Avis/Hertz: oversteer
Two tech titans gallantly threw some crumbs at the depressed car hire sector on Monday. Noblesse oblige. Avis Budget and Hertz both rose 14 per cent on news of very different deals with Alphabet and Apple .
The rose-tinted view is that the arrangements secure Avis and Hertz’s place in a world where cars drive themselves, powered by technology from Alphabet’s Waymo unit, Apple and others.
Investors have become understandably — if perhaps prematurely — worried about impending doom for incumbent car-related businesses, from carmakers and their suppliers to rental, servicing and insurance.
Yet the Hertz “deal”, reported by Bloomberg, is tragically small. Apple, which is testing autonomous technology, will lease a handful of cars from Hertz. It requires great optimism to see this as a long-term boost to Hertz, whose shares had fallen 75 per cent in 12 months with revenues and profits under pressure.
Avis’s agreement, on the other hand, is more tangible but still provides little to justify an additional $300m of market value. Waymo, which already has autonomous cars ferrying passengers in a trial in Phoenix, will pay Avis to clean cars, change oil and rotate tyres. This non-exclusive deal is narrow, subject to change and presumably will do little to lift Avis’s stagnant revenues or weak operating margin, which was above 20 per cent 20 years ago and is now below 10 per cent.
Avis is focusing literally on the nuts and bolts. It is not to touch the really valuable bits — the lidar sensor and other technology that drives Waymo’s cars. And that may be illustrative of who keeps the value when the future business model evolves. A world where customers can jump in a self-driving car — rather than faff about with the queues, complexity and upselling, which are car hire companies’ speciality — does not bode well for a recovery.