Warning to the Car Rental Industry

Startups like Uber decimated taxi companies. Is the Car Rental industry next?

For Father’s Day this year, Brett Porter is hoping for a Ferrari.

Not to own—though that would be nice—but to drive around for a day. Last year, his kids celebrated by renting him a silver 2009 Mercedes Benz SL63. They picked it up near his home in Redondo Beach, California, then drove to the Concours d’Elegance, an annual automobile exhibition in Beverly Hills that attracts folks in Lamborghinis. Porter’s wife and two sons arranged the day through Turo, a San Francisco-based startup that lets private car owners rent out their vehicles, for about $250.

“It was a fun day, for sure,” Porter, 57, said. “I’m expecting it for my Father’s Day every year now. I’m going to give them a hard time when I don’t see a Ferrari in my driveway.”

Porter could get his wish—there are several Ferraris available for rent on Turo in greater Los Angeles—unless Enterprise Rent-A-Car has something to say about it. Enterprise has backed legislation in at least half a dozen US states that would define the new “car-sharing” startups as rental car companies and subject them to a long list of rules and regulations, a campaign that Turo says could put it out of business.

No company is better poised to quash Turo than Enterprise, which is every bit the Goliath to Turo’s David. Enterprise has been America’s biggest car rental company since 1996, consolidating the industry with its 2007 purchase of brands National and Alamo. Enterprise Holdings Inc., the parent of Enterprise Rent-A-Car, did $22 billion in revenue last year, has a fleet of nearly 2 million cars and trucks, and commands 38% of the rental business at US airports. In 2017, Enterprise spent $880,000 on federal lobbying, according to data from the Center for Responsive Politics, more than rival rental firms Hertz and Avis spent combined.

Turo, founded in 2009, has raised $216 million from investors including German automaker Daimler and global insurer Liberty Mutual. It typically takes a 20% cut from people renting out their cars, and provides insurance for owners and renters through Liberty Mutual. As of April, Turo said it had 230,000 vehicles listed on its platform in four countries, and it recently partnered with boutique rental car companies on a major international expansion.

Enterprise quietly became the largest US rental company using cheap offices, an army of young, energetic employees, and chummy relationships with people in the auto industry. The company understood that recommendations from mechanics and service managers were extremely valuable, and it would have pizza and doughnuts delivered to garages to keep those workers happy. Enterprise aimed to be not just an airport car rental operation but the go-to spare car for American families.

Today, of course, the landscape has changed. You don’t need rental car advice from an auto mechanic when you can survey the options on Google or Yelp. If the family car breaks down, you might not bother to rent a replacement when you can just take Uber. And thousands of rental locations lose their competitive edge when anyone with a car and a smartphone can list the vehicle in seconds on a platform like Turo’s.

Users on Turo book rentals, chat with car owners, arrange pickup and drop-off spots, and make payments directly through the app. The sell to owners is that they can make a quick buck by renting out a car they already own, or use the platform to help finance their purchase of a new vehicle. To customers, Turo promises a better rental selection and a process that is cheap, transparent, and free of airport counter lines and haggling agents.

Much as taxis clung to laws to oppose Uber, Enterprise has tried to stave off the tech threat through legislation. But it’s fighting more than Silicon Valley. Enterprise is widely loathed by its own customers, who complain of high fees, slow rental counters, and rude employees; it has a dismal average rating of 1.5 stars on Consumer Affairs over the last year, with 349 one-star reviews. Consumer values have also changed: People are thinking about their carbon footprints, and more willing to share assets for the good of their communities and the planet. Owning a car, once an American rite of passage, is no longer an inevitability.

“We know what happened with the taxi industry,” said Arun Kumar, a director in the automotive practice at consulting firm AlixPartners. “There’s no other industry that’s under attack as much as the rental car industry is today.”

The distinction matters because rental car companies have to follow specific rules and pay taxes that Turo currently doesn’t. Turo, for instance, doesn’t charge sales tax on any of its transactions. Rental companies are also held to high safety standards; for example, they typically can’t rent out cars that are part of an open safety recall. Enterprise and the American Car Rental Association say having rental car companies and car-sharing startups follow the same rules is only fair, and good for consumer safety.

Turo believes they have ulterior motives. “They watched what happened with Uber and the taxi industry, and Airbnb and the hotel industry, and they’re really afraid of their own survival,” Michelle Fang, Turo’s general counsel, said of Enterprise. “They view sharing and autonomy as an existential threat, so they’re putting everything they have into it. They shop bills and they call these, ‘Turo killers.’”

In Idaho, Indiana, Maine, and New Hampshire, Enterprise has backed bills that would require car-sharing companies to collect sales or accommodations tax on personal vehicle rentals. In California, Enterprise has pushed legislation that would force car-sharing companies to take responsibility for any safety recalls that affect cars on their platforms. In New York, where Turo doesn’t operate because of insurance requirements and its attempts to pass state rules that are friendlier to car-sharing have repeatedly failed, the startup claimsEnterprise and Hertz are to blame.

Turo alleges Enterprise has taken even more aggressive steps to crush its business. In San Francisco, Turo says Enterprise has urged the city forward with a lawsuit over Turo’s airport operations. Turo doesn’t have a permit to operate at San Francisco International Airport or pay facility fees like on-site rental car companies do, but its vehicle owners will sometimes meet customers at or near the airport to drop off the car. John Coté, a spokesman for city attorney Dennis Herrera, said in an email that Turo’s theory that Enterprise is “puppeteering” the lawsuit “is simply a fiction.”

Enterprise has also warned states that a shrinking rental car business could hurt the revenue they gain through specific rental car taxes. “The rental car market is still growing, to say there’s been some big drop in anybody’s business, I don’t think we’ve seen that yet,” Tomi Gerber, Enterprise’s assistant vice president of corporate government and public affairs, said at a hearing before the Maryland senate finance committee in November 2017. “But I think we’ve certainly recognized that these private vehicle rental companies are growing. And so if we do nothing, I think eventually states and cities will see revenue disruption.”

Car-sharing is just the latest threat Enterprise is eyeing from changes in the transportation industry. A year or two ago, as many states were considering bills to legalize the business model of ride-hailing companies like Uber and Lyft, Enterprise helped carve out exemptions for rides arranged through “vanpool,” a person familiar with the negotiations said. Vanpool is a long-distance commuting service Enterprise offers for trips that average 50 miles or more. Bryant said Enterprise has worked “to provide greater clarity concerning genuine ride-sharing services.”

Enterprise is hardly hurting. Enterprise Holdings reported $22.3 billion in global revenue in the 2017 fiscal year, up 7% from the previous year. That same year, Enterprise Rent-A-Car had more than 7,700 locations around the world and claimed 90% of the US population lived within 15 miles of an Enterprise office. From 2016 to 2017, Enterprise’s share of the North American rental car market grew to 57%, while the shares held by Hertz and Avis Budget Group shrunk, according to data from market research firm Euromonitor.

But cracks in the business are starting to show. The share of ground transportation captured by both rental cars and taxis has declined precipitously among business travelers in recent years, according to millions of receipts and expense reports analyzed by travel management firm Certify. Uber announced a partnership with San Francisco-based car-sharing startup Getaround in April for a new in-app car rental service, Uber Rent. The pie is still growing, but a lot more companies want a piece, including traditional automakers.

Twenty-plus years atop an industry could make anyone complacent, and the rental car business hasn’t needed to innovate in a long time. Enterprise is no longer the company that delivered free pizzas to garages and won the hearts of American families with the promise of “we’ll pick you up!” The players delivering today’s proverbial pizzas are the car-sharing startups, with their slick mobile apps and access to Ferraris. Enterprise knows better than anyone how far a little spunk and ingenuity goes. Small wonder that it’s scared.