Rental Companies’ Team-Up With Autonomous Tech Is a Last Gasp

Renting a car has always been a pain. From the long lines and high rates to the arcane policies and terrible customer service, it’s never been a fun process and is oft a dreaded one.

With the advent of ride-hailing platform platform companies like Uber and Lyft and self-driving initiatives such as Google’s Waymo and Apple’s Project Titan, it’s seems that traditional rental car services are rapidly being displaced in this new version of the auto market.

Over the past year, Hertz stock took a pounding and fell by over 75%. It’s bad enough that the car rental industry has to compete with the rise of car-hailing, but it’s also ailing from the fall in the price of used cars.

Car rental companies heavily depend on offloading thousands of cars from their fleets every year, but an increase in new car leases has left the used-car market oversupplied and falling hard in value.

Investors were concerned about the future of the industry amid falling profits and things were looking quite dark for traditional rental car companies.

But as with many evolving industries, traditional companies can either get shoved under the rug, or find themselves a new place in the modern economy. And just as Applico predicted last year, that is exactly what Hertz and Avis have done.

The car rental companies know something that new tech savvy companies don’t: they know how to manage and maintain fleets of cars.

Companies like Uber would and should utilize their platform business model and network effects instead of trying to own a fleet of cars. The moment a platform attempts to manage its own fleet, it will lose the advantages that come from a business model predicated on low marginal costs.

So now, as Avis teams up with Waymo and Hertz partners with Apple, there’s no doubt that the market is headed towards an automated automotive future with an opportunistic spot for rental car companies. The rental companies have found a new stream of steady revenue to shore up their falling profits by servicing, cleaning, and securing vehicles for managers of fleets of autonomous and shared cars.

These deals just go to show that in this autonomous auto industry, old dogs can try learning new tricks.

After the announcement, shares of Avis increased by 8.5% and Hertz went up by 7.7%. Not surprising as inking a deal with self-driving companies was surely going to look good to investors.

Waymo will own the self-driving cars, while Avis will store and service the vehicles. By partnering with Avis, Waymo hopes to support its fleet and early rider program. With partnerships of this sort, tech companies don’t have to manufacture cars, and car companies don’t need to develop tech — seems like a win-win.

Who’s Hopping on the Self-Driving Bandwagon?

So what are the new teams? Uber is in the process of transforming its fleet into an autonomous one, which would eliminate drivers, cut costs for customers, and hopefully even earn a profit. Its early 2017 partnership with Daimler was a huge step in the autonomous direction.

Lyft, Uber’s rival in the ride-hailing market, partnered with General Motors to develop autonomous vehicles. On top of that, General Motors even purchased Cruise Automation for hefty $1 billion dollars.

And as big as Apple is, it only has around half a dozen vehicles in its self-driving fleet at the moment. It is uncertain whether Apple will simply test autonomous vehicles with a larger number of cars on the road, or if it plans on renting the cars out to Hertz customers.

But either way, these self-driving cars will not be seen on the streets for several years. And even when they are, they will probably be seen in small pockets of metropolitan areas before widespread adoption.

With less than 100 active cars each, all of the other companies are not even close to competing with Waymo’s forthcoming fleet of 680 self-driving cars. Its partnership with Avis only propelled Waymo farther ahead in the race, and will make it the largest self-driving fleet in the world.

A Driverless World

One day, perhaps we will have no need to drive or even rent cars if the conjoined efforts of autonomous and ride-hailing are successful.

Even with the monumental changes about to come to the autonomous vehicle industry, cars will still need maps and parking and other basic functions. Mark Lawrence, CEO of parking platform SpotHero, believes that instead of the customer reserving a parking spot, the car will automatically do it.

Traditional companies won’t necessarily disappear; they can adapt and integrate into a new world order if need be. Incumbent companies don’t need to end up like Circuit City.

Truth be told, Avis, Hertz and all of the other big rental companies essentially have no other choice but to partner with the tech titans working on autonomous vehicles. It’s rather necessary in order to survive at this point and the companies are hanging onto scraps of their business, ghosts of their formerly successful selves.

Eventually, tech companies could invest money into manufacturing their own cars and hire the people needed to manage the fleets. What would rental car companies do then?

The fact of the matter is that this is most likely a short-term solution, really a bandage, for rental car companies.

True enough, Hertz started bouncing back from its plummet in the markets, but the improvements stemming from these deals were minimal. With so many changes in the auto industry, it is hard to conclude that rental car companies will go out of business, but they will probably not service self-driving cars forever.

Maybe if they had invested in technology companies earlier, things would be different. But they waited until they essentially had no other options but to kowtow to the likes of Google and Apple; it appears most likely the tech companies will be steering the foreseeable future.

And will that future hold a spot for rental car companies?

Lessons to Be Had

The existential question rental companies will need to answer is whether or not they’re content with shifting from renting cars in droves to merely serving as stewards for vehicles operated by other companies, from market leaders to overwrought car washes.

A $75 billion industry has had a rug pulled out from beneath and it’s tumbling, with only a minute reprieve from the pain in the form of deals with the eventual devil. Autonomous efforts like Waymo, Project Titan, and many more will completely rewrite everyone’s relationship to vehicles.

Avis, Hertz, and the whole lot are far behind the curve because they didn’t pursue the best kind of digital transformation – they didn’t look to platforms and how the business model could’ve shored up their flagging profits.

Now, they’re painted into a corner and must take whatever terms offered them by Waymo and Apple. Other industry leaders would do well to learn from Hertz and Avis’s examples.

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