Avis Budget Group Inc. Acquisition of Zipcar, Inc

MM

Prof. NW

50

25 September 2013

"Avis Budget Group Inc. Acquisition of Zipcar, Inc."

In my lifetime and limited experience, the need for transportation has increased overwhelmingly as the infrastructure of our country has expanded. The need for an automobile provides the convenience to travel at a moment's notice, without the dependency and limited destinations of public transportation. To remedy this, many people have turned to the car rental industry. This industry has been in existence since 1916. In recent years, alternative business models have appeared, such as bicycle rentals and most recently car sharing.

The concept of car sharing exploded on the scene in 2000. Because of its success, the car rental industry took interest as its business was taking a loss. So a business merger was presented by Avis Budget Group to acquire the successful business model known as Zipcar. Zipcar and Avis Budge Group's business models are very divergent and the success of the merger remains to be seen. The point of this discussion is to identify the potential risks Zipcar faces in order to remain successful and expand its services after the acquisition, while proposing a basic strategy for the company to sustain a focus on innovation for its car sharing service.

The idea of car sharing in the United States was brought to mention in 1999, when a 42-year-old woman named Robin Chase learned about the car sharing experience from a friend who returned from a trip in Berlin. At the time, car sharing was a popular and successful service in other parts of the world. In 2000, after developing a business plan and securing funding, Robin Chase started what we know today as Zipcar, Inc. As Chase was developing her business plan, the functions of business will be discussed, to show how these functions apply to the business model of Zipcar, Inc.

Although, Robin Chase was not the originator of the car sharing "Creation," she brought the idea of car sharing ownership to the United States. In the article, Car Sharing Catches On as Zipcar Sells to Avis, Martin wrote, "Environmentalists have embraced the idea of car sharing from the start, but Ms. Chase marketed Zipcar more on the idea of convenience, with the slogan "Wheels When You Want Them." The company grew quickly but fitfully, and Ms. Chase was forced out in 2003." (2013). Scott Griffith replaced Chase. The idea of car sharing ownership is to own a car without actually making car payments, insurance payments, maintenance fees, or purchasing fuel. Members will reserve a car for use at any time, without the hassle of waiting in lines and signing multiple forms.

Her successor Scott Griffith, as chairman and chief executive, expanded on Chase's "Creation" of Zipcar across the country and into Europe. His idea of an hourly rate, to include fuel and insurance proved too good for customers to turn down. The idea of having Zipcars parked in urban locations promoted the convenience of having wheels wherever and whenever you need them.

So, how does Zipcar operate its car sharing service? Anyone planning to use a Zipcar must first register for a minimal fee. Once you become a member, also known as "Zipster," you go to the company website and reserve your vehicle. The reservation is transmitted directly to the car's onboard computer via satellite link. The member flashes his/her membership card to open the reserved car's door and returns the car to the neighborhood space. A fuel credit card is located on the visor for fueling the vehicle. Fuel, Insurance, and 180 free driving miles per day are included. It is estimated that Zipsters can save an average of $500 a month compared to car owners. As a customer of rental cars, how do you know if car sharing ownership (Zipcar, Inc.) is the right choice for you? The following illustrations ask the question and provides the answers that some may have regarding the car sharing experience.

As the Zipcar membership continued to grow, Griffith had to keep pace with the increasing demand. Over the 10 years that Griffith was CEO of Zipcar, Inc., the company secured "Financing" on many different fronts. Zipcar is a new innovation in the United States and the revenue was not as expected, although Zipcar was making a profit. The financial planning and capital gains were achieved by mergers with competing car sharing companies, i.e., Avancar in Barcelona, Spain, Flexcar in Seattle, Washington, and acquisitions from Chevrolet, Ford, BMW, Toyota dealerships to name a few. In addition to the mergers, Zipcar raised $21 million from Meritech Capital Partners and Pinnacle Ventures. This is the main source of Zipcar's fleet of vehicles. Zipcar was able to increase its fleet without actually procuring them.

The next question is, "How does Zipcar manage its worldwide car sharing service? According to Bloomberg Businessweek, "The company offers its solutions to individuals, universities, businesses, and government agencies. It operates a network of approximately 775,000 members and provides services with approximately 9,000 vehicles in 20 metropolitan areas college campuses in the United States, Canada, the United Kingdom, Spain, and Austria." (2013). With more than three quarters of a million members, Zipcar has just over 700 "Personnel" to run the business. The amount a personnel attests to the level of service that Zipcar provides. With Zipcar's technology, Zipsters are not required to walk into an office to reserve a car. The entire process is completed online, with