Rental firms find their niche in Waymo, Uber era

Old-school rental-car agencies may have a road map to prosper in the age of self-driving taxis after all.

Avis Budget Group agreed to manage a fleet of 600 self-driving Chrysler minivans for Alphabet’s Waymo autonomous technology division.

In addition, Hertz Global Holdings will lease Lexus sport-utility vehicles to Apple Inc., which will convert them to self-driving cars, said people familiar with the matter.

Those deals, while small in scope, comforted investors enough to push up shares of both companies by 14 per cent Monday, a remarkable one-day showing for an industry whose stocks have long been out of favour.

The reason for the optimism: Calling on the likes of Avis and Hertz shows that Apple and Waymo are willing to partner with traditional players instead of driving them into oblivion. The big technology companies may want to get into the self-driving vehicle business, but they don’t necessarily want to build, own or shine the metal.

“Some people thought that they would be victims, but they’re the only companies that can handle fleets on a large scale,” Michael Millman, founder of Millman Research, said of the rental agencies. “Autonomous cars and ride-sharing are not the end of the rental business, but could end up being a benefit. It could be a source of profit for them.”

A new revenue stream would be a lifeline for the rental industry, whose shares have trailed the Standard & Poor’s 500 Stock Index over the past five years. Investors had soured as the companies lost customers to ride-sharing firms such as Uber Technologies Inc. and Lyft Inc., and as profit sagged with the declining value of cars sold at the end of their fleet service. Hertz alone had a US$491-million loss last year.

Some investors had speculated that both rental companies would lose business to new tech players, Morgan Stanley analyst Adam Jonas wrote in a research note Monday. The deal with Waymo “offers a challenge to the now welltrodden bear thesis on car rental,” he wrote.

Now a new vision is taking shape: Established carmakers will build the vehicles, regardless of whether people or bots are to drive them. Technology developed by companies like Waymo and Apple — or the automakers themselves — will allow services like Uber and Lyft to operate self-driving taxis that pick up riders.

With the rental-agency relationships disclosed Monday, there may be greater clarity about who will actually own or maintain those fleets — an expensive proposition that encompasses everything from shouldering depreciation costs to cleaning car seats to keeping them fuelled or charged.

Right now, Uber and Lyft drivers maintain their own cars.