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Avis' buy of tiny Zipcar could be in antitrust fast lane

A logo is shown on the side of a Zipcar in San Francisco, California January 2, 2013. REUTERS/Robert Galbraith
A logo is shown on the side of a Zipcar in San Francisco, California January 2, 2013. REUTERS/Robert Galbraith

By Diane Bartz

WASHINGTON (Reuters) - When car rental giant Avis announced in early January that it planned to buy Zipcar, hipsters across the United States gnashed their teeth in unison.

But an informal poll by Reuters of nine antitrust experts, many of whom lamented the deal privately for the feared loss of a lively upstart, found that eight of the nine expect U.S. regulators to approve the deal.

The quirky Zipcar is admired for its new approach to car rental. Young, monied professionals who have decided to live car-free and broke college students can join and then rent a car for $11.25 an hour, often without leaving their neighborhood.

Beyond convenience and attentiveness to customers, there are the whimsical elements, like nicknaming the cars. There is, for example, a Toyota Tacoma pickup truck in Berkeley, California dubbed "Thaddeus."

Avis Budget Group Inc said on January 2 that it would pay about $500 million in cash, a 49 percent premium, for Zipcar Inc , thereby taking the top spot in the fast-growing U.S. car-sharing market.

With Zipcar in its stable Avis is poised to zoom past larger rivals Hertz Global Holdings Inc and Enterprise Holdings Inc .

"My first reaction was concern because I have been very excited to see the significant growth of startups (like Zipcar and other car-sharing companies)," said Ilana Preuss, 40, a Washington community development advocate who uses Zipcar.

"One nightmare would be they ruin the customer service of Zipcar, the friendliness of Zipcar," she said. "I'm hopeful that Avis will be able to add to what Zipcar does. I would hate to see it change for the worse."

The 12-year-old Zipcar charges more than traditional rental car companies for longer rentals but makes up for the high price with convenience for its members, who now number more than 760,000 in 37 U.S. states after the company's start in Cambridge, Massachusetts.

Its niche - and one which it more or less created - is in rentals as short as an hour for users who, for example, may want to run a few errands, drive to business meetings or deal with an emergency.

Once signed up for Zipcar, members who reserve a car find it waiting for them in a designated parking spot with no need to wait in a slow-moving line at a car rental counter to fill out lengthy forms.

And no need for city slickers to trek to the airport: Zipcar has vehicles stashed in spots around many city and inner suburban areas. It also has a strong presence in college towns like Bloomington, Indiana, and Chapel Hill, North Carolina.

Its fleet is stocked with premium cars like BMWs or Audis, fun cars such as the Mini Cooper, and larger vehicles like the Ford E-150 cargo van for that weekend apartment moving project.

Each vehicle is returned back to its designated spot at the end of the rental. Availability of each car is shown online, and renters can specify a block of time - say, from 10am to 2pm.

Avis, which declined to be interviewed for this story, has said it expects the deal to close in the spring of 2013. Zipcar will operate as a unit of Avis and Scott Griffith will remain the unit's chief executive officer, Avis said this month.

Hertz and Avis have made small efforts to get into the car-sharing business but neither have come close to challenging Zipcar's lead in this market.

In the rapidly consolidating world of car rentals, Avis has been relegated to No. 3 in the $22 billion U.S. industry. Hertz vaulted into the No. 2 spot with its acquisition of Dollar Thrifty Automotive Group, with Enterprise atop the pack.

While travelers landing at major airports see a profusion of car rental counters, at this point there are three giant nationwide rental companies. Avis previously bought Budget Rent a Car, Hertz owns the brands Dollar and Thrifty, and Enterprise owns Alamo and National.

Zipcar did not return telephone calls seeking comment.

FTC'S BRIEF TO CONSIDER IMPACT ON INNOVATION

The Federal Trade Commission is likely to review the Zipcar deal for antitrust concerns since it also looked at the Hertz acquisition of Dollar.

It could decide to challenge the proposed transaction under 2010 guidelines which allow regulators to oppose a deal if it would hurt competition in innovating, said Herbert Hovenkamp, who teaches antitrust at the University of Iowa College of Law.

"The government has said that it will challenge a merger on those grounds. It seems to me to fit with the Zipcar story. That's what I'm suspecting is going to emerge in this," said Hovenkamp.

But most other antitrust experts did not expect Avis to face stiff regulatory headwinds.

"I don't think there's any barriers to entry here," said David Balto, a veteran of the FTC and Justice Department now in private practice.

In order to stop a proposed merger the FTC and Justice Department usually show that prices will go up because of the deal. They must also show that if prices go up that there is little likelihood that newcomers will move into the business.

Peter Carstensen, who teaches at the University of Wisconsin Law School, believes the merger will be approved, and it angers him.

"It's the decline and fall of merger law," he said. "It's on top of a lot of other consolidation in the auto rental business. If it (the deal) has any economic effect, it will be an adverse one but there's no way we can prove an immediate substantial probability of an effect on price. I don't like it."

Still, Zipcar member Mike Bennett, a 35-year-old contractor who works on projects for the U.S. Agency for International Development, is a prime example of why the deal may win approval.

Bennett, who lives in Washington, uses Zipcar about once a month to visit family in the Maryland suburbs. He likes the service but if it deteriorates on Avis' watch, would happily switch to an upstart that is challenging Zipcar.

"I hope that the level of service and the availability of cars stays the same or improves," he said. "(But) I can always cancel and go to those little Smart Car ones, Car2Go."

(Reporting By Diane Bartz; Editing by Ros Krasny and Diane Craft)

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