The electric vehicle “arms race” is making traction in the car rental industry. In an exclusive Q&A, Auto Rental News talks with Rich Broome of Hertz on the company’s EV strategy.
ARN: You seem to be focusing your initial electric vehicle rollout in the car sharing market. Is this accurate?
RB: Our EV initiative is starting in car sharing. In New York, D.C. and San Francisco we are rolling EVs out in our car sharing model. We think that a lot of the customers who would be drawn to car sharing would naturally be drawn to electric vehicles as well. There is a natural synergy. Car sharing is perfect on college campuses and dense urban areas. Because of the range issue, electric vehicles are a perfect fit for the profile of customer who just wants a car to run around in for an hour or two in and outside of the city.
ARN: What types of customers will want to rent EVs?
RB: We think there are three types of customers: The early-adopter folks who are environmentally focused, then there are those who are more economy driven — people who realize they can drive an EV at a gas equivalent of $0.60 a gallon, which is a great deal. And the third type is the ones who realize they’re a lot of fun to drive.
ARN: What are your plans for traditional car rental?
RB: When we can get more of them, the Chevy Volt (extended range electric vehicle) will be good for the traditional car rental space because it’s got the gas option. When the range of an electric vehicle increases to 200 miles there will be more and more opportunities for EVs to end up in the traditional fleet.
ARN: Hertz has stated it plans to put “up to” 1,000 electric vehicles on the road. Can you be more specific?
RB: I will be disappointed if at some point during 2012 we don’t have 1,000 electric vehicles on the road. That may be closer to the end of 2012, I don’t know. But we’re hoping to have hundreds (in fleet) by the end of this year. Clearing the thousand-vehicle threshold during 2012 will be another good benchmark. When you consider we had zero as of Dec. 15, 2010, being in the hundreds by the end of this year is pretty good considering how small the production runs are from the OEMs.
ARN: What factors will affect that rollout?
RB: I think the key for us is how quickly they (the auto manufacturers) can ramp up production. When we started looking at EVs in 2009, we realized 2011 was going to be a breakthrough year. But we saw it really as a niche market for early adopters in major urban areas and college campuses. What caught us by surprise was the incredible interest from corporate America in EVs. As it stands today, we believe we could easily rent over 5,000 (EVs) in our fleet and be able to make money off them. And that would be primarily in the B-to-B market.
ARN: How would EV rentals work in the B-to-B market?
RB: For corporate fleet applications, clearly there are synergies in regards to our acquisition of Donlen (a major fleet leasing and management company). But secondly, an interesting dynamic is what we call “power EV,” or the creation of closed EV loops. For example, we’ve got EV charging stations and cars at an airport, a corporate office and a hotel. The customer flies in, picks up an electric vehicle, drives to the office and charges up, then drives to the hotel and charges up there too. So wherever they are in the loop of their business trip, they can be confident that their electric vehicle can be charged when needed.
We see some great opportunities there. It would require partnerships with hotels such as in San Francisco (Hertz’s partnership with Marriott) and then obviously partnerships with recharging manufacturers such as GE. The partnerships with the large companies that have an interest in this area would close the loop. You’re going to see those kind of partnerships announced over the next year as we get more EVs into the fleet.
ARN: Do you have plans to partner with government fleets?
RB: Yes we do. We haven’t announced any yet, but that will be one of the markets we will actively pursue. The issue is now — you’d love to have all of these partnerships — but you need the cars to fulfill the demand, so we can’t get ahead of ourselves.
ARN: Any other areas of penetration?
RB: The entertainment business is another one of the applications we’re going to be developing. We plan to provide electric vehicles on [film and TV production] locations and provide recharging capability onsite as well.
ARN: When it comes to electric vehicle rollout, Enterprise seems to be your primary competitor. Do you have any thoughts on your EV focus and theirs?
RB: I think our markets are a little bit different. I think we’ll both be in the retail market, but while they may focus more on the off-airport, we will probably focus initially in the airport market. With our traditional strength on the B-to-B side, especially with the larger companies, we’ll probably be more active in that area — at least initially.
ARN: How are you pricing EVs?
RB: Electric vehicles won’t be segregated in our car sharing fleet, and there won’t be an EV price premium. In our car sharing fleet in New York City, for example, our customers can specifically reserve an EV if that’s what they want. [As well, the customer is not required to pay for the recharge.]
The (rental) pricing for us is based on our car costs. You could get to the point where EV demand goes through the roof, similar to when Prius demand went through the roof in some locations, so there may be a supply and demand premium at that point. But at this point we have no interest in charging a premium. We’re planning on charging $8 to $10 an hour in the car sharing market as we do for our gas powered cars. We want people to try them out.
ARN: Can you get a return on investment from day one or is this not the focus just yet?
RB: We think on the B-to-B side we can get a fair return on our EVs and we’re confident that our (OEM) partners will give us the opportunity to earn a fair return on the vehicles. It will be harder initially on the retail car sharing side. Utilization on that side is still pretty low, whether it’s gas powered or EV. So initially we wouldn’t expect a positive ROI, but I think as the technology matures we’ll get more cars on the road and build out the infrastructure, and we think the ROIs will improve.
ARN: Have you set any residuals on your electric vehicles?
RB: We’re not taking any residual risk at this point. We’re buying them all on a program basis.
ARN: Has a customer run out of juice yet?
RB: We haven’t had any problems like that yet, except in one instance where there was a readout problem from the car.
ARN: Has the customer education aspect been a challenge?
RB: So far, people are pretty conservative when driving the car because of range anxiety. In New York City, our “Never Lost” GPS system has an application that lets the driver know where the nearest available recharging stations are to avoid that nightmare scenario. The EVs have a lot of onboard communications technology. The customer can hit a button and be talking with somebody from Hertz in a moment. So they’re not ever going to feel like they were left on their own in dealing with an electric vehicle.
ARN: What is Hertz’s overall goal in all this?
RB: Traditionally we’ve prided ourselves in having the most diverse rental fleet in the industry, and EVs are a logical extension of that corporate ethos. Mark Frissora (Hertz’s chairman and CEO) said EVs are coming in 2011 and that we need to be there. We were committed to getting at least one EV on the road to rent before the end of 2010. We did that in New York City to sort of plant the flag and build out from there. Our approach is to locate pockets of customer demand and fulfill those needs. So we’ve got some vehicles in retail locations in major cities today, but we’re building rapidly our B-to-B approach because our customers are really asking us to be there. My guess is that as our EV fleet grows, for the first couple of years you’re going to see many more EVs in that B-to-B market rather than in retail.