Redefining Rental: Evolving Car Rental Programs Target Corporate Users - Business Travel News

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Redefining Rental: Evolving Car Rental Programs Target Corporate Users

June 13, 2011 - 02:20 PM ET

By Jay Boehmer

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 rental."

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."

What's The Difference?

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 transaction-based service."

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 badges."

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 to be."

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." 

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