Understanding On-Demand Car Rental

Traditional car rental companies seem like obvious choices to start carsharing companies. They’ve got a few built-in advantages out of the gate: access to capital to buy fleet, personnel to manage it and channels to sell de-fleeted units.

Indeed, the major car rental companies have taken advantage — Avis Budget Group (Zipcar), Enterprise CarShare and Hertz 24/7 control about 85% of the total carshare market in the U.S. Include car2go, owned by Daimler, and that share jumps to about 95%.

So does that leave opportunity for franchised and independent car rental companies to enter the carshare market? And would they really want to?

Gil Cygler of AllCar Rent-A-Car, an established independent car rental company serving Brooklyn and Queens, launched the carsharing service Carpingo in 2012. Carpingo has established itself and even managed to grow, though Cygler says things might be different if he were to do it all over today. “What I did, I had to at the time, but the market has shifted,” he says.

Perhaps the primary consideration for a startup carsharing firm today is market consolidation. New competitors would face the first-adopter power and economies of scale generated by the major carshare companies on issues such as parking lot contracts, negotiations with local government bodies and fleet buying and selling.

However, there is another movement afoot that uses carsharing technology but doesn’t necessarily require starting a separate company. In fact, this business model is best positioned without the name carsharing at all.

Automating the Process

What if your fleet could be placed virtually anywhere, instantly accessible by renters who would initiate and complete the rental transaction themselves on their mobile devices?

Call it “on-demand,” “self-service” or “remote” car rental, this new model automates and decentralizes the car rental process, freeing the rental car from the traditional confines of the rental lot and counter. This may sound a lot like carsharing because similar technology controls the process. However, blending carsharing technology with the traditional car rental model opens up new business opportunities for the smaller car rental operator — without having to start a separate carsharing company.

“[Traditional carsharing] requires a more focused effort with both client subscription and with cordoning off of fleet for that function,” says Alex Aryafar of Rent Centric, a provider of car rental and carsharing software and hardware. “You’d be moving vehicles further away from the comfort of regional control. Those issues have been resolved with self-service car rental.”

Similar to carsharing, a telematics system needs to be installed in the rental units to track the vehicles and remotely lock and unlock the doors. Unlike carsharing, the on-demand model does not require a membership and a swipe card — access is granted instantaneously through a smartphone app.

In fact, the on-demand model works best when new customers are able to access a vehicle on the spot. Imagine a vehicle with “rent me” signage placed at a Home Depot or Ikea, a retirement residence or the train station, ready for spontaneous use. “It’s what they need at the exact time they need it,” Aryafar says.

Instead of going after the traditional carshare customer, car rental companies could automate existing business relationships. While it wouldn’t make sense to put four cars at a body shop or hotel and manage them on-site, telematics-enabled vehicles make this possible.

This not only lessens the burden of the business contact’s involvement in the rental transaction, but it also alleviates the time and expense of delivering the vehicle. An obvious opportunity exists even closer to home — at the car rental company, where cars can be parked outside the fence for 24-hour access.

Freeing the rental car from the lot inspires a new way to satisfy demand, Aryafar says. “As time moves on, with self-service car rental, operators will have seasonal locations that can be mapped to take advantage of population movements.”

An On-Demand Case Study

This traditional car rental operator is successfully running self-service vehicles out of two apartment complexes in the Miami area.

Shmuel Hazan has been involved in traditional car rental since 2005, but about two years ago, he went after a new business opportunity: Could he put rental vehicles into large residential complexes in the Miami area and let the residents rent the vehicles without interacting with a rental counter or staff?

Hazan, who also owns New Age Car Rentals, set about contacting real estate management companies with the idea. “These buildings are often managed by multinational corporations, so you have to get to the right decision maker,” he says, adding that they didn’t necessarily understand the concept of carsharing. “But once we got started, they’re happy, because they see that the residents are happy.”

Hazan’s “pet project,” Cars by Hour, was born. Today the service has seven vehicles in two apartment complexes, the Flamingo in Miami Beach and the Intracoastal Yacht Club in Sunny Isles Beach.

Hazan expects to leverage his success with other developers who will look to offer this amenity to their residents. However, the first step is to find the right buildings, usually large residential complexes in larger cities where parking is expensive and a greater percentage of residents don’t own cars.

The technology in the cars — powered by JustShareIt — consists of hardware to track and lock and unlock the vehicles. JustShareIt’s software manages the back office and the consumer-facing website, while customers download an app to rent vehicles instantaneously. The hardware isn’t much more expensive than the GPS tracking devices used by independent car rental operators already, Hazan says.

The cars occupy specific parking spots in the buildings’ garages, though they have no branding.

In terms of use scenarios, renters use the service instead of taxis, oftentimes to run errands. The Miami Beach building has a few “crash pads” for flight attendants, and the service allows them some mobility. He has gotten calls from people from out of state. “They want to make sure we’re still here and how it works,” he says. “People use it as a consideration when moving to the building.”

Natural Advantages

Offering cars only to building residents has built-in advantages, Hazan says. First, potential security issues surrounding unattended cars are mitigated by the fact that the cars are in gated parking. The JustShareIt program has the ability to run motor vehicle record checks on potential customers, but security is less of a worry because the vehicles aren’t available to the general public.

As the service is targeted only to building residents, the marketing budget is negligible. Hazan says new residents get a flyer that advertises the service when they move in.

While there have been a few issues with renters leaving dirty cars, especially for one day or longer rentals, the majority of renters keep them clean for their neighbors. “It’s much better than regular car rental,” he says.
Hazan sends someone to check and wash the cars once or twice a week. Using existing staff to service the cars keeps the overhead low.

Average rental time is two to three hours, but renters will take a full day for about $70. While Hazan would prefer the more profitable hourly rentals, daily rentals work just fine, too. Hazan rents fuel-efficient cars to mitigate fuel expense, but generally renters don’t put hard miles on the cars.

These benefits trickle to the bottom line. “Compared to regular car rental, [on-demand rentals] give higher revenue per month,” he says. “It took a while, but it’s definitely profitable at this point.”
Hazan realizes the delicate balance between high utilization and good customer service. If he sees a sustained increase in utilization, he’ll add another car.

“Right now I’m concentrating more on getting the business model right, which might mean not as much utilization,” he says. “But everyone will be happier. I might make a little less money, but it’s early in the business. I’m more interested in making it successful right now than making money.”

New Management Mindset

While this shift does not require starting a separate carshare company and marketing to an entirely new audience, it does necessitate a new management approach.

“[On-demand car rental] is still pretty foreign to traditional car rental operators,” says Tony Simopoulos of Metavera, a carsharing technology and fleet management provider. Simopoulos says the technical transition could be a hurdle, and operators are still concerned with not seeing the car at the end of the transaction.

While the on-demand model, like carsharing, alleviates some personnel overhead, cost factors include parking and fuel, though precise fuel metering from telematics systems may allow the cost of fuel to be passed on to the customer. Because the transaction does not take place over the counter, ancillary sales opportunities must be approached in a different way. Cars still need servicing and cleaning. Security issues related to remote bookings must be addressed.

Vehicles need to be equipped with the hardware, while the software controlling the on-demand vehicles should ideally integrate with the rental companies’ existing software. This integration should not only control the back-office rental process and fleet management, but also the rental company’s consumer-facing website.

In addition to rental bookings through the traditional rental fleet, on-demand vehicles would show up as “locations.” The website must also be optimized for mobile devices to allow bookings on the fly.

The “secret sauce” in this new model is figuring out the best places to put cars to optimize utilization and profits. While that might take some tinkering, “If it doesn’t work somewhere, it will work somewhere else,” Aryafar says. “The sea has not depleted of fish — the challenge is to find the right spot to go fishing.”

Utilization Versus Availability

A prime challenge of carsharing, and also on-demand car rental, is to keep utilization high while offering vehicle accessibility. “If you’re going to put unattended cars out there, whether carsharing or self-service car rental, it does you no favors to leave those locations with zero cars,” Simopoulos says. “You want there to be availability.”

Vehicle availability becomes even more important within the reservations process, according to Julian Espiritu, managing director of Abrams Carsharing Advisors. In traditional car rental, the website will continue accepting reservations — to the point of overbooking — until someone manually stops the faucet. The company has the flexibility to put renters into different car classes to satisfy a reservation.

In carsharing, the vehicle exists on the website in a virtual store, and the website will accept reservations as long as the vehicle is showing available. But when it’s off “the grid,” it’s not able to accept reservations. In other words, is the rental company prepared for the customer who rents a car at a body shop using the app, making that car unavailable for the next 10 days?

Traditional carsharing works best (and is most profitable) as an hourly rental. “Taking a car off the grid to fulfill a one-day reservation is not conducive to the business,” Espiritu says. “If several individuals wanted it for hourly use, it’s gone. The service is no longer convenient at that point.”

There are ways to keep the faucet on. Simopoulos suggests having the hardware installed in a portion of vehicles in the traditional car rental fleet. This “extra fleet” can be moved in and out of the on-demand fleet as needed. The reservations system could be programmed to show availability even when an on-demand car is reserved — but the rental company needs to be able to move another car into that spot before the next reservation starts.

An App for That

The move to on-demand car rental is only part of the natural evolution in the way people are creating, consuming and sharing information, all liberated by technology. “On demand” is inherent in everything today — from hailing a ride with Uber to downloading movies to your tablet, from delivering groceries to your home using your smartphone to performing stock transactions on the beach.

Understanding the changing times, auto manufacturers are accelerating this evolution. Telematics providers are integrating with the likes of Ford, General Motors and truck manufacturers to allow a fleet to click an option for an installed telematics system direct from the factory. Audi has just announced a system for consumers that allows four people to share an Audi for up to two years.

“With people owning fewer cars, services like car rental, carsharing and self-service are only going to increase,” Simopoulos says.

While the major car rental companies all have carsharing divisions, they are concurrently developing the on-demand model that will further blur the lines between traditional carsharing and car rental. Ryan Johnson, assistant vice president overseeing Enterprise’s carshare and vanpool operations, explains the motivation: “The more accessible I can make a car, the more times in my life I can use the car, and I can make car rental a larger part of my personal mobility solution.”

“We’re doing some exciting things to pull the technology that’s used in carshare into all phases of car rental,” Johnson says, “so that picking up a car in an unattended way is not just for someone who has made the predisposed decision to become a carshare member; anyone can access it.”

In looking at carsharing and traditional car rental, there may be little distinction in 20 years. As carsharing moves from first adopters into the mainstream, traditional car rental moves into the tech-enabled, on-demand and self-service model.

“It’s a societal shift in terms of how we perceive owning a car and renting a car and accessibility to a vehicle,” says Espiritu. “This is the new wave of mobility.”

Originally posted on Auto Rental News