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There will be more consolidation in the car rental world.
This may seem to be an anticlimactic conclusion for a love triangle that until a year ago found Hertz and Avis Budget (Nasdaq: CAR ) vying for Dollar Thrifty's hand in marriage, but the market doesn't seem to mind. Shares of both Hertz and Dollar Thrifty moved higher late last week when fresh speculation that an agreement had been reached surfaced. Both stocks are moving higher this morning after Sunday's agreement became public.
Wait a minute. Don't acquisitions typically see the buyer taking a hit after agreeing to pay a premium for a rival?
That's often the case, but you won't find any bellyaching here. Hertz and Dollar Thrifty expect to realize $160 million in annual cost savings as a result of the combination.
It's not just about the realized synergies. There's also greater freedom in pricing. Hertz may be on the high end of mainstream rentals. Dollar Thrifty may target value-minded drivers. The combination should still firm up pricing -- or at the very least limit the discounting -- of auto rentals, and that's why even Avis Budget is moving slightly higher this morning.
Where does that leave Zipcar (Nasdaq: ZIP ) ? Well, Hertz has become a legitimate player in the auto-sharing realm. Hertz On Demand offers the same model of rentals by the hour with gas and insurance included as Zipcar. Hertz On Demand also undercuts Zipcar by not charging membership fees and not requiring drivers to return the car to the same place where the rental started.
However, the merger still benefits Zipcar, especially if it finds Hertz focusing its attention -- for now -- on its traditional rental business. It also opens the door -- and the door is ajar -- for Avis Budget or Enterprise to approach Zipcar as a buyout candidate.
Consolidation will always be a part of this fragmented niche. Keys will get handed about.
Shifting into gear
Cars are cool but there's a new industrial revolution that would probably even make Henry Ford gush with excitement. A new report details the opportunity. Oh, it's also absolutely free right now.