The global car rental industry is still a very lucrative one with forecasted Compound Annual Growth Rate (CAGR) of 5.6% from 2016 to 2021 (Lucintel 2016). Nonetheless, the improving public transport infrastructure in developing countries, coupled with high rental prices in the developed countries, have a negative impact on the whole industry. Moreover, the sales by Hertz have declined by 3% in the US, where it is the largest operator, while the value sales in the industry grew by 5% in 2015, mainly stimulated by smaller companies. The sales have been also diminishing due to an increased competition from ride sharing companies such as Uber and Lyft. These companies were able to expand their operations into secondary markets and gain access to a critical market segment for Hertz – the airports (Euromonitor 2016).
The rise of ride sharing services is driving away Hertz’s already hesitant price-sensitive customers. High taxes and insurance costs are starting to scare away even the most loyal corporate customers of the company. In this light, the effective fleet management becomes an even more daunting obstacle for Hertz, considering the new competitors, like Uber, do not own any fleet. Moreover, Avis – a direct competitor of Hertz, has acquired the car sharing service Zipcar back in 2013 for $500 million (Kell 2013). This acquisition has greatly improved Avis’ financial position, with company reporting a record net income of $327 million in 2014, which represented a 35% year-over-year, increase (Avis Budget Group 2015). The aforementioned facts demonstrate that in order for Hertz to remain the global market leader, it has to transform and embrace the new sharing economy.
Considering that IT enables all the operations at Hertz, from ordering to invoicing and payment, the challenge for Hertz is to use IT to create and sustain competitive advantage, given that most IT services run on legacy systems (Thibodeau 2016a). With the company’s new leadership team, Hertz is aiming for ‘a transformative IT agenda’ with over $400 million IT spending annually (Thibodeau 2016b). While the major chunk of this spending is aimed at development and use of cloud-based solutions, Hertz has also researched capacitive virtual keypads to be integrated on the windshields of their vehicles so that the renter has to only tap a code to enter a rented car (O’Neill, 2014).
To conclude, we suggest Hertz to further embrace the trend of the sharing economy. We propose Hertz to create a platform to facilitate P2P car rental while playing the role of mediator. This platform would benefit Hertz in the form of strong positive network effects. Moreover, by expanding into the P2P car sharing industry, Hertz could create and establish a community of travellers, which will further strengthen Hertz’s brand name and reputation. Therefore, Hertz should implement this solution, since it will both result in an expanded customer base as well as increased revenues in the long-term. Lastly, this new technology solution would further enable Hertz in their ultimate goal towards being the number one provider of mobility solutions.
– Sources:
Lucintel, (2016). The Global Car Rental Industry 2016-2021: Trends, Forecast, and Opportunity Analysis. [online] Prnewswire.com. Available at: http://www.prnewswire.com/news-releases/the-global-car-rental-industry-2016-2021-trends-forecast-and-opportunity-analysis-300278275.html
Euromonitor, (2016). Car Rental in the US. [online] Euromonitor.com. Available at: http://www.euromonitor.com/car-rental-in-the-us/report.
Kell, J. (2013). Avis to Buy Car-Sharing Service Zipcar. [online] WSJ. Available at: http://www.wsj.com/articles/SB10001424127887324374004578217121433322386
Avis Budget Group, (2015). Avis Budget Group Reports Record Fourth Quarter 2014 Results. [online] Available at: http://ir.avisbudgetgroup.com/releasedetail.cfm?ReleaseID=897071
Thibodeau, P. (2016). At Hertz IT, sheriffs, shock and tough choices. [online] Computerworld. Available at: http://www.computerworld.com/article/3042902/it-careers/at-hertz-it-sheriffs-shock-and-tough-choices.html#tk.drr_mlt
Thibodeau, P. (2016). Hertz cuts IT jobs as it shifts to IBM. [online] Computerworld. Available at: http://www.computerworld.com/article/3032350/it-careers/hertz-cutting-it-jobs-as-its-shifts-to-ibm.html
O’Neill, S. (2014). Hertz gives itself a technology upgrade – Tnooz. [online] Tnooz. Available at: https://www.tnooz.com/article/car-rental-giant-hertz-gives-technological-upgrade/
