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Hertz And Avis Eye Uber Impact, With Rough Road Ahead

Aging fleets, fickle car buyers and, of course, Uber and Lyft are all proving to be a perfect storm for rental stalwarts Hertz and Avis. But then again, if you can’t beat em, join em — and that’s a strategy that just might help avoid some big potholes. Here’s what their CEOs are saying about how to make lemonades out of those lemons.

The destruction of the car rental industry?

There’s an app for that.

Hertz knows it. Avis too. The two car rental giants are the poster children for the way technology may be making inroads into forcing an entire business model, well, off the road.

Both firms have been shown the Uber, and ride-hailing, impact. Hertz said Tuesday that losses are continuing; Avis cut its profit projections. Bloomberg notes that 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 been trying to sell some of them. But it is trying to sell those cars right as it seems that car buying, at least in the United States, has peaked.

The slow-motion crash may accelerate, and the numbers bear witness.

These missteps are coming against a general malaise in the auto industry. Consider the fact that along with a larger-than-needed fleet, Hertz has had to drop the rates it charges to rent in order to keep vehicles on the road, fighting the pressures of weak industry pricing in general — likely exacerbated at least in part by ride-hailing.

Lest you think these have been isolated incidents, the confirmation comes, also, from other avenues — one big tell being the way people view renting versus ridesharing, which stretches back a bit. In this case, “a bit” goes back as long ago as January 2016, when it came out that beginning in the third quarter of 2015, Uber began to displace rental cars, at that point only in Boston.

The displacement has only grown since then. Travel management outfit Certify reported news just last month, in trends seen across 10 million receipts — and just from the second quarter — that corporate travelers spent 2 percent less on rentals and on taxis than had been seen, with respective 29 percent and 8 percent market shares.

At the same time, Uber and Lyft both grew their total take of ground transportation for road warriors by 2 percent. Uber is the heavyweight ridesharing company here, with 55 percent of the market, and Lyft held 8 percent, said Certify.

But perhaps not all is lost. On Tuesday, in discussing its latest earnings, Avis CEO Larry De Shon said that there had been an inflection in pricing in June and that rental rates are starting to pick up.

Beyond the rental price lumpiness, other trends show the ride may not be smooth ahead. The National Automobile Dealer’s Association used vehicle price index had seen pressure since early 2017, with some stabilization in recent months, as measured by other indices such as those presented by Black Book and JD Power.

But then again, a slug of older vehicles, millions of them, are coming back into the market, which may hit pricing yet again later in the year, as noted by autonews.com. That may harken to additional pressure for firms like Hertz and peers, where selling older rental cars, an additional top line generator, will not be as easy as it once was.

Don’t forget this is coming right as auto loan defaults are on the upswing (Wells Fargo is the second biggest lender here and has been paring its exposure). This implies that stretching to bring a new vehicle back to the family homestead may be more than a stretch.

So, selling cars, used or new, is about to become a bit of a tough slog, with a peak in U.S. auto sales having been reached at 17.8 million vehicles annually. But the first and second quarters of this year are less than had been seen last year, with 4 percent and 6 percent lower sales. Autodata Corp. said that the trend continued into July, with total sales of vehicles down 1.4 percent in the month, extending the downtrend to seven straight months. Perhaps the downshift should be expected, given that there’d been an almost Biblical seven fat years of growth.

Hiccups in rental rates or car sales notwithstanding, there’s room for a bit more salve: The big rental firms are cognizant of the “if you can’t beat them, join them model.” And thus, they are looking to meld the leasing model with the upstarts that are leveraging technology for momentum and giving a nod, at least, to the emergence of autonomous driving.

One longer range plan for Hertz comes with leasing cars to Uber drivers, a business model that is currently in the pilot testing stage. And, as has been known for a while, Avis has a pact in place with Waymo, to help manage self-driving vehicles based and operating in Phoenix, Ariz. Hertz also has an agreement with Apple in which the tech giant will lease Lexus SUVs from the car rental firm and test autonomous driving tech.

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 rental agencies themselves, the only way to go is … forward.

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