Ride Hailing Vs. Car Renting … Who Will Survive?

In the face of overwhelming growth pressures from ride hailing companies, can car rental companies survive?

The answer is hidden in the inevitable upcoming infliction point of autonomous vehicles, and here is why; unlike car rental companies, ride hailing companies like Uber, Lyft and Didi are not setup nor do they have the expertise to manage fleets let alone very large fleets. Fleet management challenges include: maintenance, insurance claims, vehicle retirement / replenishment cycle, warehousing and selling used vehicles, active fleet parking lots, minimizing down time or maximizing utilization …. Etc.  

In addition to the above real major challenges facing the management of any fleet, there is the biggest challenge of all facing ride hailing companies with regards to owning a very large fleet of autonomous vehicles which is burdening their balance sheets with quickly depreciable asset values, cash flow with large cash outflows and P&L statements with considerable depreciation and other cost of sale expenses. For sure, the current unprecedented levels of valuation for companies like Uber have not taken into consideration the burden of owning millions of vehicles which have to be upgraded every 2 to 3 years maximum. The above listed financial burdens will certainly dampen the potential hyper growth expected from ride hailing companies.  

As a result of the above, I see a flurry of potential M&A activities happening between ride hailing companies and car rental companies (a marriage of convenience). This will take place as autonomous driving becomes more prevalent. This is one option for survival that benefits car rental companies more than ride hailing companies.  

The ideal option is a win/win/win 3-way partnership of equals among: car hailing companies which provide the technology platform/ecosystem, car rental companies which will own and manage the autonomous vehicles fleet and car manufacturers which will enter into global supply agreements with car rental companies to sell them autonomous vehicles. This is the most optimal option facing these three parties as it lets each party focus on its own unique value proposition as well as it preserves each party’s equity market valuation metrics.