The impact of ride-hailing services on the transportation system cannot be denied. Just ask any taxi driver in a town where Lyft or Uber operate. But how car dealerships will fare in the new “there’s an app for that” economy is still being debated.
On one side we have people who believe ride-hailing services will help dealerships. In this camp are companies such as DriveItAway and HyreCar. Brian Allan, a senior vice president at HyreCar who was recently interviewed by Wards Auto, says there are plenty of people who want to drive for Uber or Lyft, but they need to find a suitable car before they can do so. HyreCar claims more than 50,000 people apply to become ride-hailing drivers each month, but up to 40 percent of them don’t have a “qualifying vehicle.” HyreCar’s idea is to let car dealerships rent out their unsold vehicles to ride-share drivers. The company calls its program Dealer Mobility Solutions, suggesting that dealers can reduce idle vehicle inventory and reduce wholesale losses through this program.
It seems logical to state that both new- and used-car dealerships can benefit from renting to ride-hailing drivers. According to a company brochure, using HyreCar to rent out a 2014 Nissan Altima with 79,000 miles, which is only worth around $7000, could bring in almost $900 a month to the dealership (HyreCar takes a 15 percent cut, of course). That may not be much, but if a dealership rents out 15 vehicles a month, HyreCar says, that means an extra $12,000 in income that month. It makes sense that dealerships would rather have the money than a dozen-plus used cars taking up space. HyreCar also offers a rent-to-own program called Path to Ownership, which allows ride-share drivers to buy the vehicles they rent over time.
DriveItAway views short-term rentals for ride-hail drivers as a trap and instead tweaks the formula to allow drivers to apply their Uber or Lyft earnings toward a down payment on a vehicle they want to purchase. DriveItAway partners with dealerships to let drivers buy their own vehicle, incrementally and through giving rides. The logic is that it makes more sense to let vehicles generate revenue rather than sit on dealer lots.
It’s not uncommon for vehicles to sit at a dealership for months on end. J.D. Power reported, as cited by CNBC, that in July 2019 around 3.5 percent of new-car sales were from the previous model year, 2018. The older the car is, the more a dealer is likely to have to pay out incentives to get it off the lot and into the hands of a ride-hail driver.
But if you can make money renting cars to Uber or Lyft drivers, then it shouldn’t come as a surprise that there are more people out there who want a piece of the action. This brings us to the other side of the debate, with examples from Brazil.
Reuters recently published a report that two-thirds of the 600,000 Uber drivers in Brazil do not own their own vehicles. Instead, many of them rent their rides from traditional car-rental companies. These rental companies, in turn, buy their fleet vehicles at a discount. In Brazil, fleet sales made up around 45 percent of all car sales in recent years, even as the number of traditional retail sales has been cut in about half, Reuters says, and that cuts directly into dealer profits. In some cities in the U.S., Lyft offers its Express Drive service, which allows drivers to rent a car through Lyft and its rental partners, Avis Budget Group, Flexdrive, and Hertz.
Allan told Wards Auto that even with rental companies coming into the ride-hail-rental space, car dealerships still have the upper hand. “People who rent cars for ride sharing and ride hailing need to be in the dealership ecosystem,” Allan commented to Wards. After all, dealers are the ones that can take a trade-in vehicle, have service departments to keep the rentals running, and allow drivers to buy the cars over time.
HyreCar, as Allan’s claim makes clear, believes Uber and Lyft can help car dealerships, but if thousands of U.S. drivers—or tens of thousands in Brazil—would rather turn to a rental agency for help, then perhaps the solution isn’t that simple. In the gig economy, each person gigging is making what economists would like to believe are the best choices for themselves. For some, renting from a dealership and perhaps turning that into a purchase is the smartest move. For others, a short rental from a traditional agency makes sense. There may not be a best option that works for everyone, but at least now you have another topic to talk to your driver about the next time you hail a ride.