How to disrupt the car rental industry?
The car rental industry is struggling with a lot of competition from ride sharing companies and other market forces but I think the car rental industry can be disrupted and become more competetive with supply side aggregation and by taking a page from Uber playbook.
In order to understand the disruption premise, let’s start by analyzing the Uber playbook a bit better.
Below are my key takeaways from the Uber playbook.
1. Uber did not buy cars (an expensive proposition) but rather bought underutilized drivers that owned their own cars (an underutilized asset)
2. They aggregated cars and drivers, which led to lower SLA/wait time and better and consistent customer experience for riders
3. Uber used capital to subsidize rides for customers and guaranteed higher earnings to underutilized drivers with underutilized cars and get drivers and riders hooked to this model
So, how can the same model be applied to the car rental industry? Similar to the taxi industry that Uber disrupted, the car rental market is fragmented as there are not enough cars AND the consumers use alternative means to satisfy their needs through taxi, Uber, Lyft and other means of transportation. The largest player in this market, Enterprise holdings has 1.2M cars across multiple brands (Alamo, Enterprise and National) across 6400 locations. The next player, Hertz has 489,800 cars across 4435 locations as evidenced by the U.S Car rental market factbook published by Auto rental news.
I believe that this creates an opportunity for car rental companies to implement the same playbook as Uber by aggregating the underutilized assets in the market.
First we need to look for underutilized assets in this market place.
There are underutilized cars owned by consumers(which ride sharing companies are targeting) so I think its better not to compete with that asset.
There are 45,000 used car dealerships across the US with underutilized cars sitting in their lot. If we assume that on average there are 50 cars with each dealer, there are 2.2 Million cars sitting as underutilized assets in these lots across the USA.
If a rental car company could come up with a technology platform to better utilize these assets and do supply side aggregation (similar to Uber) by providing an app that would allow rental from these dealers, it could really disrupt the rental car model.
Why would Used car dealers want to embrace this model?
New Revenue stream for existing underutilized cars and increased profitability
Increased exposure to their inventory — more traffic to their lot, customers can rent before buying
Why would rental car companies want this model?
45,000 new locations without any capital expense
2.2M cars without any capital expense
New revenue stream
Capture market share
Transition to a technology company with a much higher valuation
Why would customers want this model?
Convenience — every small town and big town across USA has a used car dealership within a convenient driving distance
Cost — With Supply side aggregation and no cost of capital, the cost of rental will be lower for the customer
Rent before buying and have a better ownership experience