For a company that used such tongue-in-cheek taglines as “Car rental is so last century,” and “You could rent a car (but that would be silly),” the announcement of a $500 million cash merger of Zipcar (a car-sharing company and purveyor of the above ads) with Avis Budget Group may come off as a bit disingenuous. Despite the somewhat cheeky ads, Mintel expects the purchase of Zipcar by Avis Budget Group to have a positive impact on pricing, vehicle availability, features and innovation in the car sharing space. In fact, the merger should allow Zipcar’s innovative self-service rental program to grow and expand even quicker.

Zipcar is a self-service rental car company that allows members to use a vehicle for an hourly fee – often a perfect solution for consumers who don’t own their own cars. Zipcar currently has 760,000 members, with 10,645 cars on demand in reserved parking spaces, in 20 major metropolitan areas in the United States and at over 300 college and university campuses.

Self-service car rentals (car sharing) has grown into a $400 million industry in the U.S. and continues to expand rapidly, according to Avis. Avis expects the projected addressable car sharing space to climb to over $3 billion in the U.S., and $10 billion worldwide.

Mintel agrees with Avis’s assessment regarding U.S. demand for car sharing. According to Mintel’s report Car Rental – U.S. March 2011, while 15% of survey respondents were familiar with Zipcar or a similar car sharing program, only 1% of survey respondents who rented a car in the past 24 months had used such a service for either personal or business use. The average rental for personal use is approximately 5.75 days: respondents who are 25-44 years old tend to book shorter stints with rental cars for personal use, with 12% of 25-34 year old respondents saying they’ve booked a rental car for just a day in the past 24 months. Meanwhile, 15% of respondents from households making $75K-99K a year also said they rented a car for one day for personal use in the past 24 months. Respondents who booked rental cars for one day use would be the most likely to benefit from a car sharing program.

Growth in Zipcar membership, 2007-12

2007 140,000

2008 258,000

2009 349,000

2010 540,000

2011 673,000

2012 767,481*

* First nine-months of 2012

Source: Mintel/Zipcar

Zipcar’s inability to access car manufacturer’s material contractual repurchase programs or guaranteed depreciation programs meant the company faced substantial fixed costs and residual risk with expanding its vehicle fleet and location of vehicles. Since its inception, Zipcar has lost a collective $78.8 million dollars through Sept 2012, and the company says it cannot assure that its operations will sustain profitability. Despite its great brand familiarity, Zipcar is currently unable to keep up with demand.

With over 300,000 cars in 2,500 locations in the United States and over 500,000 vehicles worldwide, Avis has the economies of scale to satisfy Zipcar’s supply problem. Recently, Avis has also agreed to purchase $3.4 billion worth of new vehicles from manufacturers over the next 12 months. Avis increases Zipcar’s opportunities on weekends (when Zipcar sees heavy usage) by freeing up Avis/Budget vehicles, which are often used during the week for business or travel use. Avis also says it will add one-way Zipcar use for ‘Zipsters’ who are heading to airports. Avis will also expand Zipcar locations in new and existing markets – presumably by utilizing some of Avis’s existing properties.

Avis says Zipcar will continue to be marketed as a form of urban mobility to local residents and as a vehicle replacement, while the Avis brand will continue to be marketed towards frequent business travelers, and Budget towards value-conscious vacation/leisure travelers.

While Zipcar currently makes up nearly half of the car sharing revenues in the U.S., the company has plenty of competition from traditional rental car companies that have established operating car sharing services – such as Enterprise WeCar and Connect by Hertz. Secondary competitors include for-profit and not-for-profit companies that provide car sharing services in specific neighborhoods, communities or cities. Because of this, Mintel doesn’t expect Zipcar’s acquisition by Avis to impact the competitive nature of car sharing at this time.

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