Hertz car club targets urban drivers

By Jorn Madslien Business reporter, BBC News

Car clubs offer an alternative to ownership

One of the world's biggest car customers is launching a scheme this week that could threaten its suppliers - the world's carmakers.

Car rental firm Hertz, which buys 550,000 cars every year, has just launched a car sharing club that aims to make people stop buying cars.

"It's an alternative to car ownership," grins Michel Taride, president of Hertz Europe. "For us it's a great growth opportunity."

Globally, the car club market is worth $1bn (�667m), though this is set to soar to $10bn in the next five to 10 years, Mr Taride predicts.

"Car clubs appeal to urbanites who still need to use a car, but don't want the hassle of owning one," adds John Lewis, director general of the British Vehicle Rental and Leasing Association (BVRLA).

"Car clubs will grow as populations continue to migrate towards cities, where there is already a huge market for pay-as-you-go transport."

Such a shift away from outright car ownership would hit already struggling carmakers hard as each car club car could replace up to 20 owner-driven vehicles.

"Car manufacturers make most money from retail sales," says Mr Taride.

Recession pitch

Membership in car clubs, such as Streetcar or City Car Club - where members share a fleet of vehicles that they can book in advance and pay to use from time to time - have mushroomed in recent years to some 60,000 in the UK.

The Hertz scheme, dubbed Connect, offers drivers in London, Paris and New York access to a fleet of cars and will be rolled out in more countries during 2009.

In London, membership costs �50 ($75) per year, plus rental charges. In New York, the cost is $50 per year, in Paris it is 120 euros ($162; �108).

It'll take some time to make this profitable Michel Taride, Hertz Europe

"You pay as you go," explains Mr Taride. "It's per hour."

The pitch differs from existing car clubs, which have tended to focus mainly on their green credentials.

"Car clubs started off as small-scale schemes set up in conjunction with local authority environmental transport initiatives," explains Mr Lewis.

Hertz is focusing more on the cost of car ownership, hoping to attract families and others who are tightening their belts during a recession.

An hour in a Ford Focus, for instance, costs less than �4, including all costs such as petrol, maintenance and the congestion charge. A Mini Cooper costs just less than �7 per hour.

The average annual cost of driving could be brought down to �700 from �2,749 - the average all-in annual cost of owning a car - Hertz insists.

Fewer buy-backs available

Hertz is entering the car sharing business at a time when relations between car rental firms and carmakers is changing.

This is a natural extension of the traditional car rental model John Lewis, BVRLA

In the past, carmakers have been offering "guaranteed buy-back" scheme to car rental firms, where companies such as Hertz would hand back vehicles after six or eight months.

Such schemes have yielded low profit margins for carmakers, who are also concerned about their impact on the residual value of the cars they make, so they are becoming increasingly hard to come by.

"Right now they're tightening their 'buy-back sales'," observes Mr Taride. "I think there's much more discipline in the automotive industry right now."

Consequently, car rental firms are increasingly having to sell on the cars they buy themselves. Hertz Europe already sells about a third of its fleet through exports or through dealerships.

Additional benefit

Car clubs could help Hertz milk more cash from each car it buys, Mr Taride says.

Car clubs offer choice to those who normally prefer public transport

Already, cars are kept longer than the six to eight months that were normal in the past.

And then, at the end of its life in the car rental business, it would be possible to "put that car into car sharing for another six months or a year", Mr Taride explains.

"This is a natural extension of the traditional car rental model," says BVRLA's Mr Lewis.

"Rental companies have an existing fleet of vehicles, so it is just a case of making it even more flexible and convenient to use them."

Delayed profits

However, making money from the model may prove tricky.

Hertz-rival Avis tried and failed with its Urbigo offering a couple of years ago, and neither Enterprise nor Europcar, which both offer short-term car hire, have chosen to enter the car club market.

Nevertheless, Mr Taride remains optimistic.

"We have done a lot of research and learnt from past failures," he insists, though he also acknowledges that "it'll take some time to make this profitable".

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