Uber Is Not a Threat to Car Rental Companies

The widespread belief that privately held transportation app companies like Uber Technologies Inc. and Lyft are a threat to car rental companies like Avis Budget Group (NASDAQ: CAR) and Hertz Global Holdings (NYSE: HTZ) is mistaken.

This belief is wrong because services like Uber, Lyft and Sidecar do not compete directly with vehicle rental companies. Instead of vehicles, services like Uber are selling transportation in the form of rides. If these companies compete directly with anybody, they compete with the taxi cab industry, which sees them as a serious threat to its future.

Unfortunately, many people think that these companies are competing with Avis, Hertz and the privately held Enterprise because of the inaccurate terminology “ride-sharing app.” That term is inaccurate because Uber and Lyft do not share rides; they sell them. Or more specifically, they sell a service; namely, transportation.
A better description for organizations like Sidecar would be “network-transportation companies.” Another even more accurate classification for these companies would be taxi-cab applications. Uber (which originally called itself Uber Taxi) and its competitors do not want to use that term because it would subject them to the many regulations governing the taxi industry.

Why Are Avis-Budget’s Revenues Growing?

If Uber and company were really taking business from rental car operators, one would expect their revenues to be falling. That is not happening; the one major publicly traded car-rental company, Avis-Budget, that reported financial numbers for 2015 reported increasing revenues for the past two years.

Avis reported a TTM revenue figure of $7.425 billion in March 2013 that grew to $8.109 billion in March 2014 and $8.473 billion in March 2015. If Uber was really taking Avis-Budget’s customers away, one would expect its revenues to shrink, but they’re growing instead. In fact, Avis’s revenue increased by $1.048 billion over the past two years in the face of the Uber competition.

Okay, to be fair, Avis-Budget’s quarterly year to year revenue growth rate did slow a little last year. It was -.64%, but that’s hardly a great loss when compared to the overall gain.

Unfortunately, it is hard to compare the overall figures for either the car-rental or network transportation industries because most of the players are privately held. Companies like Uber, Enterprise and Lyft do not have to reveal their financial figures. That means we only have their press releases and, worse, media hype to rely upon for valuation figures.

The Legal, Regulatory and Political Environment Is Against Uber

The other reason why I believe that network transportation companies are no threat to car rental services is that the legal, regulatory and political environment is stacked against these upstarts. News stories indicate that the app-based services are having a very difficult time operating in a number of locales.

Media reports that tell a very different story than the one being handed out by Uber’s propagandists include:

• Uber shut down its operations in Kansas City, Missouri, because of a new city ordinance governing its business. Among other things, Uber declined to pay a $40,000 a year fee to operate in the city and get drivers’ background checks.

 

• The Nevada State Transportation Authority seized and impounded at least 15 Uber drivers’ cars after it caught them operating in the state, The Reno-Gazette Journal The Authority and Nevada’s attorney general contend that Uber violates the state’s taxi cab regulations.

 

• Uber simply pulled out of Eugene, Oregon, because of a dispute with the city government.

• Uber vehicles were also seized and impounded by police in Montreal at the behest of Quebec’s Transport Ministry, Mashable reported. The drivers faced fines for operating in the city without a cab license.

• The Greater Orlando Aviation Authority has filed a lawsuit asking for a court order that would block Uber from picking up passengers at Orlando International Airport, The Orlando Sentinel reported. Uber asked a judge to dismiss the lawsuit on the grounds that it is a technology company; the judge disagreed.

 

• Federal judges have allowed lawsuits that contend Uber and Lyft drivers are really employees and not “independent contractors” to go forward. If the suits succeed Uber and Lyft would have to follow laws on the minimum wage, benefits and Obamacare. The suits would effectively put both companies out of business in the United States if they go through.

 

• Some news stories indicate that there is no insurance for Uber drivers and that Uber drivers could run afoul of state insurance laws, including California. Buzzfeed reported that Uber representatives told would-be UberX drivers in Los Angeles to buy personal auto insurance policies instead of livery policies. That is apparently a violation of California state law, which requires specific policies for commercial use, a California Department of Motor Vehicles spokesman told Buzzfeed.

These stories are only the tip of the iceberg, but they show that network transportation companies, unlike vehicle rental organizations, are on very shaky legal ground. They cannot operate in many cities, and in some areas, authorities can simply seize Uber vehicles.

Such news indicates that Avis-Budget, Hertz and Enterprise have little or nothing to worry about from either Uber or Lyft. Nor would they seem to have much to fear from services like FlightCar, which lets private individuals rent out their own cars. My guess is that legal challenges and insurance woes will quickly kill off FlightCar. FlightCar is already facing a serious legal battle to operate at San Francisco International Airport.

The Future of Ridesharing Belongs to Hertz, Avis-Budget

Instead, the future business model for car-sharing is the one that Avis-Budget, Hertz and Enterprise have been practicing for decades: large companies renting or leasing vehicles directly to individuals. The difference is that new technologies like self-driving cars such as the Google car will make it easier to rent or lease vehicles on a short-term basis. The real future of ridesharing is short-term rental services like Avis-Budget’s Zipcar.

A more likely future for ridesharing will be a self-driving car owned by Avis-Budget or Enterprise that drives out to your house to pick you up. Uber’s claims of success are no reason for anybody to sell rental car stock, because it is no threat to either Avis-Budget or Hertz.

News stories prove that the reports of the car rental industry’s demise are greatly exaggerated. It is Uber and its ilk that are fighting for survival, not Avis-Budget, Hertz and Enterprise.