After the FTC’s comments on the car hire market in the Hertz/Thrifty merger (see our post on that merger here), the FTC may have a chance to show what it thinks about the relationship between traditional car rental and car sharing companies. Avis Budget Group has announced that it has agreed to purchase Zipcar for a total of around $US500 million. The deal is subject to Zipcar shareholder approval “and other customary closing conditions”.
Under traditional car rental models, cars are rented by the day or week, usually as a ‘one-off’ transaction, and are picked up and returned through centralised locations. Car sharing or ‘car clubs’, in contrast, involves ongoing membership of the ‘club’ (usually with monthly or yearly fees). Members are then entitled to book and use shared vehicles which are left in designated parking spots around the city, and pay by the hour or by the distance travelled each time they use a vehicle. Car sharing is generally targeted at individuals living in urban areas for whom it may be uneconomical or impractical to keep a car, but who may need a car for short trips.
Avis’ statement on the acquisition notes that “we see car sharing as highly complementary to traditional car rental” and that Avis intends to make use of its existing fleet to expand Zipcar and to cover weekend demand for the car sharing company. Other car rental businesses already have car share arms, such as Enterprise (through Enterprise CarShare) and Hertz (as Hertz On Demand), which may influence the FTC’s perception of the relevant market.
Regulators have previously considered market definition for car rentals or car sharing separately – The FTC in the Hertz/Thrifty merger and the UK Competition Commission in the merger of Zipcar and Streetcar (which we also looked at in our post). So far, they have generally separated the car rental or car sharing market from other forms of transport, and the UK CC appears to have treated traditional car rental and car sharing as separate markets. However, this appears to be the first time that the FTC has had to directly consider the relationship between the two markets.
Assuming the deal gets past the shareholders, we will be watching with interest to see how the FTC approaches the market definition for this acquisition. With GoGet recently announcing rental at IKEA stores, car sharing is on the rise in Australia and it may not be long before the ACCC has to consider similar issues.