Susan Jacobs taps an app on her phone, chooses a vehicle type, and waits for it to arrive. The vehicle, sequestered in a designated parking area in the neighborhood, autonomously finds its way to pick up Jacobs and her family and deliver them to Jacobs’ father’s house two hours away. Her kids choose a movie on the in-cab screen, while Jacobs decides to access some work documents from the cloud.
That night, Jacobs summons a vehicle to return home. It’s late, so she requests a vehicle with fold-flat seats to allow the kids to sleep.
The next day, Jacobs summons a smaller vehicle to go to work. Her boss will ride with her for part of the journey, so she requests one with facing seats and a work table. That weekend, she calls for an autonomous convertible to take her and her husband to the beach. Jacobs is automatically billed for each trip by vehicle type, length of trip, and ancillary services provided.
The Jacobs family does not own a car. They have a few choices of mobility providers, but they prefer Atom Autonomous Mobility Services. For the Jacobs family, Atom has the most user-friendly app, and the customer service reps know their area. The vehicles arrive on time and are well maintained.
Atom has a selection of vehicle types and ancillary services that fit her needs — at reasonable price tiers — while its loyalty program allows the family to earn points quicker than other services. Atom has seamless alliances with other providers such as airlines and trains.
The Jacobs family relies on Atom to provide hundreds of different types of trips a year. So who is this provider of the future? Is Atom the natural extension of a car rental company: a national chain, a franchise of that chain, or an independent entrepreneur? Or is Atom an outgrowth of an auto manufacturer’s mobility platform, a carsharing network, a ride-hailing service such as Uber or Lyft, a private owner, or an entity yet unknown?
We can quibble about when autonomous vehicles will become the predominant transportation method — 15 years or 50? But it will happen. What does that future look like, and how do we get there? How can the car rental industry position itself to be part of this new mobility paradigm when it arrives?
A Bridge to Autonomy
Recent developments in transportation — and society in general — are leading us to this autonomous future.
As part of the rise of social media and the sharing (or peer-to-peer) economy, new distribution models have changed how we access goods and services: from summoning Uber or booking a stay in someone’s apartment to ordering groceries online and downloading first-run movies at home. This “on-demand” mentality favors a self-service model enabled by technology, says Michael Youssef, CEO and president of Rent Centric.
“Online retailers are creating a direct conduit from the manufacturer to the end user and using automation tools for the distribution process,” he says.
How is this new distribution trend impacting car rental? Changes will come in different ways depending on the stage of development of the market or market type — an urban environment, neighborhood location, or airport.
City dwellers are already shifting away from car ownership and toward using the most efficient mode of transportation based on the nature of the trip, whether it’s a ride-hailing service or taxi, subway, commuter bus or train, carsharing, bike sharing, or car rental. “If in the short term people are going to own fewer vehicles by having some of their transport needs met by Uber or Lyft, that would help car rental,” says Chris Seymour, president of Carcloud.
Urban jurisdictions are creating systems to access multimodal, public, and private transportation options through a single portal, termed Transportation-as-a-Service (TaaS) or Mobility-as-a-Service (MaaS). For instance, Helsinki Regional Transport Authority launched an app that finds the best route and mode through a single payment source for the trip, either per-use or through a monthly fee.
In local markets and on airports, the pace of change for car rental may be more incremental. “If you’re traveling for multiple days with your family with luggage and you need a ski rack and child seats, you’ll have a deeper relationship with that vehicle,” says Seymour.
Major car rental companies are looking for an advantage by offering more convenience and easier access, perhaps expanding on existing counter bypass programs offered through their loyalty programs, says Nick DiPrima, manager, rental car solutions for TSD. The recent Avis Now app takes this a step further by managing the entire rental process from a smartphone, while independent Silvercar’s app-based model was designed entirely without a rental counter.
Still, the rental counter has been the traditional place to create customer rapport, “upsell” ancillary products and services, and screen the customer in person. Breaking away from it comes with a lot of questions. In an app-based environment, “How will people price shop if they become prequalified and go to the same provider?” says Angela Margolit, president of Bluebird Auto Rental Systems. “How will [the new model] affect broker portals?”
For local market operators who have the idea that self-service is the same as carsharing, there are measurable differences, Youssef says. Self-service doesn’t necessarily have the logistical issues of carsharing and costs of a dispersed fleet, and incorporating self-service technology does not mean abandoning the traditional method. “They could start by having vehicles right outside their location, available to rent after closing and by the hour,” he says. “[The model] falls naturally into existing know-how.”
Car rental startups, particularly in developing foreign markets such as India or China, don’t have the legacy infrastructure to overcome. “Many ‘self-drive’ companies will offer on-demand rentals before they have a rental counter,” says DiPrima.
Advancements in technology, spurred by the federal government’s incentive to reduce crashes, will drive adoption. The U.S. Department of Transportation has proposed rules that would mandate vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I) communication technology in all new vehicles to take effect by 2021.
As well, carmakers have been working on providing telematics as options straight from the factory, which would alleviate the time and expense of installing and uninstalling telematics hardware in each vehicle.
In this evolving landscape, startup transportation providers are jockeying for position, while traditional companies are testing new services.
Even with the explosion of the ride-hailing concept, Uber and Lyft are expanding into new types of services such as delivery services, shared rides, and carpooling. Private “microtransit” systems such as Bridj and Ford’s Chariot offer app-based commuter shuttle services without set routes that match service with commuting patterns.
In its various forms, carsharing is expected to grow — this time driven by new services from the auto manufacturers themselves.
Under the larger umbrella of mobility, these services involve not just carsharing schemes, but also a breadth of offerings that include shared lease plans, peer-to-peer rentals, on-demand shuttles, ride-hailing, autonomous technology pilots, and even ways to find and pay for parking. Some services such as BMW’s ReachNow have one app to manage a range of mobility options.
In an autonomous future in which car ownership may give way to usage-based plans, manufacturers are assessing how they can take a chunk out of this new revenue pie. Ford executives have said recently that mobility services deliver a much higher profit margin than selling cars and trucks, as they’re not dependent on fixed-cost investments, such as manufacturing plants.
Auto manufacturers have essentially been service providers in the past, notably as owners of car rental companies they ultimately divested from. Will they grow these new programs from pilots to major business components?
“Whether their presence continues to expand, serves to test innovative technologies, or continues as third-party partnerships, remains to be seen,” says Susan Shaheen, co-director of the Berkeley Transportation Sustainability Research Center. “It is likely a variety of partnerships and business models will evolve and continue to operate in parallel for the foreseeable future.”
Flash forward to the brave new world inhabited by Susan Jacobs and her preferred mobility provider, Atom Autonomous Mobility Services. To understand Atom, let’s define how summoning autonomous transportation will differ from driving.
Without the need to drive, the psychological identification with a vehicle will mostly disappear, Youssef and others say, and vehicle design will become more standardized toward functionality and utility. This, along with the goal of negligible crashes and recyclable parts, means that autonomous vehicles will live much longer in fleets.
Car rental cycles of six to 18 months could turn into years, similar to trains or buses today.
Within these new parameters, almost all of today’s fleet processes will change: from procurement, fleet sales, vehicle repair, and residual value forecasting, to driver screening and testing, safety and accident management, subrogation, and tax, title, and licensing services.
Autonomous vehicles that last in fleet for many years may impact one of car rental’s core advantages: its expertise and economies of scale in buying and selling cars. Conversely, if fleet vehicles were turned over every 10 years, as opposed to 18 months, fleets could be more precisely aligned with demand — the term “over-fleeting” would become an anachronism.
Nonetheless, autonomous vehicles will still need to be bought, sold, and managed. “Rental car companies know how to do what’s necessary to manage a fleet of cars,” says Mark Thomas, vice president of marketing for RideCell.
As technologies converge, “We are likely to continue to see a blurring of business models, particularly among car rental and carsharing and for-hire services, such as Uber, Lyft, and taxis,” says Shaheen.
Driverless vehicles would essentially invalidate ride hailing’s primary use case today, which relies on drivers using their privately owned cars to pick up riders. Will Uber and Lyft own and manage their own autonomous fleets, or will they manage the ecosystem of other entities’ fleets?
“With automation, we may see notable growth in peer-to-peer services,” Shaheen says. “If a vehicle can drive itself and serve one-way trips, we may see an increasing number of private vehicle owners that place their vehicles into a peer-to-peer shared service.”
Today, Turo allows private owners and fleets to rent through its online marketplace. Meanwhile, auto manufacturers such as Tesla, BMW, Audi, and Mercedes-Benz are piloting programs in which owners of their vehicles can rent them to others through an app.
Thomas cautions that autonomous vehicles may be too expensive for individual owners, at least initially, which could mitigate competition between peer-to-peer services and an owned fleet.
A Place for Car Rental
Seymour sees cities developing mini ground transportation hubs, in which users hail cars to a central location. “The provider could be Uber, Zipcar, or a big name rental car provider,” he says.
Seymour says major car rental companies will still be able to leverage their existing partnerships through loyalty programs and with corporate rentals. “Whether it’s government or big industry, they’ll still have that relationship with their supplier of choice, with special pricing and terms of service,” he says. “You’ve got a level of trust there that you don’t have with Uber.”
Requesting a vehicle through an app rather than price shopping through a matrix may benefit car rental specifically. “If anything, I think it creates opportunity for users to have more loyalty [to that program],” says Dave Zadrozny, a software developer at Bluebird Auto Rental Systems.
There will still be the need for tiered service levels — familiar territory to car rental, says DiPrima, whether that means a shared ride in a 20-seat minibus or an express trip for a single rider with luxury amenities.
Another potential opportunity may lie in providing autonomous services to corporate fleets. In the U.S., fleet leasing and management companies handle this type of business, though in many countries car rental companies supply long-term rentals to businesses.
No matter the provider, most believe that there will still be a need for manufacturers to work with distributors to sell products and services. The distributor of choice will present the most convenient, cost-effective model.
“The big players with economies of scale will be able to identify themselves to the layers on top as viable to be a distributor,” Youssef says. “To maintain validity, they need to focus on presenting automated distribution solutions to the manufacturers.”
A Place for the Entrepreneur?
It’s easy to imagine transportation modes in the future controlled by a few large corporations, especially in the face of keeping up with the ever-increasing pace of technology.
“The smaller guy today has a huge disadvantage with all these apps and technology,” says Gil Cygler, former owner of AllCar and Carpingo, a carsharing network. “It’s not just about how you reserve the car; acquiring the customer is getting harder for the small guy.”
However, this isn’t the case in all high-tech industries.
As tech-forward as the Internet is, says Seymour, Internet Service Providers (ISPs) could have been taken over by major companies by now, with no way for the small guy to compete. “Sure, you’ve got those big names, but you also have local ISPs who compete with big guys and offer a different level of service,” he says. “It might be more expensive in some areas, but they understand their local markets, and people pay for that service.”
Many business types today work best in which local entrepreneurs manage a system to deliver a good or service. Local operators are well-suited to local hiring and employee management, and they would essentially assume the burden of operations and profit margins in ways a larger corporation may not want to be involved. This model would still be relevant in the future.
If larger corporations don’t move fast enough, an entrepreneur will find a way. “That presents an opportunity for someone to come in and take market share,” says Bluebird’s Zadrozny. “If they can set up a simple process that the millennials can latch onto, they have a real opportunity.”
Before We Know it?
A few years ago, autonomous vehicles were viewed similarly to flying vehicles, a future that may never arrive. Since then, Ford announced its intent to have a high-volume, fully autonomous vehicle in commercial operation by 2021 in a ride-hailing or ride-sharing program.
Even sooner, Tesla customers will be able to order “Full Self-Driving Capability,” when they buy a new Tesla vehicle. Uber is offering public trials of its self-driving car in Pittsburgh. Google’s autonomous fleet has already collectively logged more than 300,000 miles of driving time.
There are considerable hurdles to full autonomy, from legal, regulatory, and technological standpoints. Yet the end goals — including negligible crashes, more productive travel time, fewer landfills, and reclaiming of parking spaces — are so compelling that this new model will prevail, sooner than later.
“The business logic is like a weed in between the cobblestones,” says Youssef. “Where there is a space, it will find its way through to the light.”
In the future, the car rental industry will continue its mission as a provider of personal mobility by adapting to this new mobility paradigm, as every other transportation mode works to adapt as well.