Counter revolution: Rental agencies explore mobility frontiers

More than two decades ago, in 1997, Enterprise Holdings trademarked the term "virtual car," which meant customers could have access to a car when they needed it, for however long they needed it, without owning a vehicle.

"We recognized even back then what was happening," said Enterprise spokeswoman Laura Bryant. "It doesn't matter whether you rent for an hour, a day, a week, a month. It's all the same to us. It's just a different product, but in the end, we're delivering a virtual car when and where you need it."

Rental car companies are partnering with some mobility players, acquiring others and leveraging their scale and expertise to play a key role in the future of transportation. After all, traditional and new forms of rental are part of mobility as a whole, Enterprise and Avis Budget Group both said.

Hertz, the third big player in the rental car industry, declined an interview for this report.

"Today, we consider ourselves a mobility company," said Ohad Zeira, vice president of fleet ventures at Avis. "Even rental itself ... the definition of it is going to be shifting over time. So when we think about mobility, we think about the flexibility, about hitting multiple-use cases."

Avis is doing that with short-term rental subsidiary Zipcar and Zipcar Flex, along with partnerships with companies such as Waymo and Lyft and involvement in connected-car efforts in Kansas City, Mo.

"As consumers choose to own less and share more, that's going to be fruitful and helpful for rental," Zeira said.

In June 2017, Avis began working with Waymo, the self-driving car subsidiary of Alphabet Inc., to offer fleet support and maintenance. Through a partnership established in August of this year with ride-hailing company Lyft, Avis adds thousands of vehicles to the Lyft Express Drive program, in which drivers reserve vehicles to use for Lyft.

Avis plans to add Internet connection to its entire fleet by the end of 2020. Already, 100,000 Avis vehicles, about 17 percent of the fleet, are connected cars. To connect all its vehicles, Avis has partnered with automakers such as General Motors and Toyota. Without automaker partnerships, Avis connects the vehicles through its own retrofit solutions, Zeira said.

"As we go out and connect our vehicles, we are able to create and experiment with new features and functionalities that help our own operations or our own experience and then be able to take those learnings and package it up and roll that out to our other partners."

At Avis' Kansas City mobility lab, which opened last November, all 5,000 vehicles on-site are connected. The lab is a "sandbox for us to trial all these things," said Zeira. It's the first place Avis tests features to determine their effect on the work force, operation, vehicles and customer experience.

Kansas City is a digital city, where parking spaces are mapped and updated online and public transportation is tracked, he said. Avis can combine the city's digitized parking data with its own to help drivers find available spots.

"The integration is really helpful in terms of understanding what these future multimodal collaborations could look like with smart cities," Zeira said.

Because every Avis vehicle is connected in the city, "We can run experiments as a whole. So we're not really extrapolating. We're literally seeing [how] the city's operations could change."

Avis also is exploring ways to improve the tourism experience by making destination suggestions.

The mobility lab, along with Zipcar, is part of Avis' effort to reinvent rental and position itself for mobility, Zeira said.

Avis acquired Zipcar in 2013 and launched Zipcar Flex this year.

Different from Zipcar, which supports a round-trip model where the car returns to its original location, Zipcar Flex is a floating car rental product, which means customers can drive cars and leave them anywhere across a specified zone when they're finished.

In August alone, there were 50,000 Zipcar Flex trips in London, where it's primarily used. All the cars are connected.

"In rental, we see those cars in every transaction. They come back to home. They come back through our locations. When you think about Zipcar Flex, when those vehicles are roaming around London, we don't necessarily see them," Zeira said. "We have to rely on the connected car, on the data that it's telling us, on the signals we get from our members from the app to understand that the vehicle is doing what it should be."

The data enables Avis to understand where the vehicle is and how and when to maintain it.

"Those are phenomenal learnings that apply to business as we make that transition to mobility."

For Enterprise, part of the strategy for joining the future of transportation has been acquisitions and investments.

Enterprise began offering hourly car rentals 13 years ago. That offer was on a case-by-case basis on corporate campuses to start. Then it evolved to a business-to-business operation before becoming business-to-consumer. "It's been an evolution over more than a decade," Enterprise's Bryant said.

From 2011 to 2016, Enterprise elevated its efforts to be part of the car-sharing world by acquiring nine mobility service companies around the globe.

"We recognized the changing face of transportation and increasing digitalization," said Bob Wetzel, Enterprise vice president of corporate development. "We operate on a local and regional level in certain areas of the world, whether it's U.S., Canada or the U.K. We felt it would be faster to acquire that existing car-share company than to build it ourselves."

Enterprise then took its bet on the future a step further by launching Clayton Venture Partners, a corporate venture capital firm targeting investments in emerging transportation technology and mobility companies, Wetzel said.

Some investments turn into or arise out of partnerships, while others are for learning.

"It could be as simple as learning about a new part of the transportation or mobility industry or as complicated as a long-term commercial or technological partnership," he said.

In total, Enterprise has made eight investments in companies such as Mobileye, Quanergy, Mobi and Migo. It also has invested in a "well-known" Silicon Valley transportation company that has automaker co-investors. Details of that investment have not yet been made public.

Asked whether the company ever feared that its traditional rental model was at risk, Wetzel said: "We have been opportunistic in nature. We benefit from being a privately held company. We invest for the long term."

Though it doesn't report financial results, Enterprise has grown by at least $1 billion annually for the past eight consecutive years across all business units, including traditional rentals, according to the company.

"We have approximately 70 million transactions a year," said Bryant. "The large, large majority of that is going to be [rentals] over a day."

With new car-sharing and ride-hailing players entering the market, some have questioned the viability of the traditional rental car model. But even as those players have emerged, Enterprise has continued to grow, Wetzel said.

"We've been in business over 60 years, and during that time period, we've always had significant competitors," he said. "We expect to remain one of the world's largest mobility companies."

But the traditional rental business is changing.

Reinventing rental, Avis' Zeira says, means "stripping anything that is a legacy mechanism that we as consumers have gotten used to."

Rental should be easier, more convenient, more seamless and more personalized, he said.

"We are on the path to that. We know to do this," he said. "We have to have a connected fleet, so that is one of the reasons why we have taken such a lean-forward position in connecting our entire fleet."

It's why Avis is experimenting with self-service check-in and automated gates in Kansas City, to spread those insights to other locations.

During a 2017 Avis call with analysts, CEO Larry De Shon said the impact of ride-hailing and car-sharing on Avis' business has been relatively minor. Avis' revenue has grown over the last several years, reaching $8.8 billion in 2017.

"You can find certain markets that you could see maybe a larger impact than other markets, particularly on the one-day or the multiday but under 75-mile type of rentals," he said then.

But Avis' average rental is four days and 450 miles, "so those kind of short mileage and short length or rental-type transactions are not a big part of our volumes."

Enterprise's Wetzel described many core requirements to becoming a leading mobility company. They include a large balance sheet; expertise in buying and selling vehicles; ability to insure a large fleet; superior and consistent customer service; significant urban and suburban real estate; a strong consumer brand; and strong and diverse skills in fleet management on a massive scale. Those fleet management skills include servicing and maintaining vehicles, repairing vehicles and moving vehicles.

"Rental car companies do all of that," Wetzel said. "It is a minimum requirement to continue to be a leading player in the mobility area. Whether that's traditional rental car offerings today or next-generation mobility offerings such as autonomous mobility as a service, we will continue to be a player in all mobility offerings and, most importantly, be a player with business models that are profitable."

Rental car companies will continue to refine themselves as the transportation landscape evolves, said Zeira.

"The journey is not over, and mobility is evolving so fast that I don't think we could say that the definition of mobility or what we want to be is going to be static," he said. "We hope to be a bigger and better mobility company in the future."