Zipcar is acquiring rival car-sharing service Flexcar in a bid to head off emerging competition from traditional rental car firms that have been adding outlets in urban neighborhoods.
Wednesday's deal, expected to close later this week, pairs the country's only by-the-hour car services with nationwide presences.
The privately held firms did not disclose financial terms of the deal, under which the Flexcar name and its systems for handling car reservations will end in favor of the Zipcar brand and technology, Zipcar Chief Executive Scott Griffith said.
Griffith will become CEO of the combined company, with Flexcar CEO Mark Norman assuming the roles of president and chief operating officer.
Zipcar, based in Cambridge, Mass., offers 3,500 cars in more than 35 markets in the United States, Europe and Canada — most of them U.S. college campuses — and has more than 120,000 members. Washington D.C.-based Flexcar is smaller, with about 1,500 cars in 15 U.S. markets and 50,000 members.
About 30 smaller regional services offering cars parked in urban neighborhoods have emerged alongside Zipcar and Flexcar, but the biggest competitive challenge for the two eight-year-old firms comes from traditional car rental companies.
Enterprise Rent-A-Car has been trying to match car-sharing services' conveniently located cars by adding small rental locations in neighborhoods, supplementing more traditional locations at airports, said David Cole, chairman of the Ann Arbor, Mich.-based Center for Automotive Research.
"It would not be a difficult thing for them to move into this business," Cole said.
Zipcar and Flexcar "are probably a little ways from where they can get the kind of scale they need to be successful over the long term, but this deal could help them get there," Cole said.
Zipcar has managed to turn profits in major cities where it's been operating a couple years or more. The costs of acquiring cars and parking spots as well as signing up members make new markets initially unprofitable.
Zipcar and Flexcar operate similarly, with members paying hourly or daily fees to book a wide range of vehicles parked in urban neighborhoods.
Members can reserve a vehicle online or over the phone. At the arranged time, the driver enters the vehicle by swiping a coded card over a windshield reader. Keys to start the car are stored inside. When finished, the driver returns the car to the pickup site, typically a private spot in a lot or garage. The services cover gasoline, maintenance and insurance costs.
Zipcar's major markets are Boston, Chicago, London, New York, San Francisco, Toronto, Vancouver and Washington — cities where traffic congestion and parking problems can make car-sharing an attractive alternative to owning. Flexcar operates in two cities where Zipcar has been a rival — San Francisco and Washington — as well as Seattle, Portland, Ore., Los Angeles, San Diego, Pittsburgh and Philadelphia.
"We have very little overlap in geography, and that's what makes this deal strategically sound," Griffith said.
Zipcar's venture capital backers will hold a majority stake in the combined company, while Flexcar's primary investor will be a minority owner, Griffith said. Flexcar's primary investor is a unit of Revolution LLC, the investment firm of America Online founder Steve Case.
Car-sharing remains a niche phenomenon in a country with more than 200 million vehicles. But Griffith projects the North American car-sharing market has the potential to expand to 1.5 million to 2 million members, with most growth coming in cities already with Zipcar and Flexcar services.
"In the near term, we're going to focus on expanding in cities where we're already operating," Griffith said.