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, 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 about 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. The most irate have been posting rants on Yelp (YELP), Twitter, and additional social media venues. Many complaints deal with Hertz’s alleged failure to make reserved vehicles available at their appointed times and places. Hertz has also been accused of changing the pickup 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 customers pay no penalty for returning vehicles to an alternate location, so long as it isn’t “unreasonably distant” from the pickup spot. The sharing technology has been equipped in Hertz cars in about 1,500 cities worldwide, with the largest U.S. market that of 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 that can 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 such as 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 chief executive officer of DaimlerChrysler’s (DAI:GR) 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.”
