Avis Budget has begun wirelessly connecting 5,000 rental cars in the Kansas City area, with the goal of lowering maintenance costs and a big ROI. Here’s how the Avis connected car pilot works.

There are so many car technology pilots in the works, it’s hard to predict which companies eventually will become industry winners.

Eventually, these endeavors have to make money. Industry executives are starting to study the business case, beyond the software and silicon of futuristic car technology. They seek answers to the age-old question affecting traditional companies: What’s the return on investment for companies that implement and fund connected car and self-driving car technologies? Accidents involving self-driving cars likely will slow down research into self-driving technology and lead to greater government oversight. Yet, experts believe interest in such technology remains robust, although widespread adoption is still years away.

In one striking example, last year, Avis Budget Group began a pilot study of fully connected vehicles and operations in the Greater Kansas City, Missouri, area. More than 20 Avis car rental locations, with a combined fleet of 5,000 vehicles, will connect to the company’s fleet management platform and the Avis mobile app. What Avis learns in the process could lead to a global expansion of the technology, which is saying something: The company has a fleet of 590,000 cars globally and hopes to have them wirelessly connected to its management platform by 2020.

Self-driving rentals

While Avis Budget is exploring this connected car tech, it hasn’t explicitly defined its interest in self-driving vehicles. But it’s easy to guess that its Kansas City pilot testing connected car technology could provide a building block in efforts to offer self-driving rentals to individuals, cities, companies, and partners.

Major rental car companies like Avis Budget and Hertz have been scrambling to map out their future in a world crowded with self-driving car innovators, including nearly all the major global carmakers and ride-hailing companies. Some of those companies will be competitors to the rental giants, while others will become trusted partners.

For example, last year, Avis Budget signed a deal with Waymo, an Alphabet company, to offer fleet support and maintenance services for Waymo’s self-driving public trial program at Avis and Budget rental locations in Phoenix, Arizona. In a similar move, Apple is also reportedly leasing a small fleet of cars from Hertz to test self-driving cars in California.

“We want to get hands-on experience and what it means to manage autonomic vehicles,” Arthur Orduña, Avis Budget's chief innovation officer, told me in a recent interview. “We cut a deal supporting Waymo’s fleet in Phoenix. With AV [autonomic vehicles], it’s not a matter of if, but when and where.”

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In Kansas City, Avis will learn how well a connected fleet improves operational efficiencies, which should move big money to the bottom line.

“Being able to know where cars are on the lot gives us accurate information on what vehicles are on hand,” Orduña says. “Knowing the status of a car from tires to oil and gas allows us to know more efficiently when to get a car ready at the right time for the right customer. All that translates into cost savings, greater operational efficiency, and a more data-driving company.”

One reason Avis Budget picked the Kansas City area, Orduña says, was to “take an entire market sizable enough to understand what the efficiencies are with the economics and extrapolate that to America and the global market.”

The Kansas City pilot project will test how well the technology works so it can be fine-tuned, but Avis Budget believes a thorough cost-benefit analysis is equally important.

“To be blunt about it, ROI is critical,” Orduña says. “As we get the numbers ready, our intent is to start talking about them [later this year]. When it comes to next-generation mobility, there’s really been some eye-opening predictions. But we would rather have actual data based on performance and efficiencies. Our hope is that those numbers are big.”

How big? Orduña won’t say.

Tabulating cost reduction with car analytics

If Avis Budget were to save even 10 percent on its global fleet maintenance budget, that would be an annual savings, conservatively, of more than $100 million, analysts say. The company generated $8.8 billion in revenues in 2017.

With an estimated 13 percent spent on fleet maintenance, the Kansas City trial could be transformative. Gartner analysts say reducing maintenance costs by 10 percent in Kansas City would certainly justify Avis Budget's rollout of its connected car technology globally. Typical predictive analytics platforms in truck and service vehicle fleets have resulted in 10 to 15 percent maintenance savings, Gartner says, although rental car companies don’t keep their cars as long as truck fleets keep their vehicles.

Much ado about tire pressure

Here’s how the Avis Budget connected car pilot in Kansas City works: More than 200 current maintenance processes and practices are being automated, monitored, and evaluated, including everything from car cleanliness to tire pressure. If a customer checks out a rental vehicle, revs it up to 70 mph on the interstate, and suddenly sees a tire pressure warning indicator light up on the dashboard, “that’s not a great user experience,” Orduña says.

Avis set up the Kansas City trial so that a real-time alert is sent to its fleet management platform each time a tire is in danger of being underinflated or overinflated by several pounds of pressure. A report might be generated that, say, out of 300 cars in an airport parking lot on a given day, 20 register incorrect pressure. Those 20 tires can be serviced manually right away instead of waiting for a bi-monthly check. “Along with making sure customers don’t see warning lights on the dash and eliminating manual processes for checking tires, we will actually start to extend the lifetime of the tires,” Orduña says.

If a tire blows out on the road, a rental company could face the cost of a tow and a tire replacement ($200 or more), and could also see $50 a day in lost opportunity costs. “It’s not just the $50 here or there Avis saves, but the technology enhances the customer experience,” notes John Healy, an analyst at Northcoast Research. “If a customer has a blown tire, they probably won’t rent from them again.”

Every company in road vehicle transportation is plugging into connected vehicle technology and the data it creates, establishing partnerships for capabilities that the company hasn’t bought or built itself. “Rental car companies are trying to develop technologies to reach customers in different ways, including telematics to detect how hard a car is driven,” Healy says. “All of them are trying to figure it out, but Avis is taking a somewhat unique approach in Kansas City.”

In addition to its partnership with Waymo, Avis Budget has been steadily building prowess in connected car technologies. In 2013, Avis Budget acquired Zipcar, a popular car-sharing company. Early this year, Avis announced that it will install 50,000 telematics platform devices from I.D. Systems in its vehicles.

About 10,000 Toyota connected vehicles will start joining the Avis Budget fleet this September.

In 2016, Avis launched a mobile app to help customers find their car and access vehicle information; about 350,000 unique customers have used the app.

What cities get from connected car tech

With the Avis connected car pilot, Kansas City can receive traffic data from the company's vehicles on area roads, which could prove valuable in planning for new roads and transportation and even self-driving vehicles.

City officials initially see the potential to share information about area tourist attractions with Avis Budget customers via their rental cars or their smartphones. But the partnership opportunities go much deeper for a city that advertises itself as “the world’s most connected smart city.”

“The Avis partnership is helping us understand what the data exchange environment will look like as we evolve through connected vehicles to autonomous vehicles,” says Bob Bennett, chief innovation officer for Kansas City. “There are opportunities for cities and industry to collaborate and establish virtuous, symbiotic data exchange agreements that will be as transformative as the autonomous technology itself. I think blockchain-type data management and analysis tools will play a role here.”

IDC analyst Mark Zannoni envisions a potential for connected vehicles to help Kansas City and other cities spot street obstructions, even potholes, which can be detected with motion sensors in cars that are sensitive to sudden jolts. “Cities can generate conditions of roadways in an active database,” he says.

While Kansas City can score a win in the partnership, Avis Budget stands to win even bigger on the customer relations front, Zannoni says. “Imagine the PR value if Avis can know automatically what happened to a car with a problem before the customer even calls,” he says.

When self-driving vehicles eventually become commonplace, rental car providers will even have the ability to use in-car cameras and sensors to monitor the behaviors of passengers. Alerts could be generated about vandalism to seats and in-car sickness in the absence of a human driver, Zannoni notes.

The future for rental cars could be similar to that of ride-hailing companies once self-driving vehicles come on the scene, helping bolster an industry segment that faced a potential downturn three years ago. “A rental car could be a delivery car without a human driver, or you could rent it for a week if you are a salesman with lots of samples to crate around,” Zannoni says. “Rental car companies are trying to evolve, and one way is to partner with the other guys—even their enemies.”

The challenge for rental car companies will be to prove they are progressive and have moved beyond a “buggy and whip” business, Healy says: “Very few companies want to own a fleet of cars and manage them, and that gives rental companies a focus in the evolving car ecosystem.”

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