Hertz shares (NSE: HTZ) dropped over 4% today on the news that Lyft entered the car rental business. While Hertz stock price will probably recover, Lyft's move represents an existential threat to traditional rental companies.

For one thing, Lyft is hitting Hertz where it hurts: the business practices that have annoyed and alienated consumers for decades. With Lyft rentals there is:

  1. No waiting at a rental counter because rentals are handled online.
  2. No upselling of pricey and unnecessary liability insurance.
  3. No gas price gouging because Lyft charges market price.

Lyft is also crediting renters $20 for transport (presumably by Lyft) from the airport to the rental cars, which means no more waiting half-an-hour for the mini-bus to make its rounds.

Now, I don't know about you, but Lyft had me at "no waiting at a rental counter."

Which is exactly what Lyft just announced.

None of this should be a surprise to Hertz. Indeed, according to Hertz's most recent 10k SEC filing:

Our industry has recently been characterized by rapid changes in technology and customer demands [and] has also seen the entry of new competitors, including TNCs, whose businesses are based on emerging mobile platforms and efforts to introduce various types of autonomous vehicles... A failure to have a systematic and comprehensive process related to emerging or disruptive competitors or technology may result in loss of competitive differentiation, margin erosion, departure of key partners, declining market share, inability to achieve growth targets, and other unfavorable consequences.

Given that Hertz knew there was a threat, why have they apparently been caught flatfooted? Simple. The pain of changing their entire business model is probably too big to even contemplate. This is a very typical reaction inside big companies.

I saw this phenomenon (it's called "cognitive dissonance") when I worked for a huge computer vendor in the 1990s. Everyone inside that company knew at some level that PCs were an existential threat. But actually doing something to address that threat would have required top management to 1) admit they'd been wrong all along 2) restructure themselves out of a job. So, the strategy remained "stay the course and hope for the best" and the company eventually folded.

I'm obviously not privy to internal discussions at Hertz, but I have little doubt that executives there realize--intellectually--that new technology will make their current business model obsolete. But that doesn't mean they're capable of doing anything about it.

Management consults can tell big companies to "stay nimble" and "disrupt your own market" but big companies can only (slowly) evolve. They can't turn on the proverbial dime. Put another way, Hertz vs. Lyft is like Aerosmith dressing up as Billie Eilish. It's not a good look.

Correction: An earlier version of this column mischaracterized the source of Lyft's rentals inventory. Riders will rent new cars from Lyft, not other people's cars.