From The Wall Street Journal Online

Like most Americans these days, Jeff Pink sees dollar signs when he pulls in at a gas station. But instead of flowing out of his wallet, the dollars are flowing in.

As chief executive of EV Rental Cars, a Los Angeles agency devoted solely to hybrid vehicles, Mr. Pink is one of the few U.S. business owners actually enjoying, and profiting from, the current surge in oil prices. Daily rental rates range from $35 to $75 for the combination gasoline-and-electric cars in his fleet, including Toyota’s Prius, Camry and Highlander, the Honda Civic and the Ford Escape. Depending on the make, the hybrids average from 30 to 50 miles per gallon and, in some cases, upward of 600 miles per tank of gasoline — a powerfully attractive number to anyone who plunks down $60 or more to fill up an all-gas SUV.

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With 425 cars and eight rental locations on the West Coast, EV Rental is barely a blip on the radar screen compared with car-rental giants. But the company’s stable of hybrids has thrust it into the industry spotlight. Even Enterprise Rent-a-Car Co., one of the largest rental agencies, has only about 50 hybrids in its fleet of roughly 650,000 cars, and it can’t expand that portion because the supply of hybrids is so tight. “Manufacturers aren’t making them widely available to us,” says Christy Conrad, a spokeswoman for Enterprise. The company had about 3,000 Prius hybrids last year but had to return them to Toyota under the terms of its agreement with the manufacturer. “Consumers like them,” Ms. Conrad says. “Demand is there.”

Now for the 64,000-gallon question: Can EV Rental parlay its current prominence into a sustainable enterprise down the road? Right now, the fleet’s average monthly “utilization rate” — the portion of days in which a vehicle is out generating revenue — is at 90%. That compares with an acceptable industry norm of 80% to 85%, according to Neil Abrams, president of Abrams Consulting Group, a Purchase, N.Y., car-rental advisory firm. EV’s cars can command at least a $10-a-day premium over most comparable all-gas rentals. Mr. Pink says EV turned a profit last year on revenue of $4 million and expects to take in $5 million to $6 million this year.

But when and if gas prices fall, consumer appetite for hybrids could wane — throwing a monkey wrench into EV’s prospects. Or if the reverse happens and consumer demand for hybrids takes off, manufacturers might ramp up supply, allowing big rental players to jump into the game at full force and potentially squeeze EV Rental out — a familiar fate among small enterprises at the forefront of trends.

All of which puts EV Rental in the curious position of needing demand for its product to grow — just not too much and not too fast, a seemingly counterintuitive position for small businesses hungry for a bigger slice of the pie. Mr. Pink says he’d “like another 500 cars if I could get them,” but he also knows scarcity helps him by keeping giant rivals at bay and letting him build brand awareness.

Hybrids “would have to be available in substantial quantities” for us to start offering them, says Charles Pulley, spokesman for Vanguard Car Rental USA Inc.’s Alamo and National brands. “It’s an availability problem. We’d love to market them, but a couple here and there don’t really help.”

By contrast, EV Rental can burn through a lot of cash and time acquiring just a handful of hybrid cars and still make it pay off. The company, for example, trucked one hybrid to California from Florida. And while most car-rental companies buy vehicles at a volume discount, EV pays manufacturers’ suggested retail price for most of its vehicles — something it can afford to do, at least for now, because of grants it has received from the Transportation Department to educate consumers about alternative-energy cars.

The company spends a lot of time courting local dealers. “They know if a deal falls through to a consumer, that I’ll buy it from them,” says Paul Christensen, EV’s chief operating officer, who says he worked previously at both Hertz Corp. and Budget, now a unit of Cendant Corp. “And we pay retail for our cars.”

For most big players, those economics don’t add up. “For our business, it’s just too difficult to do a niche play like that other than for just a little bit of buzz,” says Don Himelfarb, chief administrative officer at Dollar Thrifty Automotive Group, which has about 130,000 cars in its collective fleets.

One of the first players in the “environmental vehicle” rental market, EV Rental began accumulating its inventory of hybrids before most consumers adopted the word in their automotive vocabularies. Mr. Pink founded the company in 1998 with a fleet of 11 electric cars — General Motors Corp.’s EV1 — and 20 natural-gas cars. He says he got the idea for a hybrid rental agency after his son was born: Worried about smog, Mr. Pink gave an EV1 a test-drive and wanted to try it out for more than a lap around the block.

An early alliance with Budget gave EV a partner with a ready reservation system and a cadre of customers — infrastructure the smaller player desperately needed. Funded by the government grants as well as $1.2 million in Mr. Pink’s personal cash and investment from friends, EV Rental expanded rapidly and was poised to open on the East Coast in Washington, D.C., with a Capitol Hill ceremony set for Sept. 13, 2001.

The terrorist attacks took their toll on the car-rental industry along with so many corners of commerce. Travel stalled. Budget filed for bankruptcy protection, and EV Rental couldn’t get banks to lend it money for new cars. (The partnership fell apart last year after Cendant bought Budget.) The Washington outpost lasted only about two years before EV shipped its cars there back to Phoenix and California.

Then the all-electric car movement short-circuited with GM’s recall of its EV1 fleet. Natural-gas cars, meanwhile, became rare as did the stations where they could be filled. And EV Rental might have gone the way of the Edsel if hybrid cars hadn’t come along. As EV transitioned its vehicle stock to hybrids, events conspired to give it a surge. Hybrid cars became more attractive-looking. California decided in 2005 to let hybrids with single drivers ride in High Occupancy Vehicle lanes. And fuel prices rose.

Today, EV Rental is joining forces with a small independent Los Angeles discounter, Fox Rent a Car Inc. In exchange for routing cars through its reservation and location system, Fox takes a 20% to 30% cut of the rental fees, Mr. Pink says.

Robert Rogener, Fox’s marketing director, says, “It’s a good niche for us because no one had it, it’s affordable and it’s a tremendous value for the leisure traveler and the small business.” Fox plans to use its hybrid offerings to position itself for companies looking to save money on employee-travel costs: Starting in September, it will offer a 5% discount on rentals to corporate accounts.

Occasionally, customers have signed up to rent a hybrid but found none available when they arrived at a Fox counter. Mr. Pink says the company’s policy is to offer them a free hybrid rental on their next visit. If the reservation is for a long period of time, he says EV tries to bring them a Hybrid as soon as possible for the remainder of their trip.

EV says the aftermarket for hybrids is so robust it often can sell one of its used Priuses, turn around and buy a new one for just a few hundred dollars more. What’s more, with more consumers considering hybrid purchases, renting is a way to get an extended test drive first, Mr. Pink says.

EV is pushing to expand in Las Vegas in September, and it has its eyes on the East Coast, though Mr. Pink says he “doesn’t see that happening yet because there aren’t enough vehicles available.” Still, even if the hybrid supply from manufacturers picks up only modestly, EV Rental might see significant revenue growth for several years to come.

Long-term, however, the path is murkier. “It’s a great business that can grow from a controlled standpoint,” says EV Rental’s operations chief Mr. Christensen. He adds, “It’s not a business that will become an international business or national business overnight. We have to continue to reinvent ourselves.”

Mr. Pink, the founder, says he hopes if he can build up enough inventory, and if the hybrid market takes off, EV Rental might make an attractive acquisition target. He expects to have 1,500 cars by the end of 2007 and 2,500 the next year. He says he is working to establish centers to educate consumers about the cars. “I think getting our name out is important in the next year or two,” he says. “We want people to drive these cars.”

http://www.startupjournal.com/columnists/enterprise/20060712-bounds.html

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