The business of sharing a car has many laudable attributes: Drivers pay only for what they need, rental companies enjoy better use of their fleets, and everyone can feel happier leaving the planet a bit less polluted. The trouble, of course, is that the technology can do only so much to assure that a car is where it needs to be, at the proper time, and full of gas.
The unknown person ahead of you with the shared wheels plays an important role in both the business model and your well being. “The customer is part of your service delivery mechanism,” says Mark Norman, president of ZipCar, the car-sharing pioneer purchased by Avis Budget Group (CAR) for $500 million.
That fact can sometimes wreak havoc on a car-share business, as Hertz Global Holdings (HTZ) has been learning with a slew of customer service complaints for its Hertz 24/7 operation. The company recently renamed the unit from Hertz On Demand, and before that it was called Hertz Connect. The names haven’t brought happier customers, however, and the most irate have beeen posting rants on Yelp (YELP), Twitter and other social-media venues. Many complaints deal with the alleged failure of reserved vehicles to be available at the appointed time and place. Hertz has also been accused of changing the pick up to a location miles away, giving as little as 15 minutes warning when reservations are changed, and employing brusque or clueless telephone operators unable to resolve problems.
Hertz charges $10 for every 15 minutes a car is kept past its return deadline but there’s no penalty for returning it to another location so long as it isn’t “unreasonably distant” from the pick-up spot. The sharing technology has been equipped in Hertz cars in about 1,500 cities worldwide, with the largest U.S. market New York City.
Abby Huntsman, an MSNBC television host and the daughter of former Republican presidential candidate Jon Huntsman, was among those incensed this summer when trying to use Hertz 24/7.
“It’s a new business and like all new businesses it has growing pains and we’re trying to learn as we go along,” Hertz spokesman Richard Broome says.
The car-share business has proliferated in recent years among traditional car-rental companies, which have huge fleets of cars that sit unused at any given time. The ability to equip a car with GPS and other tracking software, park it in a densely populated urban neighborhood or college campus, and have it used nearly every day is a financial boon. The other advantage is the economies of scale a large player can bring to a fleet business like cars, from car purchase costs to insurance discounts. “Synergy is an often overused term but one plus one is three or five” when properly merging a car rental and a car sharing model, Norman says. “It takes what are good unit economics (per car) and makes them very good unit economics.”
The industry has also seen a fair bit of consolidation, with smaller players bought by behemoths such as Enterprise Holdings, the largest U.S. car-rental chain and owner of the National and Alamo brands. St. Louis-based Enterprise has been expanding its CarShare business for several years and now has sharing fleets in 15 cities, 75 university campuses, and 40 government and corporate locations.
After it works out the kinks, Hertz hopes to see its 24/7 business expand into more suburban areas, serving as replacement for a second car. “We think it can really spread into the suburbs as people start to think, ‘Do I need to really own that second car?’” Broome says. ZipCar also sees opportunities outside urban centers and universities, especially among commuters who find that they use their car for less than an hour each day or who want to curb their fuel expense. Norman, a former CEO of DaimlerChrysler’s Canada business, says ZipCar will look to suburban areas that are developing around a greater use of mass transit and where there is “24/7 activity.”
