Why Volkswagen thinks buying a car rental company will turn it into Uber—but better

July 29, 2021, 5:35 PM UTC

Volkswagen believes the stodgy business of renting cars out could secretly be a digital diamond in the rough.  

The German carmaker said on Thursday it agreed to pay €1.7 billion ($2 billion) for a de facto majority stake in Europcar, like most peers best known for their dependence on customers shuffling into airports and train stations on business or holiday.

For VW, however, buying Europcar is far more than an entry into the ho-hum world of renting. Instead, VW sees the acquisition as a foundational pillar of a new strategy the automaker presented earlier this month, one that should see it shed its conventional business model of selling cars.

By the end of the decade it aims to turn into a “software-driven mobility company” and beat not just rival manufacturers like Tesla, but also ride-hailing services like Uber and Lyft as well.

“We think it’s the best starting point for a future mobility platform. They bring a lot of basic skills and knowledge which we today do not own” chief executive Herbert Diess told reporters on Thursday. “We didn’t buy a car rental company, this is not our aim.”

It sees Volkswagen reunite with a business it sold back in 2006 after six years as a wholly owned subsidiary in order to drum up cash to finance the restructuring of its high-wage and heavily unionized German operations. 

“Should we have kept Europcar in hindsight? I don’t know. They went through difficult times,” he told reporters. “There was no evidence that the rental car business could really have a new business model, but this is quite evident now.”

Poor track record

VW’s plans to combine car manufacturing, hailing, sharing, and renting under one roof dovetails with the current industry trend toward “mobility services”. But despite multiple attempts to crack the code, Volkswagen’s track record so far is grim. 

Apart from divesting Europcar, it first bought and then ditched Dutch fleet management company LeasePlan, launched an unsuccessful car sharing service in Germany called Quicar it later closed, and invested $300 million into ride-hailing firm Gett before fully writing it off as a complete loss.   

Diess indicated its latest attempt, the electric vehicle sharing service WeShare, also remains firmly in the red due to an insufficient utilization rate, the key metric determining profitability.

He said VW would bundle its various mobility services like WeShare in Berlin and integrate them with Europcar, since the best chance to earn money is by aggregating all its offers onto one platform. 

“So far it’s very hard to achieve profitability with car sharing programs, but the combination of car sharing and car rental makes a lot of sense because throughout the year the demand is very complementary,” Diess told reporters. 

Hertz or Avis next?

The offer comes after more than a year and a half of screening possible candidates that might serve as a foundation for their plans.

“We considered many different targets but we kept coming back to Europcar, because we know this company. It’s the best European brand,” Diess said. “We are now pushing Europcar to build up this mobility platform fast and we’ve already reserved some resources for that in our business plan.”

Volkswagen is bidding for the listed company as part of a consortium, in which it will own a 67% stake. The offer, which values the rental car company at €2.9 billion in total cash and debt, has already gained acceptance from two-thirds of the existing shareholders.

One of those, a private equity firm called Attestor, will tender its 13% of Europcar to become a junior partner with Volkswagen. Diess said it is expected to help with restructuring the business at a faster pace than VW itself is capable of achieving. 

Meanwhile PON, a Dutch car importer that came up with the original design for the cult VW Bus, completes the trio and will add its expertise in mobility services. 

“This new step further strengthens the long and close relationship between Volkswagen and Pon,” said Janus Smalbraak, CEO of the company, in a statement.

Diess kept quiet when asked if the acquisition of a European car rental agency logically suggested that VW might have to purchase an American one like Budget, Avis or Hertz as well.

“We will focus for the foreseeable future on really converting Europcar into a mobility platform, and once we see progress then we think about next steps in other regions,” he said.

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