Investors are putting the brakes on car rental company Hertz (HTZ) today, locking in some gains after a recent big run in the stock. The stock has been making a big move since early June when the company announced a new program called Hertz My Car, a subscription service.
As you probably know, rental car companies, including HTZ and Avis Budget (CAR) have in recent years been decimated in the same ways taxis have been from ride sharing companies like Uber (UBER) and Lyft (LYFT). If you travel for a week, it does not make sense to rent a car anymore. Before the rideshare boom, it was understandable that finding a taxi to get around could be difficult, so engaging a rental car to avoid those uncertainties made sense. However, now an Uber drive will come to your location and take you. It's a lot cheaper on a per ride basis; furthermore, rental cars have huge taxes on them, and it's a hassle to wait in line to pick-up or drop-off a car.
In response, Hertz is getting into the car-on-demand space with a monthly subscription offering with its Hertz My Car platform (click here for details). Customers can choose a Tier-one option of smaller cars/SUVs or Tier-two for larger vehicles. Customers can "exchange their vehicle twice a month to another make or model within the tier so they always have the vehicle that best fits their needs. The all-inclusive monthly subscription covers vehicle maintenance, roadside assistance, vehicle damage and limited liability protection," according to the June 4 press release.
We have our doubts about the service. Our main problem is the monthly price ($999 for Tier-one and $1,399 for Tier-two plus a $250 activation fee). That seems very high to us. We understand that owners who buy cars the normal way suffer from a quickly depreciating asset. It's good that this service includes features like insurance and maintenance, and the ability to swap out and try different cars is an enticing idea. However, that rate seems a bit excessive. We have some doubts that this will take off unless these rates come down quite a bit.
This service is clearly not the same model as Uber or Lyft, but it does allow consumers to have ready access to an on-demand vehicle without taking ownership, and it demands no long-term commitment like a regular car purchase would. It's only available in two test markets right now (Atlanta and Austin, TX) but could expand if successful.
In sum, this is an innovative way to provide on-demand cars to consumers, which seems to be a growing trend, especially in cities. However, we do not think it tackles the main problem (rideshare services) facing rental car services. Overall, we would be cautious on this industry in general and would lock in profits from the recent move in the stock.