Your browser is not supported. Please update it.

7 June 2019

Hertz unveils $1k per month VaaS package, not as bad as it sounds

Hertz has announced the pricing for its Hertz My Car subscription service, and we’ll get the obvious joke out of the way – it’s going to Hertz Your Wallet, at $1,000 per month for the standard package. Now, that sounds exorbitant, especially when the luxury package clocks in at $1,400, but recent data from the US shows that the average car finance payment is $523 per month. So, sure, Hertz is cheaper than rival Enterprise’s recently announced $1,500 per month deal, but it is still a long way off the point where it might have mass-market appeal.

Hertz’ project is in the pilot stages, so pricing could change. It has been launched in Texas (Austin) and Georgia (Atlanta), and the package includes full vehicle maintenance, roadside assistance, vehicle damage (subject to a $1,000 deductible), and limited liability protection. You can choose from a range of sedans, small SUVs, and trucks, and pay the extra $400/month for nicer and larger vehicles.

You can swap cars twice a month, but additional swaps are $75, and the real stinger is that these are all pre-tax prices (something quintessentially American), and there’s also a $250 enrollment admin fee. There’s a 2,000-mile per month limit, and if you exceed that, then it’ll be $0.35/mile. Enterprise’s package gives you four swaps and 3,000 miles each month.

So then, if you already have a pretty large finance payment, drive less than 66 miles daily, and like the idea of having a new car on an almost monthly basis, then maybe this Vehicle-aaS (VaaS) package makes financial sense for you. There’s the value of simplicity, as this looks like a single payment to budget for, rather than 4 or 5, as well as the value of being able to walk away without needing to offload the car you bought on finance, but perhaps the most valuable part is the ability to swap between cars as desired – so that you aren’t saddled with a car you are paying through the nose for, which doesn’t quite tick all your boxes. That argument is not so applicable to leasing though.

Of course, there are many consumer for which the idea of putting a new car on finance is anathema, and it seems very unlikely that the per-month VaaS approach is going to draw them into the fold – especially as it will be pricing that is the primary objection, followed perhaps by the credit burden of the asset. $1,000 per month, plus taxes, plus fuel, is a lot more money than many consumers can every justify on a car, and so this seems pitched at fairly wealthy consumers.

However, Hertz has a lot of weight to throw around in its agreements with vendors. As a bulk-buyer, it can negotiate cheaper purchase prices for the cars, barter for fleet-scale rates on maintenance services (or even completely in-house those itself), and potentially get discounts on insurance too. There’s a lot of scope to bring the pricing of Hertz My Car down, and if you look at the average numbers, it might even be able to get to the point where you could call it affordable, as bonkers as that initially sounds.

For consumers that are eyeing up a new car, loaning or leasing are your primary options, unless you have $37,577 in cash, which is the average transaction price for a new car in the US, according to Kelley Blue Book. The table there can be used to gauge the price of the Hertz package, where a Luxury Car averages in at $57k, a Full-size Pickup Truck at $49k, and a Full-size SUV/Crossover at $63k. The Electric Vehicle average price sits at $67k, for reference.

The average car payment in the US is $523, according to Experian, with the average amount borrowed to buy new cars hitting $31,454. Dividing those numbers comes out at just over 60, meaning that these would be 5-year loans. Experian says it looked at 4.7mn loans to calculate the average, with the average interest rate being 5.17%. Missed payments (delinquencies) are at historic loans, with 30-day rates at 1.86% of all loans, and 60-day rates at 0.66%. Some 17mn new vehicles were sold in the first quarter, according to Autodata.

As for insurance, the average cost of a year’s insurance $1,426, clocking in at $119 per month, but you’ll have to add a little to account for the interest. For a Luxury car, the number is nearer $2,000 a year ($166/month). For maintenance, new vehicles typically don’t require big jobs, but figures seem to peg the number at between $1,000 and $1,500 annually. The average driver travels 13,476 miles annually, says the DoT, so that’s about 1,123 miles per month.

All this adds up: car ($523), insurance ($119), whatever your local taxes for vehicle ownership and registration are, maintenance ($100), and then fuel (around $125, but dependent on the vehicle, average of $0.11/mile). This quickly gets you to $867 per month, on just the average costs, plus the state’s local taxes (average of $668/year, apparently). Factor in the value in being able to swap between cars (effectively renting a minivan for a holiday excursion, perhaps a pickup for some yard work), and the Hertz proposition is not as exorbitant as it first sounds.

A study from AAA puts the cost of owning and operating a vehicle in the US at $8,849 annually, or $706 monthly. Small sedans are cheapest, at $6,354 ($529.50/month) each year, with EVs at $8,439 ($703.25/month), large sedans at $9,399 ($783.25/month), and pickups at $10,054 ($837/month). The AAA study factors in depreciation though.

Hertz and Enterprise are not the only ones interested in VaaS. The automakers are keen to sign you up to such a model, and the ones that have begun experiments in this space are: Audi, BMW, Cadillac, Jaguar, Mercedes-Benz, Porsche, and Volvo.