I think that is suboptimal vertical integration. Hertz is a fleet buyer for a good reason; it doesn't want to be reliant on its Hertz Automotive subsidiary to meet a production quota. It doesn't want that capital expenditure. It wants to buy cars at volume and sell them as they depreciate.

> It doesn't want that capital expenditure.

Ah, but the car companies have already expended that capital. The problem here is they will have a lot of building capacity from all the factories they own, and possibly less to build with that capacity. There's nothing stopping them from buying extra needed capacity from another company, but in the meantime it may help them fill the lack of utilization they may see. At some point, some factories will need modernization as normal, and they can choose at that point to reduce factory capacity.

The point is that it's a possible strategy to get them from point A to point B when they've already banked heavily on certain future production trends if they've overestimated.

Hertz lives in an equilibrium where lots of people buy and operator their own cars. Autonomous cars may well move us to an equilibrium where most people do not own cars and instead rely on services. That totally changes the economics of the situation.

How does it change the economics of the situation? More volume or shorter rentals? Would having more frequent rentals mean that rental companies would want to produce their own cars?

It isn't efficient for Toyota to fully stock every city in the world for peak demand, and yet that's what they'd have to do to compete with the surging multi-manufacturer fleet of Uber.

They don't need to stock for peak demand. They don't need a monopoly (nor will they be permitted to get one).

To succeed worldwide, they simply need to be as good as Uber, but cheaper. And if the capital cost of the car becomes half of the cost base of taxis, a 10% saving matters.

To get as big as Uber means they need to be as convenient which means that there's always a car available. Uber handles that by being multi-brand, and by incentivizing their fleet with surge pricing.

Toyota would have to prepare for worst-case load and let those cars sit idle to keep them available. And they'd have to do that in almost every city in the world or their app would just be another local annoyance.

Also, if you order a Toyota and a Ford shows up you're going to laugh and tweet it.

On the other hand, it does give them a stable production target which would level out manufacturing spikes...

> On the other hand, it does give them a stable production target which would level out manufacturing spikes...

That's the underlying assumption I was working with. If they've invested heavily in production yet they see a downturn in individual ownership, it's a way to capitalize on that resource (factories) to stabilize production until some factories reach end-of-life and have theoretically paid for themselves. Factories which require large capital expenditure are not something you want to see sitting idle. Every year is another year where the tooling is becoming more obsolete.