Hertz Blinks First With Car Rental Marching Toward Abyss

By Dave WilliamsonFool.com

Traditional car rental sales continue marching toward the edge of an abyss. Peering into its inevitable fate,Hertz was the first of the oligopoly to blink, as it partners with ride sharing service Lyft.

Last spring I warned readers that cheap car rental stocks were a bad idea. How bad? Both Hertz and Avis Budget Group have lost 12% since then, rallying back from 25% losses. And the assault on their traditional business model isn't a trend that is going to abate. Ride sharing, championed by Uber and Lyft, is changing how we travel. The companies are eviscerating taxi competition in every city they compete in. They have gotten traditional automakers to examine their role in a future of shared mobility enabled by autonomy. And they are hurting the big three car-rental companies as well, even at their airport strongholds. Slowly but surely, the improved economics of ride sharing will weaken the car rental oligopoly and eat away at its pricing power.

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At the time I wrote that article, not one of the car rental companies' conference calls mentioned Uber or Lyft, except in passing, when Avis highlighted how its ZipCar service uses a different business model. That is why this partnership between Hertz and Lyft is so important. The companies will test out a pilot program in Las Vegas whereby Lyft drivers can rent SUVs at a reduced rate as low as $25 per day, $150 per week, or $540 per month, or as expensive as $65 per day, $390 per week, or $1,440 per month, depending on whether it is a base-model or premium vehicle. This is significantly cheaper than the rate an average customer at McCarran Airport in Vegas would get, with Ford Explorers going for $87 per day, Chevrolet Tahoes at $137 per day, and GMC Yukon XLs renting for $167 per day.Lyft states that 1 out of 5 potential drivers either doesn't own a vehicle at all or doesn't have access to one that meets fleet criteria. Both companies plan to extend this partnership to additional markets, but gave no details as to when that may happen.

This partnership, given its small scope, won't be creating any positive surprises in Hertz's quarterly numbers. But it isn't about the bottom line at this stage; it's about signaling a shift in how car rental companies see their place in the future of human transit.

There is only one real question remaining about our ride-sharing and autonomous-driving future. Who will manage these fleets of shared/autonomous vehicles? Will it be the automakers themselves? The car dealers? The ride-sharing app companies? Or will it be today's largest fleet managers, the rental agencies? The most natural fit would be with the existing experts in fleet management, but the companies have to open their eyes to the threat and realize it is an opportunity to capture a key mobility pillar of the future. Hertz, through this small program, indicates that its eyes are at least open. It's not a reason to buy the stock today, but it is a step in the right direction, showing the stock bears watching moving forward.

If Hertz continues making future-looking moves and finds traction in the process, it may yet make a believer out of skeptics like me.

The article Hertz Blinks First With Car Rental Marching Toward Abyss originally appeared on Fool.com.

David Williamson has no position in any stocks mentioned. The Motley Fool owns shares of Hertz Global Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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