Implications of Auto Manufacturers Renting Cars

Audi, BMW, Mercedes, Fiat Chrysler, General Motors and Ford, to name a few, are implementing a wide range of programs that directly put potential customers behind the wheels of their vehicles on a temporary basis.

The initiatives vary from well-established carsharing programs such as Daimler’s car2go and BMW’s DriveNow to high-end programs such as Mercedes-Benz Rent and Audi on demand, to peer-to-peer platforms such as General Motors’ investment in Flinc and CarUnity.

The largest initiative, Ford’s Peer-2-Peer Car Sharing program, allows 14,000 customers in seven cities to rent their Ford Credit-financed vehicles for short-term rentals.

What’s driving the creation of these programs? As auto manufacturers see changes in the way people use vehicles, they’re looking to connect their brands directly to potential customers in new ways. The key word is mobility; the key phrase is “vehicle access over ownership.” Automakers are planning for a future with increased urban congestion, autonomous driving and a buying public that doesn’t see owning a vehicle in the same way their parents did.

While the use cases vary somewhat from traditional leisure and business car rental, the idea that auto manufacturers are moving the chess pieces themselves has some heralding a market disruption. After Ford announced its peer-to-peer program in June, Avis and Hertz’s share prices fell.

Perhaps a little history will shed some light on how far the manufacturers would go in establishing a direct-to-consumer rental model. At various points from the late 1980s and through the mid-2000s, Ford, General Motors and Chrysler each had a stake in the largest car rental companies: Hertz, National, Budget, Dollar and Thrifty.  

At the time, the manufacturers saw in car rental companies another outlet for new cars, especially in an era when factory labor was paid contractually, whether a car was produced or not. But it didn’t end up an easy fit.

“They [auto manufacturers] were on both sides of the transaction,” says Bill Plamondon, president of Advantage Rent a Car, who was president and then CEO of Budget from 1992 to 1997. “They not only had to worry about the rental car companies making money, they had to worry about the economic value of the sales they made to the rental companies.”

That era saw the beginning of guaranteed depreciation programs (“program cars”), over-production and an industrywide drop in vehicle depreciation. Plamondon says that when labor contracts began to be restructured, the manufacturers started getting out of car rental.

The market is different today, and everyone involved in fleet management is a lot smarter on how vehicles are disseminated into the marketplace. So what’s stopping the auto manufacturers from getting back in? The layman underappreciates rental companies’ mastery of fleet management, honed through generations of hands-on experience.  

“It’s going to cost them [the manufacturers] a whole lot of money to build a network and manage it,” Plamondon says. “It’s completely different than managing the building of cars.”

Moreover, the management of rental vehicles also entails selling them, another area of expertise that history shows would be best left to franchised dealer networks and other outlets, Plamondon says.

But this isn’t time for car rental companies to breathe a sigh of relief that their business model has an impassable moat around it. For the programs with partners, the manufacturers have bypassed car rental companies in favor of much smaller “mobility providers.”

While these services vary greatly, none of them involve a rental counter and vehicles behind chain-link fences. They all have one thing in common — they’re driven by cutting-edge technology.  

To be sure, the major car rental companies are actively pursuing mobility initiatives internally, specifically through their carsharing divisions such as Enterprise Carshare or Avis’s Zipcar. Enterprise recently purchased carsharing technology provider Metavera.

Nonetheless, car rental needs to be aware that the smartphone app is now the center of the universe. While the auto manufacturers aren’t ready to command and conquer the universe of traditional car rental, their recent initiatives reveal how the world’s largest transportation companies see the future of mobility.

Originally posted on Business Fleet