The Uncertainty Around Renting A Flex-Fuel Vehicle At The Airport

Here at muGrid Analytics we pride ourselves on applying innovating, unbiased thinking to all aspects of renewable and alternative energy to help our clients make better data-driven decisions about their energy assets. We like to say that we work at the intersection of how a technology works and how you make — or save — money with it. Because simply put, we believe that technologies need to be economically viable if they are to eventually achieve widespread adoption.

On a recent trip I ended up renting a flex fuel vehicle at the airport. Over the course of the trip I had the opportunity to think through the economics of integrating flex fuel vehicles into a consumer rental car fleet like Hertz, Avis, or National. I wrote about my experience in a post over at the travel blog One Mile at a Time where I’m a semi-frequent contributor. Here’s an excerpt:

A common estimate is that you’ll get 28% worse fuel mileage with E-85 than with gas, so E-85 needs to be at least 28% cheaper than gas for you to break even. In my case, E-85 was 27% cheaper than gas. That means that if this were my personal car, refueling with E-85 would roughly be a wash since I’d pay less for a tank of it, but I’d also go proportionally less far.

But of course, this isn’t my car.

I was minutes away from returning the vehicle when I refueled it, so the lower gas mileage from this fill-up was going to impact the next guy, not me. Whether I got screwed or not was thus dependent on what the previous renter had put in the tank. And of course, there’s no way to know that until you actually drive it and see what your fuel mileage looks like.

In my case, the car was literally brand new. So what had National filled it with?

We had driven 283 mostly highway miles on our trip, so I calculated that I had gotten 22.1 miles per gallon. The website fueleconomy.gov indicates that a Dodge Journey should get 17 mpg (city) / 25 mpg (highway) when fueled on gas, and 12 / 18 mpg on E-85. Based on that, I’d have to conclude that it was gas in the tank at the time we picked it up. And therefore, I essentially traded 12.8 gallons of gas for 12.8 gallons of E-85, which is a good deal for me. Of course, the next guy might not agree….

And therein lies the rub.

Whether renting a flex-fuel vehicle is a good deal or not depends largely on what was in the tank at the time you picked it up. If you get a tank of gas, the numbers are probably going to work out in your favor. But if you get a tank of E-85, it’ll be a wash at best. And in the worst case, you could get a tank of E-85 and then end up returning it with gas. (Particularly if you forget to search for a station selling E-85 using the Alternative Fuel Data Center app.)

As you can see, integrating flex fuel vehicles into a rental car fleet creates an interesting dynamic between one customer and the next, since your cost per mile driven is dependent upon what the previous guy put in the tank. And the economics of the customer that follows you depends on what you put in the tank. Completely anonymous customers become linked as part of a chain, where each is both influenced by the previous customer and their behavior, in turn, influences the next. Yet they are completely anonymous to each other, and thus have an incentive to maximize the economics in their own self-interest rather than across the chain as a whole. Interesting, eh?

This concept off a linked-customer chain isn’t necessarily limited to flex fuel vehicles, however.

A similar situation could be created in the electric vehicle industry as companies are actively working on developing “swapable” batteries. So instead of waiting for your battery to charge at a station, you would pull out your empty battery and install a fully-charged one, similar to how you swap propane cylinders at the grocery store. But of course, lithium ion batteries degrade over time, so you would prefer not to swap out a healthy, newer battery for one that is several years old and may have a lower capacity. Fortunately, those companies are also working on ways to instantly evaluate the health of such batteries, and thus accurately determine their value. That way if you swap a new battery for an older one, you can also receive a monetary credit to compensate you for the loss of value.

In the case of flex-fuel rental vehicles, this would be akin to the car rental company telling you what’s in the tank before you rent it, and adjusting the price accordingly. But again, there’s no way to do that today, and the economic impact — at least on the transactional level — is so small (perhaps $10 per customer) that it’s not likely to attract anyone’s attention.

And that’s too bad, because without knowing what’s in the tank of a flex fuel vehicle, I’m less inclined to rent a flex fuel vehicle.