You've just reserved a rental car. Instead of picking it up
at a retail storefront, it's parked a few blocks from the office. You use your
smartphone to unlock the vehicle, turn a key that's already in the ignition and
drive to your meeting on the other side of the city or to the airport. When you
arrive, you park and walk away. There's no annual membership fee, no line at
the rental counter, no minimum rental length and no clipboard-toting attendant
ensuring the returned vehicle's tank is filled with gas.
That scenario in some places already has become a reality.
Several major rental car companies are outfitting their fleets with automated
rental technology, which enables customers to reserve, rent, access and return
cars just about anywhere. The concept blends the transactional nature of the
rental business with the car-sharing model popularized by Zipcar, which has
found a loyal following among consumers in urban markets and on college
campuses, but has not taken hold in the corporate market—at least not yet.
Avis Budget Group CEO Ronald Nelson, for one, expects "virtual
rental technology" to transform the industry. On a quarterly earnings
conference call last month, he disclosed that the company this year plans to
install the technology in more than 6,000 vehicles.
Avis Budget is focusing its efforts on the corporate market.
The company has tested virtual rental technology on an undisclosed corporate
customer's campus and plans to expand it to others, Nelson said, adding that he
views the program capturing local corporate rental demand, even serving as an
alternative to taxis for trips from offices to airports. "Our initial
foray into the marketplace does not depend on us signing up new leisure
customers, but rather offering our existing commercial customer base a
brand-new experience," he said. "This technology allows us to manage
the rental, release and return of a vehicle from an unstaffed location, such as
the corporate campus of one of our commercial accounts. We already have nearly
3,000 cars virtually enabled and in test in various parts of North America."
Partnership Travel Consulting senior vice president Dave
Kilduff said there "absolutely" is corporate appetite for car sharing
and similar programs, particularly in urban markets like New York City. "A
lot of times for a corporate, you may only need a car for a few hours—going
from one downtown location to another," Kilduff said.
Other suppliers in recent years have launched their own
versions of car-sharing programs, including Enterprise's WeCar program and
Connect by Hertz.
Hertz CEO Mark Frissora in a recent earnings call envisioned
"that all of our cars will end up having Connect technology in them. That
will allow us to turn the car either into a normal rental or into a Connect
Enterprise, meanwhile, already blends WeCar vehicles into
its regular rental fleet. "It's really just an extension of using the car
as a service and extending the local rental network," said Ryan Johnson,
Enterprise assistant vice president of WeCar and Rideshare. "We've really
found that this technology that started in car sharing has really enabled us a
great new method of delivery to our business customers. Obviously, the Holy
Grail would be to have every car in the fleet on a financially viable level
that can switch between methods of delivery."
Consultants and rental providers noted the current
incarnations of car sharing could reduce corporate fleet overhead and help meet
sustainability goals, as illustrated by PricewaterhouseCoopers' usage. Now, they are considering further developing the concept,
suggesting that hourly rates, one-way rentals and innovations in vehicle access
could offer a new way to rent.
"In the United States, it's really an infant business,"
said Abrams Consulting Group head Neil Abrams. "Like with any new
technology, if you're smart, you see where it will take you and you'll ask, 'What
else can we do with this?' Some may come to the conclusion that they can
integrate this into other, more traditional business models."
Contrasting itself with the likes of Hertz, Enterprise and
others dabbling in car sharing, Zipcar's prospectus noted such players "may
have difficulty adapting to a member-based service rather than a
Though still membership-based, Hertz is trying to ease the
barriers to using automated rental cars. In addition to waiving all membership
fees, as the company did this year, Hertz is introducing "instant
activation kits," which customers could pick up at local rental offices in
New York, that include the radio frequency identification (RFID) cards needed
to unlock vehicles. Those interested in using the service can sign up online to
"become a member within 10 to 12 minutes," said Hertz senior vice
president of global sales Bob Stuart.
Considering you don't need a membership for renting a car,
would you need one for sharing it?
"The key to a membership in car sharing,"
Enterprise's Johnson explained, "is that you have to be able to get that
person approved to be a driver. We have to make sure they have a valid driver's
license and that they have an access point—whether that be their smartphone or
their membership card or their badge. We have lots of membership programs where
your profile is a key part of your method of delivery, whether that's the
Emerald Club, which allows you to skip the counter, or our E-Plus program. We
have millions of members today who have an established profile with us, and we
see that profile as a method of enabling your method of delivery. Ultimately, I
think that profile will be important, but the membership piece or the buy-in is
certainly in question today." Enterprise has not done away with the
membership aspect of the program, but generally waives the fees for corporate
customers, he said.
Meanwhile, with RFID cards being the primary means to access
rental vehicles, drivers still would need to pick one up at a retail
location—unless they are equipped with another access option, a smartphone or
even corporate security badge.
For example, Zipcar in May launched a beta version of an
Android app, which allows members to "make reservations, unlock the car
and even honk the horn with their phone," according to CEO Scott Griffith.
The company last year launched a similar iPhone app.
"We're absolutely testing new routes to get into the
cars," Enterprise's Johnson said. "Many corporate customers will use
their existing security badges that they use to get in an out of their
building. We use those instead of member cards today. We also have some members
that use their smartphones to get into the car instead of their membership
One-way rentals are another tweak providers are bringing to
car sharing. Hertz's Stuart said allowing one-way rentals between corporate
campuses and airports is "one of the biggest game-changers" in
applicability to corporate clients. "They save on the parking, their own
use of the personal vehicle, and they save on the taxi or the chauffeured
drive." Hertz this year launched a one-way pilot in New York City, where
there are now more than 100 pick-up locations from where renters can drive to
the three metropolitan area airports.
Enabling one-way usage "adds a very interesting value
proposition to the market," said Zipcar's Griffith, adding that the
company is exploring such an option, but cautioned that "it adds a lot of
logistics and costs that we don't currently have."
A Profitable Twist?
When Zipcar this April launched its initial public offering,
its instantly soaring stock price beat analyst expectations. Its share price
has since moderated. By the end of May, Zipcar's market capitalization neared
$1 billion, still well below Hertz's more than $6 billion and Avis Budget's
nearly $2 billion.
Griffith during the company's first quarterly earnings call
last month said he sees car sharing growing to a $10 billion market—one
separate and distinct from the pure-play rental business. "We really see
ourselves as competing in a different space, more against car ownership,"
he told investors.
However, "the largest car-sharing network," as
Zipcar casts itself, has yet to score a profit and does not expect one this
year. "The issue is, can you make money in this business?" asked
Abrams. "In a market-to-market basis, it's been proven that you can, but
from a national or global perspective, it's still yet to be proven that it's
sustainable on a continuous basis."
Avis Budget's Nelson had a similar take. "As that
business is currently defined, it would seem to be a large-city and
college-campus type of business model. How much fleet do you think you can you
deploy in that environment?" he asked investors. "Assuming they start
to expand their model to get into daily and weekly rental, then they start
competing square into our wheelhouse, and you wonder how successful that's going
Enterprise's Johnson noted that car sharing "creates a
very lopsided utilization pattern. That's why you see so many players, even the
largest in the car-sharing industry, struggling to find a viable model and
profitability." Blending car sharing with the core rental business
completes the model, he and others suggested.
Hertz's Frissora told investors that the company in 2010
generated $6 million in car-sharing business. "But once we get this
mainstream, that revenue growth will explode for us," he said.
Avis Budget's Nelson viewed the virtual rental car model as "a
much bigger opportunity than what car share is, or at least what it currently
is. That doesn't suggest we can't employ car share. We have a brand, we have
the technology, and we actually have hourly rates. We're just not sure it's a
very big business, and it's not one that we've actively pursued over last
couple of years." Regarding car sharing in particular, Nelson noted that "technology
cost has been high, utilization low, the addressable market small and profits
hard to come by."
One major cost to providers running car-sharing programs is
fuel; gas is covered as part of the membership and hourly rates charged by
Zipcar and others.
That will not necessarily be the case in future iterations
of car sharing. Tapping into the rental vehicle's electronic system, for
example, Avis Budget—which declined comment for this report—can better gauge
how full the tank is at the time of return. "Thus far, additional gas
collections are actually paying for the installations of the enabling
technology," Nelson told investors. Virtual rental technology could
further save on rental company costs by providing operators a way to expand, he
said, "without having to invest in infrastructure."