The destruction of the car rental industry? There’s an app for that.
Hertz knows it, and Avis too. The two car rental giants are the poster cases for the ways technology may be forcing an entire business model, well, off the road.
Both firms have been reporting the impact of Uber and the ride-hailing rise. Hertz announced news on Tuesday (August 8) that losses are continuing, and Avis cut its profit projections. Bloomberg noted the problems are compounded, in part, by a sort of overbuild, as Hertz has bought more cars than it needs for its fleet and has since been trying to sell some of them off.
Bloomberg likens the existential threat posed by ridesharing to the car rental firms as akin to the Blockbuster demise at the hands of Netflix and other digital film rental conduits. The slow-motion crash may accelerate, and the numbers bear witness. Hertz’s latest report shows losses have continued across three straight quarters, with 63 cents’ worth of red ink on the bottom line worse than consensus.
The newswire noted this is not all Uber’s fault and, instead, ties into missteps against a general malaise in the auto industry. In fact, Uber and Lyft have dinged the businesses of the car rental firms by low single-digit percentages — with that business tied to rentals at airports — according to Hamzah Mazari, analyst at investment banking and diversified financial services group Macquarie, in the Bloomberg article.
The worst case scenario? Some bears on Wall Street see an impact at 25 percent of revenues lured away via app-driven drives. As Bloomberg noted, Mazari thinks the impact is more likely to be around 5 percent to 7 percent.
So what are the other headwinds? Along with a larger-than-needed fleet, Hertz has had to drop its rental rates to keep its vehicles on the road. And, to make matters worse, millions of cars are coming back to the car companies off of expiring leases, which means that selling older rental cars — an additional top-line generator for Hertz and peers — is not as easy as once it was.
But perhaps not all is lost. In discussing its latest earnings on Tuesday, Avis CEO Larry De Shon said there had been an inflection in pricing in June and that rental rates are starting to pick up. The longer-range plan, as noted by Bloomberg, and one that takes aim at technology, involves leasing cars to Uber drivers, a business model currently in the pilot testing stage.
Avis has a pact in place with Google’ autonomous car development company Waymo to help manage self-driving vehicles based and operating in Phoenix, Arizona. Hertz has an agreement with Apple in which the tech giant will lease Lexus SUVs from the car rental firm and test autonomous driving technology.
The road is a long and bumpy one, and it remains to be seen whether these new efforts will bear fruit. But, like those spiky barriers remind us at the car rental agencies themselves, the only way to go is forward.
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