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Rental Car Agencies Cozy Up to Autonomous Autos—But Will It Help or Hurt Them?

By: Bridget Clerkin July 17, 2017
Rental car giant Avis recently partnered with self-driving car company Waymo in an arrangement both hope is beneficial.

When it comes to the future of the automotive world, it seems birds of a feather fleet together.

Both autonomous vehicle powerhouse Waymo and tech giant Apple put some serious stakes in the car rental industry late last month, inking deals with Avis Budget Group and Hertz, respectively—on the same day.

Aside from pairing off corporate rivals, the partnerships may seem odd or even antiquated in the age of app-driven transportation. But such collaborations could be just the thing needed to bring Apple and Waymo, a sister company of Google, into that on-demand realm, supplying the corporate infrastructure needed to expand their self-driving empires across the nation.

The deals also serve to buoy the financially-fragile rental companies, and have already shown short-term boons to their stock values—but what pays the fleet owners now may end up costing them the entire industry in the end.

What’s the Deal?

The two agreements are slightly different, reflecting each tech company’s respective status in the race toward autonomy.

A relative newcomer into the foray—at least, officiallyApple has signed on to lease a small fleet of cars from Hertz. The agreement gives Apple more vehicles in which to test its technology—an especially important asset, as the company has said in the past its main objective is to produce self-driving software, not necessarily cars.

Hertz's partnership with Apple sent the rental agency's stock soaring 18%—higher than at any point since 2015. 

Word of the partnership benefitted Hertz, which, prior to its announcement, had lost 75% in stock prices over the past 12 months. News of the Apple deal was enough to send Hertz’s stocks surging higher than they have since 2015, with as much as an 18% gain, according to Bloomberg News.

Waymo’s Avis contract is much more robust. The long-time autonomous development leader has use of the rental car company’s Phoenix facility, where Waymo will house its fleet of driverless Chrysler Pacifica minivans.

The contract also gives Waymo access to Zipcar, the hourly car-rental service that Avis purchased in 2013.

No official numbers have been reported on how much the deal was worth, but the news also gave Avis a boost, lifting the sagging company’s stock by 14%, up to $27.67 a share.

For Waymo, however, the deal could prove much more valuable.

Already owners of arguably the industry’s most advanced self-driving model, the tech company could cultivate the second-most-important business need with the acquisition of Zipcar: access to a new customer base.

What’s Really at Stake?

Waymo's fleet of Chrysler Pacificas will find a home in Phoenix, which is where Avis is headquartered.
Waymo's fleet of Chrysler Pacificas will find a home in Phoenix, which is where Avis is headquartered.

Phoenix was a logical choice for Waymo. The southwestern city is in a friendly state for self-driving regulations, and the company pegged the area as the location for its first public testing of the technology earlier this year.

But the Avis partnership will allow Waymo to take what it learns from those trials far beyond Arizona’s borders.

The car rental giant has 11,000 worldwide locations—and a lot of sway over the auto market. The company owns or leases huge numbers of cars, giving it the ability to tip the scales in favor of certain brands or models.

Avis also manages fleets for large businesses and could have a hand in the type of vehicles involved in such contracts, giving Waymo even more outlets for its inventory.

The million-strong user base of Zipcar doesn’t hurt, either.

More than mere numbers make the deal a winner for Waymo. The mindset of those using Zipcar—that of more tech-savvy consumers willing to experiment with their means of transportation—is a good match for the cutting-edge technology the company will offer. The contract gives it direct access to this huge number of potential future customers.

Then there’s the mechanics of Zipcar itself. Users can reserve a car directly through the company’s app, making the process easier and more accessible than typical rental set-ups. That type of on-demand model could help Waymo further expand its offerings and outreach, Chief Executive Officer John Krafcik told Bloomberg.

Indeed, in the future, one could imagine the Google affiliate expanding its reach to essentially take over the rental car industry itself—and the rideshare sector, as well.

The car rental model may have been struggling in the crowded market of temporary transportation options, but once autonomous autos take over the roads, there will be little—if any—discernible difference between those businesses and their rideshare competitors. Without the need to drive, renting a car will be tantamount to a long trip in an autonomous taxi, and the two industries will likely converge.

In the aftermath, the Silicon Valley giant could come away with control of a huge chunk of the newly-engorged market, emerging as champion of the fiercely-fought race for autonomy.

With its savvy dealmaking, it seems Waymo may be way ahead of the curve than most.

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