Insight: Car clubs’ potential in focus after £307m deal

The acquisition of pay-as-you-go car and van provider Zipcar by global car hire business Avis Budget could provide fleet managers with more cost-effective options and improved nationwide coverage.

The £307m ($500m) deal, which was agreed on January 1, provides Avis with a market-leading position in the rapidly growing car club market and is perceived by analysts to be “highly strategic”.

Its main competitors already have a strong presence – Hertz has built its On Demand car-sharing service from scratch since 2008 while Enterprise purchased Philly CarShare, WeCar and Mint Cars On-Demand to create Enterprise CarShare, now available in the UK.

Avis’s purchase of Zipcar – which has 767,000 customers across the United States, Canada, Britain, Spain and Austria – ensures that it can capitalise on a sector which is expected to grow more than 10-fold from current levels by 2020.

Ronald Nelson, Avis Budget Group’s chairman and chief executive, said that the acquisition will enable it to provide business and domestic users with a more comprehensive service.

Nelson said: “By combining with Zipcar, we will significantly increase our growth potential and will position our company to better serve a greater variety of consumer and commercial transportation needs.

“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.”

In Britain, Zipcar – whose members pay an annual joining fee and are then charged by the hour for usage – has 1,350 cars and 150 vans spread across London, Bristol, Cambridge and Oxford.

Hourly rates start at £3.96 and daily rentals from £39.17.

John Lewis, chief executive of the British Vehicle Rental and Leasing Association (BVRLA), said: “This appears to be a sensible move for both companies – Zipcar is the most successful of all the car clubs and needed a partner to take it to the next stage of sustainable, profitable growth.

“As a world-renowned rental brand, Avis has the skills and resources to do this. 

“The Zipcar model also dovetails very nicely with the corporate and leisure car rental services that Avis offers.

“We see the car club concept as ‘self-service’ car rental with the traditional rental companies having the infrastructure and expertise to support the future development of this and other flexible mobility solutions.”

Mohamed Mubarak, automotive consultant at market analysts Frost and Sullivan, estimates that the car club market will have 26 million members globally by 2020 – up from around 2.3m today. He said: “Currently, about 13% of members are corporate customers and this is expected to account for more than 25% by 2020.

Enterprise CarShare has pay-as-you programmes – and trials – in place across Britain.

Rob Ingram, director of business rental at Enterprise Rent-A-Car, said: “In the UK, we’re finding an increasing demand from businesses and organisations across the country.

"In particular, many are interested in understanding how it can assist in controlling costs and risks associated with the grey fleet.”

Hertz On Demand is running a car-share scheme for Heathrow Airport among other corporate clients.

“Our partnership with Heathrow Airport allows staff to share vehicles, reducing Heathrow Airport’s pool fleet size by 25% and cutting fleet costs,” said Hertz UK general manager Neil Cunningham. “Car ownership is no longer seen as a must for personal and corporate mobility.”