Hertz says it will profit from its car-sharing venture by adding standard in-car technology, exploiting untapped markets and leveraging the company’s considerable economies of scale.
On Dec. 16 the Hertz Corporation officially launched Connect by Hertz, a car-sharing program, in New York City, London and Paris. While the initial start-up is modest—New York has 40 vehicles while London and Paris have approximately 15—Hertz plans aggressive global growth in 2009, Mark Frissora, chairman and CEO of Hertz Global Holdings Inc., told Auto Rental News.
Connect by Hertz
Connect by Hertz follows the standard car-sharing model: Customers enroll in the program and pay a monthly or annual fee. Members book vehicles online or via phone for an hour, a day or up to a week, with 24-hour access to vehicles. The cars are placed in designated parking spaces and are accessed electronically via an RFID reader and a smart card.
Rates start as low as $8.50 an hour—lower than Zipcar’s in most places. All rates include 180 miles per day. Insurance, gasoline, maintenance and cleaning are included in the membership usage charges.
The New York fleet consists of the Toyota Prius, Ford Escape, Mazda 3, MINI Cooper and Toyota Camry.
But Will It Make Money?
Zipcar, Connect by Hertz’s main competition, has yet to make a profit. The company gobbled up its biggest rival, Flexcar, in 2007 and consolidated locations. Hertz’s initial goal is to enter the top 20–25 U.S. markets and major markets in Europe. How will it compete and profit where others have yet to?
“We’re trying to out-maneuver the competition by having more availability, lower prices and more technology,” Frissora said.
Unlike other car-share companies, every vehicle in the Connect by Hertz fleet is equipped with an iPod adapter, Bluetooth capability and NeverLost, Hertz’s in-car navigation system.
Drivers are able to interact with call center representatives through an in-car communication system, which is similar to OnStar. Members can get help and book or extend reservations from inside the car. The system is designed as a customer service but will also generate ancillary revenue opportunities, Frissora said.
“While it is a virtual experience, we’re connected to [the customer] probably better than normal car rental because of that capability to be instantly connected to us,” said Frissora.
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New Markets
While car sharing has traditionally thrived in urban centers and more recently in university environments, Hertz plans to exploit untapped transportation arenas.
Hertz will locate cars at major airports for the corporate customer flying in for a one-day business meeting, and the total bill will be cheaper than a taxi in and out of the city, Frissora said.
Hertz is also focusing on the collision repair business, staging cars at dealerships for customers to use for a few hours while their cars are being repaired.
Economies of Scale
Hertz is counting on its considerable economies of scale to boost the bottom line:
Hertz will leverage its $10 billion in yearly vehicle purchases to acquire the car-sharing fleet cheaper.
Cars can be pulled from the traditional rental fleet as demand warrants.
Hertz can maintain and service its car-share vehicles 30 percent cheaper than Zipcar, Frissora said, by using existing vendor relationships and the company’s team of fleet transporters.
Hertz will leverage existing relationships with parking garages and those already used for overflow parking for the car-sharing fleet.
Taking into account Hertz’s built-in size advantages and the lower labor costs inherent in car sharing, Frissora said a utilization rate of 40–50 percent and an average daily rental of two hours per vehicle will break even. Fleet hold times will be nine to 12 months.
Hertz will use the same technology in North America and Europe and tie in corporate business across both continents.
“Right out of the gate we have a much lower cost model,” said Frissora.
How Big Can This Get?
Hertz has 3.5 million Gold Card customers in the U.S. alone, according to Frissora. “We can convert every one of those Gold Card customers into a Connect customer, and that’s a huge customer base,” Frissora said. “They are loyal Hertz customers and repeat users. We’ve already got a built-in market for it.”
Zipcar claims a worldwide fleet of 5,500 vehicles and 250,000 members. For Hertz, those numbers could be only the tip of the iceberg. “Right now we’re just ramping up based on demand, but there is no limitation for us,” Frissora said. “We can outfit as many cars as we want in a 30-day period—thousands of cars. We have zero capacity constraints.”
Chris Brown is executive editor of Auto Rental News. He can be reached at chris.brown@bobit.com.
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