Is B2B a New Growth Area for Car Rental?

People and packages are getting to where they need to go in new ways, and the car rental industry is finding it’s well-suited to provide the transportation. 

One of the biggest stories in car rental in the last two years has been the explosion of rentals to Transportation Network Company (TNC) drivers, not only in the U.S. but even more so in countries like Brazil. 

Car rental companies have developed another business-to-business (B2B) opportunity in another surging segment — last-mile deliveries. 

During their third-quarter conference calls, Avis Budget Group and Hertz Global Holdings outlined recent developments in this area and other B2B offerings. 

Hertz has recently partnered with nearly 650 delivery service providers (DSP) that service retailers, “e-tailers,” and end-market consumers. “Last-mile package delivery represents another important growth initiative for the company,” said Hertz CEO Kathy Marinello. 

On Avis Budget Group’s call, CEO Larry De Shon also mentioned reinvigorating Budget Truck Rental. He said the company went through a “rightsizing initiative” to deemphasize unprofitable parts of the truck business while reallocating resources and fleet, particularly cargo vans, around package delivery.  

For both companies, using data science through fleet connectivity is an intrinsic part of the profit equation. Hertz is leveraging its fleet management division, Donlen, to deploy and manage last-mile trucks and vans. 

“Donlen’s proprietary telematics and analytics platform, its maintenance network, and its large fleet management capabilities dovetail nicely with the operating logistics distribution and service strength of our rental car business,” Marinello said. 

At Avis, “We've spent a few years digging deep into Budget Truck and understanding where we think the profit opportunities are and getting the fleet mix and number of vehicles correct.” De Shon said.

B2B rentals can have a drag on topline statistics such as rate per day, but both TNC and last-mile delivery rentals have longer rental lengths, higher utilization, and lower cost structures than traditional airport rentals, driving greater overall profitability. 

Last-mile deliveries might be an avenue for electric vehicle rentals. Responding to an analyst’s question, Marinello said while EVs don’t make sense as consumer rentals at this point, she reported that Hertz is in discussions with an automaker on fleeting electric vans for DSP drivers. 

Marinello said there is “enormous upside” to diversify outside of car rental’s traditional airport market. Hundreds of existing Hertz Local Editions in neighborhood markets can be used to deploy B2B rentals, whether for TNC drivers or last-mile deliveries. Hertz’s fleet growth in the quarter was specific to its last-mile and TNC business. 

The last-mile delivery market accounted for close to $10 billion in revenues in 2018 and is expected to reach $45 billion by 2027, a compound annual growth rate of 18.3%. A survey conducted by XPO Logistics, one of the largest last-mile providers in North America, revealed that 37% of U.S. consumers plan to make an online purchase of furniture, appliances, or other big and bulky products (fitting in the last-mile category) in the next 12 months.

Regarding TNC and last-mile deliveries, “I think that business could double its current size,” Marinello said on the Hertz call.