Car rentals take a back seat to rideshare

Sandor Hertz founded the iconic Chicago Yellow Cab Company in 1915. Eight years later he purchased a rental car company, branded it with his namesake, and eventually became the first to open 1,000 rental locations around the world. Like his competitors, Hertz made his fortune from business travelers—a sector in which the US has historically dominated in worldwide spending, being edged out by China in only the past two years.

But there’s trouble under the hood for Hertz. Last year, travel-expense experts at Certify studied 50 million receipts that revealed ridesharing giants Uber and Lyft accounted for 68 percent of overall ground transportation expenses, with Uber accounting for 56 percent alone. In contrast, car rentals comprised a mere 25 percent of all ground transportation receipts/expenses, dropping from 33 percent in 2016.

To make matters worse, Hertz’ income statements continue to leave stock analysts scratching their heads . In 2015, they reported “accounting errors” going as far back as 2011 and announced that the company was being investigated by the SEC. Since 2007, Hertz’ annual after-tax profit declined from $960 million to $196 million. Today, Hertz owes $9.45 billion in “vehicle debt.” No wonder investors are running.

Meanwhile, Uber announced a $2.8 billion loss in revenue, not including employee stock options. According to the Financial Times, this made it “the most heavily-lossmaking private company in the history of Silicon Valley.” Yet, unlike the market panic caused by the rental car companies, Uber immediately pocketed $5 billion in fundraising.

How can Uber lose so much more than Hertz and remain a strong investment candidate? Uber’s strategy of flooding the market with drivers and disrupting taxi and rental-car agencies may why. Uber exists in more than 70 countries and is available via a simple app—a much more user-friendly experience than negotiating prices and insurance with unknown foreign brands.

While Uber also owns a fleet of cars, it doesn’t have the enormous debt owed by Hertz and other car companies, nor do they have to pay off and eventually unload this fleet. The biggest reason, however, may be that rental car companies have not evolved like ridesharing companies. They may have flashy new apps, but are basically the same as they’ve always been. Renters must still wait in line, sign reams of documents, and learn to navigate in a new city. In contrast, ridesharers simply tap a button and are on their way with a local, knowledgeable driver. For business travelers, the choice seems pretty clear.

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