Silvercar: Hard Questions for a New Business Model

Startup car rental company Silvercar enters the scene with a trunkful of venture capital money, very good PR and very smart people behind it. We’ve reported on Silvercar enough times that one reader asked why all the coverage for a company that hadn’t even opened yet. My response is that when a new business model promises to create a better car rental experience, I’m all keyboard.

So what is the big deal? Silvercar offers an automated, smartphone rental experience with no counter and just one rental model, a silver Audi A4. The company opened last month at the consolidated rental facility at the Dallas/Fort Worth airport, with plans to go nationwide.

Sure, you mainline car rental companies will tell the rest of us that you already have mobile apps and counter bypass systems. I would counter that they are not as robust as Silvercar’s and are not designed for (almost) every rental, as Silvercar intends. Silvercar’s “suite” in the DFW conrac looks way cooler too — like a W Hotel crossed with an Apple Store, as CEO Luke Schneider puts it.

From a pure bold vision standpoint, I appreciate Silvercar’s rejection of traditional ancillary sales opportunities, instead favoring GPS location-based marketing to offer renters things they want and need based on their actual travel patterns. Schneider told me that the company already has partnerships with two dozen goods and services providers, which will feed into a new, more targeted form of loyalty program. I do wonder, though, if these partnerships can generate similar numbers.

Another eye-opener is Schneider’s contention that car rental classes are “an industry vestige,” and that 85% of all rentals can be handled by the Audi A4. I agree with this from a functionality standpoint, but the idea of a car rental company with only one model is where I start to fall off the shuttle bus.

Schneider says that Silvercar is taking a page from Southwest Airlines’ playbook of using one airplane type to streamline fleet management and costs. “We don’t have to have this really broad, deep expertise across multiple models and manufacturers,” he says.

Southwest’s advantages gained by using one plane have to do with simplifying mechanics’ training, streamlining parts inventory, crew familiarity and the ability to swap a plane at a moments’ notice. These benefits don’t seem as considerable when talking about rental cars.

Yes, buying one model would get you higher up on any manufacturer’s stair step incentive programs. But offering a single model is certainly limiting in the price sensitive world of airport rentals. And let’s hope the A4 never gets recalled.

Another big challenge is getting on airport and into the conracs. Schneider says the company will enter the standard bidding process like everyone else, though he reports that airports are interested in working with this new company and model. Securing a location near airport is a possibility – though lengthening the trip would negate one of Silvercar’s strongest selling points.

Silvercar has no plans at present to offer rentals through the OTAs such as Expedia and Orbitz. This feels like the right move. The very expensive OTA matrixes serve the commoditized end of the car rental market, not Silvercar’s demo. Nonetheless, that just makes this startup’s job in effectively reaching its intended market that much more involved.

I’d pay for Silvercar if I could, but my company would never authorize a rental of a luxury vehicle. In fact, no one in the C-suite at my company, not even our company’s founder and president, would rent a luxury vehicle. These days, corporate policy dictates a full-size rental car, and that’s often bound by a contract to a major car rental company. And if you happen to be a high muckety-muck who has enough juice to rent a luxury vehicle, you may consider the A4 too entry level for your tastes — or you have a driver.

In other ways, I believe I fit into Silvercar’s demographic. I’d call myself progressive, educated, tech-savvy (relatively), affluent enough to fit the profile, eschewing the bourgeois norm and appreciative of a refined experience. I drive a Subaru Outback. I dig the Apple Store experience. I buy groceries at Whole Foods and Trader Joe’s. But I just wonder how many of us want to, or can, rent that car.

Schneider’s point is that they are leaving the traditional business traveler to the traditional car rental companies. “If we wanted to be a 20% share company we would be visibly pondering that and would have a team of experts around the clock working on it,” he says. “But we’re not. We are looking for a very thin, well-defined subset of that.”

Therein lies the rub, whether this well-defined subset will find and support this rental car company and its new, intriguing business model. I wonder how long it will take for Silvercar to also start offering a silver Ford Taurus. Honestly, I wouldn’t have a problem with it.

Originally posted on Business Fleet