By David Welch, Bloomberg News
At the dawn of America’s automobile age, a Nebraskan by the name of Joe Saunders came up with a wild idea: He’d rent his Ford Model T to traveling salesmen.
Today, 101 years later, his figurative heirs — Saunders later sold out to a Chicagoan named Hertz — confront an existential question: Can the U.S. car-rental business thrive in the era of Uber, Lyft and, one day, autonomous vehicles?
The answer, so far, isn’t pretty. Losses at Hertz Global Holdings Inc. are piling up and Avis Budget Group Inc. just dialed back its profit forecast. Investors have paid a heavy price. Problems with rental fleets are one reason. In recent years, Hertz bought more cars than it needs, and it’s been struggling to unload them at decent prices.
Perhaps more troubling, however, is that car-rental companies face the kind of threat that felled Blockbuster, which was undone by new technology in the form of digital video and Netflix.
There will always be a market for rental cars, but for a growing number of business customers, and even some casual consumers, they seem like a throwback. Why wait in lines, pick up keys, fill up and drop off, when you can tap an app instead?
The travails of the industry were driven home yet again last week when Hertz reported its third straight quarter of red ink. The 63 cents-per-share adjusted loss for the period that ended in June was worse than the lowest analyst projection in a Bloomberg survey. A day earlier, Avis cut its earnings projection for the full year.
“The transportation business is evolving,” said Neil Abrams, president of Abrams Consulting Group, which does advisory work for the rental car industry. “The companies that stand still are left in the dust.”
To be sure, the industry’s tough times may have more to do with mismanagement than Uber, Lyft or new mobility companies delivering a glancing blow. Hertz in particular built up a bloated fleet of too many cars to rent. To keep those vehicles generating revenue, the company had to drop rental rates.
The companies have had to slim down their fleets at the worst possible time. Millions of vehicles are coming back off leases from when the U.S. auto industry was on its years-long growth spurt.
That big supply is making it difficult to sell old rental cars in the used market. Hertz’s moves to shed cars quickly have accelerated depreciation rates …read more
Source:: The Denver Post – News