Live Earth. Alternative Energy. Green Building Initiatives. Eco-tourism. The green movement is in full swing, and the corporate world is taking notice: A cleaner environment is good business.
Consumers say they want to do business with companies that are environmentally responsible. Major and independent car rental companies alike are taking steps to capitalize on this trend.
Of course, the devil is in the details, and that raises a host of questions for RAC operators: will consumers really pay more to rent greener vehicles, i.e. hybrids? What is the best way to market my initiatives? Can I “do the right thing” and still manage an ROI?
Early Adopters: Independent RACs
With a niche group of people seeking “eco-rentals,” being among the first companies to dive in has advantages.
“We were green even before it was cool to be green,” says Jim Demb, president of EV Rental Cars, which rents all hybrid-electric vehicles.
The company opened its doors in 1998 and claims to be the first RAC in the United States to rent environmentally friendly vehicles to the public. EV Rental Cars has six locations throughout California and one in Arizona, and maintains 425 to 450 Prius, Civic and Highlander hybrids in its fleet.
Shaun Stenshol owns and operates Maui-based Bio-Beetle car rental.
Renters of Stenshol’s 25-vehicle fleet of unmodified diesel Volkswagens and one Jeep are encouraged to fill up on 100-percent biodiesel, a fuel made on Maui from vegetable oil salvaged from local restaurants. The natural fuel is dispensed from a filling station in town.
Bio-Beetle maintains a small fleet in Los Angeles with a part-time staff as well.
For Stenshol, who also owns a recycling service, green business makes business sense.
“There are a constantly growing number of people who want to spend money on green initiatives,” says Stenshol. “More and more people are realizing that we really have to start focusing on renewable, sustainable technology.” [PAGEBREAK] Sharky Laguana owns San Francisco-based Bandago Van Rentals, a company that specializes in van rentals to touring musical acts. Bandago gained publicity this year by claiming to be the first auto rental agency to become carbon neutral by purchasing carbon credits.
In terms of fleet, Laguana counsels clients to fill up the Dodge Sprinter and Ford 15-passenger vans with biodiesel B5 (5 percent) and B20 blends when possible. Laguana says he’ll be first in line to buy a fleet of hybrid full-sized vans if they ever make it to market.
As Bandago’s clientele is mostly musicians, Laguana is preaching to the choir. “Our clients are very excited that their tours are carbon neutral,” he says. “It makes them that much more likely to work with us just because we have more of a sense of responsibility for the planet.”
Griff Long is the vice president of operations at Flexcar, a car sharing company. Based in the company’s Washington, DC office, Long has given up his personal car. Instead, he relies on the decentralized fleet of generally low-emissions vehicles, positioned in densely populated neighborhoods to get around. More than 33 percent of the Flexcar fleet is hybrid vehicles.
Flexcar, and other car sharing services, boast that for every shared car on the road, nearly 15 gasoline-powered vehicles are taken off the road. On average 20 percent of Flexcar members report that car sharing has enabled them to give up their own car or a second car.
Long is a former regional manager at Hertz. When he left Hertz for Flexcar, Long said people called him crazy. “We’re changing the way people think and now people are finally starting to pick up on what we’re doing,” he says.
Going Further than Fleet
In addition to looking out for the environment on the fleet side, these car rental companies are also taking steps to reduce their carbon footprint in other areas. Some initiatives save money by improving operational efficiencies.
At Flexcar, the staff is passionate about the environment. Long says everyone gets involved with the office recycling program and local events like Bike to Work Day. Flexcar offers a “green membership” for an extra $9.95 a year, through which members can offset carbon emissions using TerraPass, a carbon-trading company.
Bio-Beetle doesn’t use pesticides or toxic cleaners on its fleet. The company uses bio-degradable soaps to wash the outside of the vehicles and a vinegar and baking soda mixture for the interior. Stenshol uses all post-consumer paper and mostly used office equipment. Within two years he hopes to employ solar power. [PAGEBREAK] “Our goal is to try to create a sustainable company. That’s hard since we’re in the automotive industry and the cars themselves aren’t,” says Stenshol. “So we have to figure that out in the big picture.”
Bandago has a recycling program, and the head office in San Francisco uses fluorescent lights. By chance, the building is solar-powered. Bandago uses Better World Club, a towing service that donates 1 percent of annual revenues to environmental and social causes.
Realizing the ROI?
“We definitely pay more for our cars than other car rental companies,” says Stenshol. Stenshol once flew to Philadelphia, bought four cars, drove them to Los Angeles and had them shipped to Maui, which at the time was cheaper than purchasing the vehicles in Hawaii.
He recently has been able to negotiate a fleet deal with dealerships on Oahu, though no such bargains exist for vehicles in Los Angeles. Daily rates range from $49.99 to $69.99 on Maui, higher in Los Angeles.
“On Maui we’re able to offer competitive rates. But it’s different in LA, it hasn’t really taken off yet there,” Stenshol says.
At press time, renters could fill up on B100 (99.9 percent) biodiesel for $3.29 at Pacific Biodiesel on Maui. Unleaded gasoline averaged $3.48 across Hawaii on that day. Diesel-powered cars average 10 miles per gallon better fuel economy than unleaded vehicles—making going green on the small island of Maui easier.
However, in Los Angeles only three stations sell B100. Pump prices ran about $3.50 per gallon at press time. Regular diesel costs 25 to 50 cents less, while unleaded gasoline averaged $2.71 that same day.
Stenshol says the average mileage of his 25-vehicle fleet is about 36,000. One rental car, a 1997 VW Passat, has more than 170,000 miles. Utilization rate is about 50 percent.
Published rates at the EV Rental Cars Web site for the Los Angeles location show $56 for the Toyota Prius and Honda Civic hybrid, and $75 a day for the Toyota Highlander hybrid, before taxes. In San Diego on the same day, the Civic hybrid rented for $39.50, the Prius for $49.50 and the Highlander hybrid for $69.50.
EV Rental Cars has received government grants to educate consumers on the benefits of environmentally friendly vehicles, Demb says, helping to defray operating costs. With revenues of $4-$6 million in each of the last three years, he says the company is turning a profit.
Demb says his utilization rate runs at about 90 percent. [PAGEBREAK] EV Rental Cars has realized ancillary cost savings as well. Demb says his hybrid clientele treats the rentals better and brings them back cleaner. He is also pleased with the low maintenance required for hybrids.
In some localities, members of car sharing organizations such as Zipcar and Flexcar are exempted from excise taxes. These organizations have lobbied local and state governments with studies showing that the concept of car sharing removes vehicles from the road, thus reducing smog.
Majors Coming Onboard
Not to be outdone by one another, Hertz, Avis Budget and Enterprise are implementing new environmental initiatives.
Avis Rent a Car added 1,000 Priuses and 500 Altima hybrids to its “Cool Car Collection” this summer.
Hertz is expanding its “Green Collection” with a planned $68 million investment in 3,400 Toyota Prius hybrid vehicles.
Both collections allow renters to reserve a specific model.
Enterprise Rent-A-Car currently employs more than 3,000 hybrid vehicles in its rental fleet and plans to add 1,500 Toyota Priuses this fall.
Enterprise recently designated a rental location in Washington, DC as an official E85/FlexFuel branch. More than half of the fleet at the E85/FlexFuel branch will be FlexFuel vehicles.
Nationally, the company has 41,000 cars and trucks that have the ability to burn gasoline or E85, a blend of 85 percent ethanol and 15 percent gasoline.
Globally Warmed Air?
With the major’s fleets numbering in the hundreds of thousands, critics claim a few thousand hybrids is a drop in the bucket. Is the green talk at the major car rental companies just a breath of globally warmed air?
In addition to the Prius, Hertz’s Green Collection includes the Ford Fusion, Toyota Camry, Hyundai Sonata and Buick LaCrosse—all standard rental fare. The criteria for inclusion is an EPA highway rating of 28 mpg or greater.
The government-mandated Corporate Average Fuel Economy for all cars in the U.S. stands at 27.5 mpg.
Hybrid supply has been an issue, as they’ve only recently been made available to fleets. As manufacturers ramp up hybrid production, the majors have increased their hybrid purchases. Fleet mix in general is changing, as consumers are driving the demand for more fuel-efficient vehicles. [PAGEBREAK] In other initiatives, Hertz is making a $1 million donation to the National Park Foundation as well as a donation of $250,000 to benefit The Mayor’s Fund for the Advancement of New York City in recognition of the mayor’s environmental efforts.
Enterprise is underwriting the planting of 50 million trees over the next 50 years at a total cost of $50 million in today’s dollars.
“They’re putting their toe in the water,” says Stenshol. “As time goes by, the larger companies will realize that they can maximize profit and be green at the same time.”
The Corporate Position
Environmental stewardship on a corporate level fits a different business model than the niche players. Indeed, the majors don’t operate with a 50-percent utilization rate.
Enterprise’s environmental awareness and initiatives have grown dramatically in the past two years, says Pat Farrell, vice president of corporate communications.
Farrell says Enterprise’s green stewardship has grown through the Taylor family’s personal interest in environmental causes, consumer demand and internal employees as well as business partners inquiring about the company’s position.
Branch managers were talking about phone calls from the public asking about the company’s environmental practices, Farrell says.
Suppliers were coming to the company with Requests for Proposals that had formal sections on the company’s approach to the environment.
“No matter where we turned, we were seeing the environmental concerns of consumers, business, government and suppliers matriculating into more and more conversations,” Farrell says.
“There is no denying that global warming and the issues that people have in this country regarding the environment are real,” he says. “We would be foolhardy not to be actively involved in conversations around those topics at a very high level.”
More than ever before, Farrell says, consumers are choosing a company that has a responsible approach to the environment—though cost is still a major issue.
Farrell says that rates for Enterprise’s flex-fuel and hybrid vehicles are governed by the individual markets and are not able to be reserved by model. Yet they do not incur a premium over other models of a similar class. [PAGEBREAK] Eco-Marketing
Promoting the benefits of green-friendly business practices, or “eco-marketing,” can develop strong brand integrity.
Laguana says marketing carbon neutrality has attracted new clients.
“Clients are that much more likely to choose us over someone that’s a little cheaper because of the shared responsibility for what we’re doing for the planet,” Laguana says.
Bio-Beetle’s green-colored Bug makes a great business model, Stenshol says. The company promotes itself with the car sticker “Powered by 100% Recycled Vegetable Oil.”
And, Stenshol maintains, who would pass on the opportunity to discuss a rental car that runs on the same stuff used to make french fries? He at one time sold t-shirts that read “Your french fries give me gas.”
Stenshol has run ads in Audubon Magazine, though he credits most of his business to a strong Internet presence. He has optimized his Web page for keywords such as “Maui eco rental cars.”
EV Rental Cars receives most of business through the Internet and by partnering with Fox Rent A Car, a traditional car rental company with an established online reservation system and a GDS presence. Fox takes a cut of the rental fee for reservations made through its site.
Both Bio-Beetle and EV Rental Cars are listed on an online environmental directory, Ecobusinesslinks.com.
As niche marketers, Bio-Beetle and EV Rental Cars have also had the benefit of national publicity through newspapers, magazines and television news.
The green movement is being driven by new players and corporate giants alike.
New trends and business models are evolving from small companies such as Flexcar that are tapping into a market niche. Large corporations such as Target, FedEx, Home Depot and Wal-Mart are affecting change under the onus of corporate responsibility.
The segment of “neo greens” is growing, they spend money on environmental products, even if the economics don’t add up.
That still leaves a vast middle ground of consumers that are interested in saving the environment but are not ready to pay more or make a lifestyle change. And there are the companies that serve them.
In the auto rental industry, green initiatives are to a large extent dictated by the types of cars built by the manufacturers.
More flex-fuel vehicle models are being introduced, yet the number of pumps that dispense E85 is not keeping pace.
Sales of hybrids rose 35 percent in the first quarter of 2007 compared to last year. By 2010, there will be as many as 65 hybrid models for sale in the U.S., reports J.D. Power. Yet overall vehicle fuel economy continues to stagnate.
The neighborhood car rental agency may not be in a position to adopt green initiatives—yet. Be ready to capitalize with new products and services when the timing is right, and don’t get stuck behind the curve.