s growing short-term rental operation called Hertz on Demand, which currently has about 160,000 members.

Zipcar members who know they will need a car for a certain number of hours a month can sign up for a $50 prepaid monthly plan in major cities like Chicago and San Francisco, with hourly rates starting at $7.88; or if they only need a car occasionally, they can book one without a monthly payment for rates starting at $8.75 an hour or $79 a day. Membership costs $50-$60 a year plus a $25 application fee. Rental rates include gas, insurance, and up to 180 free miles a day.

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