How to Drive an Exotic Car for a Day
Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With over 400 horsepower and a zero to sixty time under four seconds, the Audi (NASDAQOTH: AUDVF) R8 is one amazing car. Of course buyers should expect these kinds of performance stats out of a car starting at $114,900. What Audi fans may not expect is that they could soon rent one of these Audi supercars at a Hertz (NYSE: HTZ) location. Yes, a rental car company is ready to rent six-figure sportscars.
Bring your wallet and bank account
If you’re reading this article hoping to learn how to get one of these exotic cars for the $9.99 weekend rate deal you can stop here. Hertz has made it pretty clear these cars will not be rented on the cheap. Furthermore, Dallasnews reports that the Audi R8 will rent for $1,000 per day while cars like the Porsche Boxster can be had for a mere $395 per day.
Always in competition with its rivals, Avis Budget Group (NASDAQ: CAR) has its own high end car rental program. In addition to the typical luxury car fleet, Avis offers BMWs in its specialty car collection and sports cars from Audi and Porsche at certain locations. Again, the most expensive cars to buy are not cheap to rent. Avis Budget determined the market for these cars and saw the expected renters tend to have fat wallets to pay for their rental.
Financial impact for rental companies
Just because Hertz and Avis offer high priced exotic cars does not mean every traveler is suddenly going to increase his or her travel budget by a factor of ten. With this in mind, the rental companies are buying a far smaller number of these high priced cars and are only offering them at locations they consider to have higher demand.
The demand for these cars is not entirely clear yet and Hertz and Avis are rolling out the high-priced rentals gauging demand as they go. Just on a volume basis, the number of these rentals will be a drop in the bucket compared to the number of rentals of the typical compact, midsize, and fullsize cars. But the rental companies will probably try to make up for part of this on margins. Even though the exotic car rental is not likely to materially alter the business model of Hertz and Avis, a successful rollout of these cars could boost margins slightly, provide a small increase in earnings, and add prestige to the rental company brand. More important for Hertz and Avis is the state of the economy since more consumer spending means more demand for travel and car rental. Analysts expect strong earnings for both companies over the next few years, and if the rental companies can live up to expectations, then share prices should rise to reflect the increase.
Financial impact for manufacturers
Car manufacturers have often had close relationships with car rental companies. Dollar Thrifty (now part of Hertz Global Holdings) was owned by Chrysler before it was spun off, and Ford once controlled Hertz as a subsidiary. Even after the ownership ties were severed, the car rental companies maintained at least some relationship with these companies with Hertz offering numerous Ford models and Dollar Thrifty remaining partial to Chrysler products.
But luxury brands have not always played the same role in rental companies, and the newest high-end expansion is giving luxury automakers a chance to develop rental relationships. For mass market automakers, rental car companies often became a place to dump less desirable models, which the rental companies bought at lower prices. However companies like Audi don't want to associate their high-end vehicles with a dumping of cars.
For Audi, the manufacturer should be able to reduce some of this image through the rental companies' branding of these high-end cars as Special vehicles or Prestige vehicles. Still, the high-end rental segment will add some sales to Audi’s total, but it isn’t going to drive earnings higher overnight. Although, Audi could make deals with rental companies by utilizing the bargaining power of its corporate majority owner Volkswagen AG (NASDAQOTH: VLKAY) in delivering both Volkswagens and Audis to the rental company. How the exact terms of such a deal would be set up remain uncertain (and whether such a deal would ever happen), but the current corporate structure of Volkswagen and Audi does leave open the possibility for the future.
If someone will rent it...
Rental car companies want to offer it. As the rental car industry settles into having fewer players now that Hertz has acquired Dollar Thrifty in a merger, rental companies are looking for other ways to boost sales. As a result, they are now offering cars that most people would only dream of driving, let alone owning. While many people may only rent one for a day, enough people on enough days could make these limited offerings worthwhile for Hertz and Avis. The most expensive cars in the fleet can now run over a grand a day. Will you rent one?
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Alexander MacLennan has no position in any stocks mentioned. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool owns shares of Hertz Global Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!