Following the easing of travel restrictions around the world, there has been a rise in demand for car rental services. Credit: www.hollandfoto.net on Shutterstock.

German carmaker nears acquisition deal for Europcar in exchange of around $3bn.

After having its first bid of $2.6bn rejected a month ago, Volkswagen seems to have been able to persuade the group of hedge funds that controls the French car rental firm by increasing its initial bid by 15%.

Sweetener clauses could be added, and the final price may change due to the complexity of the negotiations on the French firm, which includes more than five different hedge fund investors. However, it looks like there is little uncertainty about whether the acquisition will be completed or not.

On paper, the deal looks beneficial for all parties involved. This last year has been particularly tough for the car rental firm amid international travel restrictions imposed due to the pandemic, which led to a 45% drop in revenue for Europcar.

On the other hand, Volkswagen seeks to benefit from the French group’s infrastructure and technology, as the carmaker envisions a bright future in the mobility services sector. Also, this acquisition will help Volkswagen to place battery electric vehicles (BEVs), which would make it easier for the Germans to hit the increasingly strict EU emissions regulations.

News about the negotiation has been well received by both sides in the trading market, especially for the car rental firm. Europcar shares closed at €0.4873, a 3.5% jump compared to the opening price.

Tying up with automakers may be the only lifeline for car rentals amid chip shortage

After most travel restrictions have been eased, if not lifted, around the world, followed by the subsequent rise in demand for car rental services, these companies are now struggling to satisfy demand due to vehicle supply disruptions.

While car rental firms have historically encountered little resistance from carmakers to acquire vehicles in bulk at a discounted price, the current semiconductor shortage is causing severe difficulties for these carmakers to meet the demand from their own customer base.

Although this Europcar-Volkswagen tie-up will not solve this semiconductor supply disruption, it would certainly simplify access to vehicles by the car rental service from an operational standpoint.

Car-sharing and ride-hailing services threaten traditional car rentals long-term future

Proliferation of newcomers in the mobility sector will force car rental services to rethink their business models since they have not been able to block their spread by challenging their legitimacy.

Volkswagen may intend to do just that by making the most of the Europcar network, as it’s currently expanding its electric car-sharing service ‘WeShare’ across Europe. The carmaker also plans to explore new formulas of rental and leasing of new and used electric cars, through additional sale channels.

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