Chris Hill, Jason Moser, and Taylor Muckerman talk about some of the tough issues facing Hertz (HTZG.Q)and the car-rental segment in general.
Disadvantageous partnerships, Uber, brand loyalty (or lack thereof), car-sharing programs, and the looming arrival of autonomous cars have all eaten away at this business. Does the car-rental industry have much of a future?
A full transcript follows the video.
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Chris Hill: If Priceline shareholders want to feel better about themselves, they can hang out with Hertz shareholders, because Hertz missed on earnings for the third quarter. I think we had talked a while back about how they had to restate their earnings. That appears to be completed. And the restatement, to the surprise of probably no one, was overall lower profit in the first half of the year.
But I don't know. I think if you're looking at Hertz right now, maybe the dominant question is, are we out of the woods yet?
Taylor Muckerman: Well, so far, they booked 5% revenue down year over year, whereas Priceline said that their car-rental days booked were 13% higher year over year. So Hertz is kind of moving in the opposite direction of one of the biggest car-booking sites in the world. And for me, Hertz is definitely a long-term picture. Although, from the point of uncertainty, in my mind, all this talk about a fully autonomous fleet over the next 20 to 30 years throws a huge monkey wrench into Hertz's plans, I think. Maybe they can capitalize on it, but, PWC said that a 99% reduction in overall fleet volume, if we have a fully autonomous fleet. So cars are gonna be significantly reduced on the road.
And I think Avis (CAR 1.67%) purchasing Zipcar a couple years ago -- I think it was 2013 -- for only $500 million -- that really positions them to take advantage of this autonomous driving, because I know Hertz has a competitor, but I rarely ever see a Hertz car-sharing parking spot. I see Zipcar everywhere. And they talk about if you live in a city with ride or car-sharing now, and you drive less than 10,000 miles a year, it doesn't make economical sense to even own a car.
So I could see Hertz, if they could build out that car-sharing marketplace a little bit more -- I don't necessarily think a hub at an airport is really going to be the future of car borrowing, I guess you could call it, because that's really all it's gonna come down to -- autonomous cars floating all around the country. And I don't think they're gonna need that central hub at an airport to really capitalize on it. So, for me, Hertz is just very uncertain over the next 10 years, probably.
Hill: I feel a bit about this industry the way I feel about the drugstore industry. I don't really have any specific brand loyalty, and I'm looking for, in the case of a drugstore, whatever happens to be closest and open whenever I need whatever it is that I need. And in the case of car rentals, I'm completely agnostic. Who's gonna give me a good deal? Who's gonna give me the vehicle I want? For me, it is when I'm traveling. I need to rent a car in a couple of weeks when I'm heading up to Boston for Thanksgiving, so I'm just gonna go on some aggregator site and just look across at Hertz, Avis, National, all of them, and just see ...
Muckerman: It's not hard to find a price for all these in one central location.
Hill: ... what's a decent price for the car that I want.
Jason Moser: Yeah, I think a couple of characteristics make this a really, I would say, an unattractive industry to consider as far as investing goes. Number one, what you're mentioning there. There really isn't any brand loyalty, I don't think. It is, to an extent, like airlines. I'm not really terribly concerned what airline I'm going on. Now, I'd kind of rather fly on one of the more reputable airlines --
Muckerman: I mean, if you're a business traveler, then you might have your brands, but for the broad majority, yeah.
Moser: Yeah. Sure, if you're a frequent business traveler, you possibly to have loyalty, because you're getting some kind of a reward. But even then, I think that leads to my other problem with these types of investments. They're very beholden to partnerships that they have to forge, whether it's an online travel agency platform that they need to be on, or whether it's any kind of a business traveler credit card sort of relationship, or even insurance companies.
I could tell you, with my experience with traveler's insurance, for example, I mean, Enterprise Rent-a-Car got a boatload of business from us, because I was just floored by the number of how many car accidents there were in just the states of Georgia and Alabama on a daily basis, but virtually every one of those accidents required a rental car for at least one of the parties involved. So, I mean, insurance companies would partner up or will partner up with this car-rental companies, and that's great for the rental company, but it also shows you who really controls the leverage of that relationship. And it's typically not the car-rental company.
Muckerman: If Uber goes completely autonomous in the next decade or so -- I mean, already, Uber, I think, would be eating into these rental-car companies, because you can call them so easily if you're traveling to a major city. They say, I think, a tenth of the number of Ubers could totally eradicate all the cabs in the United States, if they were all fully autonomous. So it's quite shocking, the disruption that could take place over the next decade.
Moser: Yeah, just a tremendous amount of capital upfront to maintain that base, too. It costs a lot of money to maintain a big fleet of cars. A lot of money and a lot of labor.
