Given the ease to consumers of using an Uber, car rental companies were forced to up their game. Hertz's deal with Tesla helps its need to restock fleet post pandemic, and garnered much...

Given the ease to consumers of using an Uber, car rental companies were forced to up their game. Hertz's deal with Tesla helps its need to restock fleet post pandemic, and garnered much positive press.

Photo by Charlie Deets on Unsplash

The rental car and electric vehicle worlds have been abuzz with the announcement of a “deal” between Hertz Global Holdings, Inc. and Tesla, Inc. Hertz announced plans to purchase 100,000 EVs from Tesla for the express purpose of renting up to half of these vehicles to Uber drivers with a high rating from their past passengers. 

Ink has not been put to paper just yet, as Elon Musk recently tweeted that the contract for these vehicles has not yet been signed. But assuming signatures are forthcoming, the Hertz proposal to Uber drivers is fairly straightforward: Hertz will make a brand-new Tesla Model 3 available to drivers for a reported $334 a week including insurance. In order for this investment to be successful, Hertz must convince Uber drivers that a monthly expense of $1,338 can be recouped quickly enough so that the driver can start earning take-home pay.

Obviously, Hertz feels that taking on EV fleet to rent to an indirect and growing competitor is a good move. As we have seen in J.D. Power studies, the emergence of transportation network companies (TNCs) has had an effect on the rental car market. 

One of the key elements in rental car satisfaction is “how fast can I get into the rental car and get on my way”? It’s been difficult for traditional rental car companies to compete with hopping into an Uber or Lyft car waiting on the airport frontage when you arrive. Uber/Lyft customers bypass the bothersome shuttle bus/rental car lot experience involved in picking up and dropping off a vehicle. 

In response to this threat, rental car companies have really upped their game in recent years. Their service levels have increased, their car fleet has improved, and they have applied technology to make things easier, faster, and more convenient for renters. The rental car experience provides travelers with the most satisfactory experience among all J.D. Power travel studies. The rental car industry’s average satisfaction rating has been higher than airline, airport, and hotel experiences since 2019.

But, as is true of the entire travel industry, the pandemic changed almost everything. Rental car companies sold off their fleet in anticipation of lower demand and hunkered down to wait out the pandemic. 

However, demand for leisure travel rebounded faster than almost everyone had anticipated. Leisure travelers have been looking for rental cars to accommodate their vacation plans. With a shortage of cars and heavy demand, the price of rental cars in certain leisure markets has risen dramatically. In some markets during peak periods, the daily fee to rent a vehicle has more than tripled compared with 2019.

In almost any other time, purchasing replacement fleet to meet this demand would be a straightforward proposition. But a shortage of computer chips that are required in today’s automobiles makes it very difficult for car manufacturers to meet consumer demand and help rental car companies replenish fleet.

In this light, the Hertz/Tesla deal directly addresses the dire need for Hertz to restock its fleet and this deal certainly has garnered more positive press than most fleet orders placed by a rental car company. But the more interesting wrinkle is that Hertz is taking the attitude that “if you can’t beat them, sell something to them.” Hertz would have a stake in Uber’s ultimate success.

The American taxpayer also has a role in this particular deal. The federal government has pending legislation that could affect the final price of renting EVs in a commercial arrangement. Reportedly, the federal bill offers a cascade of tax credits for EV purchasers in excess of $10,000 per vehicle. Mr. Musk also tweeted that Hertz received no discount despite their ordering $4.2 billion worth of Tesla vehicles. 

Conventional car manufacturers are not offering discounts either. It seems that this deal may depend on the U.S. taxpayer providing the customary price discounts. There is no indication what may happen if this particular bill doesn’t pass.

Where does all this leave the traveling public?

In the short term, the Hertz/Tesla deal will have little effect. The shortage of rental cars will persist into the better part of 2022. Prices in leisure markets are likely to remain inflated above 2019 levels, providing much-needed cash revenues to the rental car industry. There is no doubt that this cash will be applied to purchasing vehicles, EV or otherwise, to meet continued demand.

Long term, Hertz is taking steps to become the “transportation” provider that most rental car companies aspire to be. Will a large fleet of EVs marked for rental to entrepreneurial individuals who move people from Point A to Point B cure the rental car industry of its marketing myopia? Hertz seems to be betting on this particular cure.

About the author: Mike Taylor is the travel intelligence lead at J.D. Power, where he focuses on airports, airlines, and the rental car industry.

Originally posted on Auto Rental News