Is the Real Uber Threat to Hertz?
By Avi Deitcher
It has become commonplace to forecast that Uber, Lyft and other ridesharing services are a strategic threat to car manufacturers. After all, if "everyone" uses Uber, why would they bother owning cars?
The problem with that argument is that it assumes that "everyone" lives where Uber and Lyft are headquartered: in a dense urban area with very little parking, going to other places nearby where there is lots of traffic and very little parking. Not everyone lives in San Francisco, New York, Paris and the City of London.
For people who spend the overwhelming majority of their days in such locations, car ownership always was a challenge. In the few years that I was young and single or newly married and working in Manhattan, I didn't own a car either. I took the subway daily. If I needed a car for a few days, I just rented one.
However, many people live lives that do not quite fit that mold. They live in suburban or rural locations with several miles between places they go every day. To a city dweller, 3 miles is a distance. A suburban dweller can drive 20 miles on a normal day; a rural resident will do double that.
For those people, car ownership never was an expensive pain that supplements public transit. It was a necessary mode of transport, something that makes life livable. These people are highly unlikely to give up car ownership.
If the few urban who have not yet given up their cars will give them up, and the much larger base outside of urban cores will not, to whom is Uber a serious threat?
First of all, Uber poses a major threat to the taxi monopolies, the medallion owners. These groups own the monopolized channels by which a potential taxi driver could earn some income. With Uber and Lyft, these people can use regular (not specialized, and therefore expensive) cars they can afford to own, and do not have to pay exorbitant fees to license a medallion. This is a key reason why ridesharing often is half the price of a "normal" taxi, and why the medallion owners and the commissions and politicians in their pockets fight Uber and Lyft tooth and nail.
To whom else are they a threat?
Hertz. Avis. Enterprise. Car rental agencies.
The majority of the revenue for these companies comes from business and leisure travelers who arrive in SFO or EWR or ORD and rent a car. Public transport is great if you are becoming a temporary version of our urban visitor, staying in a hotel or Airbnb within short distance of all of your meetings.
But if you are covering a broader area, you need to get a car. Everyone who visits Silicon Valley, Northern Virginia, Los Angeles, New Jersey, Westchester County rents a car to get around.
After all:
- Taxis are too expensive to cover those distances
- Taxis often are unavailable at the desired hours or locations
- You need to know the numbers for the local taxi service, and sometimes have cash to pay them.
Ridesharing eliminates all of these issues.
- At half the cost of a "normal" taxi, ridesharing can be very competitive to car rentals
- With a very large network, often composed of local residents, it is far easier to hail an Uber than a taxi
- With a single app connected to your card, it is as easy to get and pay for a taxi in Madison as Manhattan, Prague as Palo Alto
This past week, I visited Silicon Valley, and for the first time in decades did not rent a car. I simply used Uber to get around, and life was better. To boot, it was cheaper. It wasn't significantly cheaper, but the same price for more convenience wins out every time.
We must be careful not to extrapolate from a single case to broad market impact, but the market is made up of millions of single cases. If we can survive a visit to Silicon Valley without going to Hertz, who else is doing the same thing in thousands of places around the world every day?