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NEW YORK (TheStreet) -- Zipcar (ZIP) - Get ZipRecruiter, Inc. Class A Report, the car-sharing company that had a successful IPO in April 2011, has significantly reduced its vehicle acquisition cost over the past year by shifting from leasing vehicles to purchasing vehicles through an Asset Backed Securitization facility that provides access to lower-cost vehicle financing. The company competes with traditional car-rental companies like Hertz Global Holdings (HTZ) - Get Hertz Global Holdings Inc Report, Avis Budget Group (CAR) - Get Avis Budget Group, Inc. Report and car sharing services like Enterprise's WeCar, UHaul's UCarShare and City Car Share.

We have a

$27 Trefis price estimate for Zipcar

, which is significantly ahead of the market price.

Car sharing is an asset intensive business and Zipcar requires an ongoing access to capital to finance its fleet of vehicles. While Zipcar had earlier been leasing its vehicles, it has now started phasing out leased vehicles and replacing them with purchased cars, primarily through the ABS facility, first announced in May 2010 for its U.S. fleet. This facility, led by

Credit Agricole


Goldman Sachs

with an aggregate of $70 million in variable funding has significantly reduced the cost of financing for Zipcars. Zipcar renewed this facility in May 2011 to provide $50 million vehicle finance with more favorable interest rates and collateralization.

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Zipcar's fleet costs currently stand at almost 70% of total revenue and include vehicle lease costs. While Zipcar plans to continue with leasing vehicles in Canada and the U.K, it is now replacing its U.S. fleet with purchased vehicles with access to cheaper vehicle financing. The number of vehicles under operating leases fell from 90% in 2009 to 50% in 2011.

This shift is expected to continue and will result in lower vehicle lease expense cost included in fleet operation costs in the U.S, thus improving EBITDA margins. While this will also result in higher capital expenditures and vehicle-related interest expenses, the overall fleet acquisition costs would still be much lower for Zipcar, which forms a key driver of car-sharing business.


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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.