In our blog, we've addressed actions that get customers on the rental car company's Do Not Rent list. We've also talked about some behaviors that are unauthorized uses of a rental car, such as off-roading. A consistent unauthorized use of a rental car is any "for hire" purpose, whether transporting cargo or individuals. The rental car companies forbid using their cars for the purpose of seeking a profit in transporting people or things, except when they explicitly allow such. The non-ownership economy and companies like Lyft and Uber created a mini-existential crisis for two rental car companies, one of which has already shaken off the cobwebs. Yet in nine (as of today) U.S. cities, it's still possible for authorized ride-hailing drivers to rent from a major rental car firm, specifically for use in ride-hailing services.
Where Do (or Did) Lyft and Uber fit in the Rental Industry?
When we reach the rental car aisle, our team enjoys finding new and interesting cars. Most of the time, we're driving cars that are very new. On many trips, it's possible to find a car that's brand new when walking through a vehicle selection when holding the highest tier status of major firms like Avis, Hertz, and National. The cars made available for ride-hailing drivers are not in this new or nearly new categorization.
In fact, the cars made available for ride-hailing drivers are headed to auction (eventually), as the vehicle has already passed the point (in terms of mileage, condition, or documentation) where the vehicle would meet the standards for resale directly by the rental car companies on their own "Car Sales" lots. These vehicles are the cars where the rental car companies already expect poor resale value.
When these cars do head to auction, the professional buyers at the auction already know that perfect cars are rarely sold at auction (and bid accordingly). The rental car companies have long been acutely aware of this form of adverse selection (peaches are resold, comparative lemons are auctioned). Two of the major car companies (Enterprise and Hertz) decided to explore a new way of extending the lives of their rental cars, simply as a revenue grab on cars not yet sent off to auction. While these vehicles were no longer suitable for the everyday rental fleet, they could be rented to drivers for ride-hailing services like Lyft and Uber! Yet the rental car companies forgot about a different form of adverse selection in the process.
The goal of the rental car companies was to rent these vehicles to Lyft and Uber drivers, who would pay a fee of $200 or so per week (plus taxes and fees) for the privilege of driving a not-so-gently-used rental that came with a damage waiver. Those vehicles were ordinarily expected to be 2-3 years old, well past the range when most vehicles would leave the rental fleet. And if you're thinking ride-hailing drivers with decent-to-good credit could easily get a brand new car and insurance for less than $10,000+ per year, you're also precisely right. The offering by the rental car companies was an expensive offering for old vehicles to drivers with lesser credit who would have to drive almost full-time just to pay for the rental car. And that's not a recipe for success: adverse selection plus adverse selection doesn't equal perfection -- it does equal a horrendous mess.
Ignoring non-rental companies (such as GM's Maven), Enterprise and Hertz were the first (and only) entrants into the ride-hailing game. Uber drivers and observers immediately realized that the mileage restrictions (with Enterprise) and weekly rate meant that the program could rarely result in driver profit. Hertz then expanded agreements with Lyft and Uber to offer vehicles to drivers in mid-2016. Old vehicles and expensive rates really only had an opportunity to work for the rental car companies, not the ride-hailing drivers. The individuals who had enough experience with the companies to know whether the arrangement would work for them full-time were ordinarily able to find (and insure) a car at much lower rates; drivers who quickly left the system after not finding profits hurt the rental firms and Lyft/Uber.
Within a year, Enterprise threw in the towel. Uber had separately tried to lease brand-new vehicles to subprime borrowers but ended the initiative after losing an estimated $9,000 per leased vehicle. Yet Hertz decided to stay in the game, unwisely refusing to throw in the towel (like Rocky during Apollo Creed's fight again Ivan Drago). Even today, it's possible the 2-3-year-old Lyft or Uber car you're riding in was rented through Hertz, as long as it's booked through the official channels for doing so.
With the Hertz/Lyft partnership in Las Vegas, a driver must be willing to pay $165 (compact) or $180 (midsize) per week plus local (excessive) taxes and fees and:
- Be at least 25 years old
- Be an approved Lyft driver
- Obtain a Clark County business license in addition to the Nevada business license.
The Hertz/Uber partnership has also been winnowed down greatly, to just eight cities today. My home city of Nashville recently ended participation, so there's no "AutoSlash Guide to Driving a Rental Car for Uber"! And while the FAQs don't address the fees, they do address the concept that liability coverage is only in effect when the Uber app is running; for drivers in California, that has particular implications as rentals don't come with any minimum liability. And those poor San Francisco-based drivers will have to be on the ball when paying tolls!
Rental car companies are worried about remarketing (the process of getting rid of used rental cars); Enterprise and Hertz decided that offering these vehicles to ride-sharing drivers might be a good idea. Enterprise quickly realized it's a bad idea and completely stopped the process, while a ride-share driver in nine cities might still be able to get a vehicle via Hertz. And while a normal renter using a rental car for ride-hailing would get a user banned for life, Hertz is happy to rent cars for that specific purpose when the vehicle's otherwise not suitable to rent! It's just a part of the (extended) life of a rental car; we'll talk about other potential paths for old rentals in future blog posts.
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