Volkswagen Plans To Buy A Car Rental Company

German carmaker Volkswagen is leading a consortium that is in advanced discussions to purchase Europcar in a transaction that would value Europcar’s stock at approximately 2.5 billion euros ($3 billion). Volkswagen believes the staid industry of rental cars may be a digital rare gem.

Europcar’s de facto majority share would cost the German automaker €1.7 billion ($2 billion). The company, like most of its competitors, relies on clients who travel to airports and railway stations for business or pleasure.

Europcar’s hedge fund owners turned down an earlier 0.44 euro per share offer from Volkswagen and investors, Attestor and Pon Holdings at the end of June. Europcar confirmed that the same group of investors was taking part in the new strategy.

VW’s purchase of Europcar, on the other hand, represents far more than a simple foray into the realm of renting. As a result, VW views the purchase as a key component of a new strategy it unveiled early last month, which calls for VW to abandon its traditional business model of selling vehicles.

It hopes to become a “software-driven mobility firm” by the end of the decade and beat out competitor manufacturers like Tesla, as well as commute services like Uber and Lyft.

Chief Executive Herbert Diess told reporters they believe it’s the ideal place to start when developing a future mobility platform. It equips them with a wide range of basic skills and information that they lack today. According to him, they didn’t purchase a car rental firm to fulfil their goals.

Volkswagen is reuniting with a firm it sold six years ago as a wholly-owned subsidiary to raise funds to support the reorganization of its high-wage and heavily unionized German businesses. He told reporters “In retrospect, should we have kept Europcar? I’m not sure. They had a hard time”. Until recently, there was little evidence that the rental vehicle industry could adopt a new business model, but that has changed.

Inconsistent track record
As the market moves toward ‘mobility services’, VW’s intentions to integrate automobile production, dispatching, pooling, and renting under one roof make sense. Volkswagen’s track record, however, has been dismal despite several attempts to break the secret.

Besides divesting Europcar, it has had few previous attempts too. Those are,
1. Acquired and later sold LeasePlan, the Dutch fleet management firm.
2. Established a failed car-sharing service, Quicar in Germany.
3. Invested $300 million on Gett which was written off as a total loss.

Diess stated that its most recent attempt, the electric car-sharing service WeShare, is likewise losing money because of a low usage rate, the crucial statistic determining profitability.

Because the easiest way to make money is to aggregate all of VW’s mobility services like WeShare in Berlin and connect them with Europcar, VW will package and integrate these services, he added.

Diess told reporters that vehicle-sharing programmes have been difficult to profit from so far, but combining car-sharing with automobile rental makes sense because the demand is so complimentary throughout the year.

What’s Next?
More than a year and a half of screening potential individuals who might serve as a basis for their ambitions resulted in the acceptance of their offer.

Diess explained that as a result of the analysis, they continued going back to Europcar because they were familiar with the firm. Diess commented, “It’s the premier brand in Europe. In our business strategy, we’ve already set aside certain resources for Europcar to quickly create this mobility platform.

In a consortium bid, Volkswagen will hold 67% of the listed firm. Two-thirds of the current shareholders have already accepted the offer, which values the rental vehicle firm at €2.9 billion in combined cash and debt. Private equity firm Attestor, which owns 13% of Europcar, will offer its shares to Volkswagen as a junior partner. Diess said it will help VW restructure its company at a faster rate than it can on its own.

Also joining is Dutch car-importer PON, which is best known for designing Volkswagen’s iconic bus. PON brings its experience in mobility services to the group.

CEO Janus Smalbraak stated in a statement that “this new step further enhances Volkswagen and PON’s long and strong partnership.”

Diess remained silent when asked if VW’s acquisition of a European vehicle rental firm implied that it would have to buy an American one as well.

He informed that the primary focus is on transforming Europcar into a mobility platform for the foreseeable future and that after seeing the results, they will consider the next moves in other regions.

Europcar’s current status
Because of the epidemic, Europcar’s sales plummeted by 45%, resulting in a 645 million euro financial loss. Its shares rose 10% this year on the expectation of a gradual relaxation of global travel restrictions.