Zipcar-Avis deal may add rental options

Avis Budget Group is about to acquire Cambridge-based Zipcar.
John Moore/Getty Images
Avis Budget Group is about to acquire Cambridge-based Zipcar.

The car rental business is consolidating, with Hertz acquiring Dollar Thrifty in November and Avis Budget Group planning to buy Cambridge-based Zipcar. Does this mean consumers will have fewer options and end up paying more to rent a car?

Short term, analysts don’t think so. They are less certain about the long term.

With the Hertz deal, the number of major car rental companies is dropping to three from four, but there are still enough brands to keep prices stable, analysts said. Prices, they added, tend to be driven by supply and demand in regional markets.


With the Avis deal, analysts said, Zipcar users may gain options.

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Zipcar works on a “car-sharing” business model and has a fleet of just 12,000 cars worldwide, compared with 1.7 million rental cars in the United States alone. Its acquisition by Avis gives members ‘‘more alternatives and the potential of having more options,’’ said Neil Abrams, of Abrams Consulting Group.

Zipcar members can rent by the hour or day, which appeals to people who drive infrequently. ‘‘Why pay for something you don’t need?’’ Abrams said. ‘‘It’s a very cost-effective system if used properly.’’

On the other hand, he said, if you pay by the hour and need the car for a whole day, a Zipcar can cost more than a traditional rental car.

Zipcars are not typically available at airports, where competition is greater. The company serves a different market, including drivers younger than 25, who may not be able to rent from traditional companies. It also serves urban areas like Boston, New York, Los Angeles, Washington, London, and Barcelona where people do not want to own a car but want quick access to one for short periods of time.


Analysts say Zipcar can raise hourly rates only so much.

‘‘Prices can only go so high,’’ said Chris Brown, executive editor of Auto Rental News. ‘‘If prices go too high, consumers won’t rent. They will use other types of transportation. They’ll borrow a friend’s car, use public transportation, or take a train.’’

Avis has indicated it intends to increase the size of Zipcar’s fleet. ‘‘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 in more places,’’ said Ronald L. Nelson, chief executive of Avis.

The Federal Trade Commission has played a role in preserving competition in airport rentals by requiring Hertz to sell its Advantage Rent a Car business and the rights to operate about 30 Dollar Thrifty locations in airports throughout the United States. A proposed agreement was open to comment through Dec. 17; the FTC will decide soon whether it’s final.

The commission said Hertz’s original plans for acquiring Dollar Thrifty would be anticompetitive.


It contended that by reducing the number of major competitors to three, the acquisition would create ‘‘substantially more concentration in 72 airport rental car markets nationwide’’ and ‘‘eliminate head-to-head competition between Hertz and Dollar Thrifty’’ at several airports, including O’Hare International Airport in Chicago and Kennedy Airport in New York.

The FTC said the deal, as originally proposed, would have harmed competition by reducing the number of competitors and enabling Hertz to raise rental car prices.

Precisely because the commission has stepped in, prices are likely to remain stable, analysts said.

“Better pricing, higher pricing, may be the case, but not in the near future,’’ Brown said.

He and others described four tiers of rental cars: premium brands of Avis, Hertz, and National; midprice brands of Budget and Alamo; value brands of Dollar Thrifty and Enterprise; and deep discount brands Advantage, Payless, and Fox, an emerging player.

A deep discount brand like Fox is likely to step into the markets where the FTC requires Hertz to sell its Advantage business and Dollar Thrifty locations, Brown said, because premium brands are already in those markets.

Rather than prices going up, ‘‘brands will still be competing with each other for market share,’’ he said. He predicted a ‘‘grand war on rates’’ for the deep discount customer.

Car rental prices are lower than in 2009, and Abrams said he did not expect them to increase because of the Hertz deal.