Uber & Lyft vs. Traditional Rental Cars

Hertz stock trails Avis this year

Hertz stock trails Avis this year, (Welch, 2016)

With all the recent talk of Uber, its expansion, and of self-driving cars (Davies, 2016), many may not have noticed that conventional rental car companies’ profits are waning in the wake of the successes of Uber, Lyft, and other new transportation companies. In November, it was reported that “Hertz shares fell 23 percent, wiping out $739 million in equity value” (Welch, 2016), and analysts are predicting new mounting challenges for traditional rental car companies who do not make the experience better for consumers (Lieber, 2016). In light of the fact that may airports have now lifted bans on Uber and Lyft, and that many business travelers are opting for an easier and more convenient mobile-based experience at the airport (Lieber, 2016), the environment is even more ominous. Though, unlike Hertz, competitor Avis did beat sales and profit estimates (Welch, 2016), the signs or trouble are there (e.g., decline in rental rates and volume) for the traditional rental car industry, and losses may not be avoidable by simply controlling costs.

Not all is perfect, however, with ride sharing services and new transportation companies. There are issues that may not come up with Hertz or Avis, such as having to publish official Community Guidelines (Brown, 2016) to prevent undesirable behavior that would not matter to rental car companies. For example, talking with your driver while holding an open container of alcohol or choosing not to use your seatbelt could get you banned from Uber for three lifetimes (Brown, 2016). Until traditional retail car companies drastically shift business or product strategy, these types of issues, which take resources to manage, will not be need to be addressed.

What strategy changes do you think traditional rental car companies will need to implement in light of companies like Uber, Lyft, Zipcar, and the like? 

References

Brown, B. (2016, December 10). If the ‘Uber back seat club’ is on your bucket list, you may get banned for life. Digital Trends. Retrieved from: http://www.digitaltrends.com/cars/uber-behavior-rules/

Davies, A. (2016, September 16). Here’s what it’s like to ride In Uber’s self-driving car. Wired. Retrieved from: https://www.wired.com/2016/09/heres-like-ride-ubers-self-driving-car/

Lieber, R. (2016, December 9). With Uber and Lyft nearby rental cars may be ripe for a comeuppance. New York Times. Retrieved from: http://www.nytimes.com/2016/12/09/your-money/with-uber-and-lyft-nearby-rental-cars-may-be-ripe-for-a-comeuppance.html

Welch, D. (2016, November 7). Hertz’s shares tumble 23% after profit misses estimates. Bloomberg. Retrieved from: http://www.bloomberg.com/news/articles/2016-11-07/hertz-falls-as-quarterly-profit-trails-estimates-outlook-is-cut

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7 Responses to Uber & Lyft vs. Traditional Rental Cars

  1. Beverly says:

    Interesting post James! This reminds me of a simple question, “Where did my customer go?” The disruptive Uber model has shifted the way organizations strategize about resources and services. At the very least, the rental car companies need to recognize the Uber model has impacted a significant portion of their customer base by providing another alternative.

    I attended a conference last week and rather than rent a car, my teammate and I shared an Uber car each day. This allowed us both to conduct business while in route to the conference. Rental car companies need to think of new ways and also re-identify their target audience. I don’t see a need to rent a car while on a business trip and if I do, “price, convenience, and a zero waiting line policy” is important.

    This reminds me of the explosion of digital and online channels and the impact on traditional media and in-store sales. If the rental companies don’t think quick, we may see some consolidation of large companies and in some cases business closure. One bright spot is some consumers have to get pass the trust and control factor with relying on the Uber service so this may be a saving grace for the rental companies.

  2. Katherine says:

    Hi James –

    Great read! While many have focused on the impact Uber and Lyft have had on the taxi industry, there has not been as much coverage on the impact these disrupters have had on the rental car segment. My husband does quite a bit of traveling for work, and he too typically opts for an Uber instead of a rental. I could these how these new services are changing the course of this industry.

    For these companies, a new operating model or investing in new capabilities will be needed for their continued existence. An idea that come to mind is creating better partnerships or alliances with body shops, dealerships or insurance companies when someone’s regular vehicle is in the shop. In these circumstances, the person may not be willing to forgo the convenience of their own vehicle for an Uber. Especially if the work will take several days, getting around by Uber may not cut it.

    Great work!

    Katie

  3. Thea says:

    Hi James,

    Great insights on this shift. Companies like Enterprise have already made adjustments to their rental process, streamlining it to the point that minimizes your time at the counter. You walk up to a kiosk, pull up your rental and print a ticket. You then take that ticket to the car lot, hand it to an attendant, who then pulls the car up for you and you’re out the door. Rental companies will need to continue to implement these efficiencies to compete with rideshare services.

    Rental companies should also consider bolstering their loyalty programs and incorporate incentives for infrequent renters to rent more often. When Lyft notices that you haven’t used their services in a while, they often send the user an offer for 10% rides. Rental companies could use this strategy to bring in new clientele and widen their customer base.

    Great job!

    Thea

  4. Lydia says:

    Hi James,

    Great post! I’m about to rent a car this week and a relative was talking up the rental car deals extended to family through United Technologies.

    Uber and Lyft are very convenient, but there are still areas of the country where drivers are not available or within a reasonable amount of distance. I was floored at the amount of money Hertz is losing. Traditional car rental companies need to adopt models that look far beyond the the present day toward the future of transportation, such as self-driving cars. There may be an enormous opportunity with new technology, essentially removing the cost of the driver, offering a similar service as Uber and Lyft, while retaining the traditional element of the business as well.

    Thank you!

    Lydia

  5. Lindsay King says:

    Hi James,
    I really enjoyed your post. I can say I have not used Uber or Lyft. When I learned how they keep your personal information and made it available to all employees I did not want to use the service. Plus, news reports of rideshare drivers attacking their customers didn’t help. Granted, there have also been reports of customers attacking drivers, but in the age of identity theft I would want a company that appears to be more on the side of the customer.

    Personally, I like rental cars. I am a Budget customer. I use that service so much that when I travel my car is always ready and I don’t have to wait in line. Many times I get a free upgrade. Granted there is the hassle of additional fees and paying for insurance for the car, but for me I’m fine with that. As a single woman, safety is more important than convenience.

    Who’s Driving You. (2016). Ridesharing incidents: Reported incidents involving uber and lyft. Who’s Driving You [online]. Retrieved from http://www.whosdrivingyou.org/rideshare-incidents

  6. Alyssa says:

    Hi James,

    Often times it comes down to price. As a business traveler I prefer to use rental cars because I feel I have more control over transportation time from meeting to meeting. However, my last employer started to encourage us to use Uber and Lyft because of the cost. Depending on the city many rental car companies have have unexpected fees that aren’t realized until you get the final receipt!

  7. Cecilia says:

    James,

    Great post and reflections on a changing market. I think the biggest threat to the established rental car companies are new companies like Turo where people list their personal cars for others to rent. My guess is that this type of car sharing is going to increase rapidly and large rental companies will have a hard time keeping up maintaining fleets of vehicles similarly to taxi companies today competing with Uber and Lyft.
    http://www.turo.com

    Thanks,

    Cecilia