Car rentals have been a staple of the American way of life for over one hundred years. The first car rental company in America was opened in 1916 by Omaha native Joe Saunders. Starting out with just one car on offer, Joe quickly expanded his business and offered 18 cars within a year of opening. Saunders managed to expand across the country and in 1956 he sold his company to Avis, a company who are still around today and who were the first car rental company to have be based in an airport. This was the start of national expansion of car rental firms and lead to large firms owning large car fleets.
The car rental market has evolved into an almost completely new entity in the modern world with a variety of services on offer that continue to evolve to this day. Some of the common services that are offered in the modern world include; the ability to book in advance and get discounted rates, phone apps to make it easy to book your car, the ability to pay tolls in advance, a wide range of cars, the ability to pay for fuel in advance, a long term rental plan and even various reward schemes. All of this is a far cry from the single car that Joe Saunders started with at his company. The car rental market has changed a lot in the last hundred years and will most likely change even more over the next hundred.
It isn’t just the car rental market that has changed over the years though. Cars themselves are now far more advanced than they were one hundred years ago. They have the ability to travel much further distances, at much faster speeds and at better fuel economy than ever before. The cars all have far more comfort than ever before too, with more luxury as well. All of this adds up to the rental market having to change with the times. This lead to new innovations like paying for fuel in advance and being able to drop off your car at a different location that it was picked up from.
While the world has changed significantly since the first car rental companies were set up, the general feeling about car rentals in the USA is one of a beloved institution. How is that institution progressing though? Is it still growing or has it stagnated? Is it still evolving or has it hit a plateau? Are car rentals more popular than ever, or has the ability to buy a car becoming easier made car rentals a thing of the past? What are the current market trends that the car rental market are facing?
The number of car rental locations running in the USA 2016 was 20,469. This included 5,600 independent locations. While 25% of the car rental locations are taken up by independent retailers 69.5% are taken up by the top three retailers in the country; Enterprise, Hertz and Avis. This is a slight decrease in total rental locations from 2015 when the total rental locations was 21,067. The number of independent locations increased in 2016 but the total number of locations fell mainly due to Hertz closing almost 1,000 locations. It’s a pattern of growth that seems to be constant since 2013 after the number of locations hit a peak in 2012. This shows that while the larger car rental firms are trying to streamline their business models in order to maximise profits there is a significant market out there for independent car rental firms to increase their numbers.
This decrease in total number of locations hasn’t been due to a decrease in popularity though. The figures show that the total revenue of the car rental industry has been steadily increasing since 2009. Which makes sense considering the increase in independent traders across the country.
In 2009 the car rental industry took in $20.045 billion in total revenue, in 2010 that increased to $20.591 billion, in 2011 that increased to $22.736 billion, in 2012 that increased to $23.600 billion, in 2013 that increased to $24.414 billion, in 2014 it increased again to $26,009 billion, in 2015 it increased to $27.109 billion and in 2016 it once more increased to $28.425 billion. This is a pattern of growth that has been sustained for seven years.
This constant growth over the last seven years shows that the car rental industry has been increasing in popularity consistently even though the total number of rental outlet locations has decreased in the last year. This shows that although the demand for car rentals has been steadily increasing car rental companies have realised they can cater for this increased demand with better technology. This has lead to a streamlining of the many companies and thus they have downsized their business.
The increase in popularity of the car rental industry in the USA could be down to a number of different reasons. Firstly the increase in smartphone usage has made it a lot simpler and easier to book and hire a rental car. No matter where you are in the world you can have your rental car ready to drive away the moment you step off the plane. This is due to both the advent of smartphones in the business model but also because the staple of the car rental industry is having outlets at airports.
Secondly the increase in tourism over the last five years means that there has been a much higher demand for rental cars because more people have been coming into the country. Tourism drives the economy forwards meaning that not only does the rental company benefit directly from tourism but the increase in disposable income means that domestic usage of car rentals has increased.
All of this shows that the car rental market has learned how to capitalise on both new technological developments and increases in potential consumers to maximise their revenues. It hasn’t just been luck that has caused the car rental industry to evolve in this way though, the influx of ride hailing services like Uber has meant that to stay relevant the car rental industry has had to move forward. This is not something that is new to the industry as the car rental industry has been using technology in order to ensure they stay relevant for over one hundred years.
It isn’t just using cars to travel long distances that car rentals offer though. Many people who are moving house, rent vans in order to sidestep the cost of a removal company. There is also the added bonus of being able to make more than one trip to make the move. It’s not just moving house that people hire vans for though. Transporting large items across long distances often requires a van. Car rental firms ensure that they fill in this gap in the market by offering the ability to hire a van.
Another way that the car rental industry has been able to maintain their popularity is by piggy backing onto other businesses in order to increase their own. There are a large number of other car based companies that offer rental cars to their customers which allows car rental companies to tap into an extra layer of the potential market. Whenever a car needs repairsthat will take longer than a day the garage will offer the ability to use a courtesy car. The garage tends to have a link up with a local car rental firm in order to provide these courtesy cars, they may even be part of the same firm.
While not all garages use rental companies for their courtesy cars there is still a large enough number for it to create a significant amount of business for car rental companies. By the end of 2016 there were 228, 600 car repair establishments in the USA. This is more than ten times the number of car rental outlets, meaning that the potential business from these businesses can be a huge source of business for years to come.
Less often than car garages providing courtesy cars is when insurance companies use car rental companies to provide courtesy cars. While it does happen, they usually use accident management companies to provide courtesy cars at a much higher cost. This actually hinders the car rental business by over charging insurance companies.
The average cost of rental cars is incredibly difficult to calculate. This is mainly due to all the different styles and types of cars that are available to rent. It means that for each different type of rental vehicle there is a different average.
The first type of vehicle that rental companies offer is the economy range. These vehicles usually tend to be small cars. They can hold a driver and three passengers and have a modest amount of room in the trunk, that can hold around one suitcase. The average price for an economy vehicle is $55 a day.
The second type of vehicle that rental companies offer is the mid-size range. Mid-size vehicles tend to be larger than the economy range. The room inside the car itself doesn’t tend to be much larger than the economy range but the trunk is where the difference lies. It has a lot more room for storing suitcases and carry on luggage. The mid-size vehicles are used for long range drives, like vacations. The average price for a mid-size vehicle is $60 a day.
The third type of vehicle that rental companies offer is the full-size range. Full-size vehicles tend to be saloon vehicles and have a lot more room on the inside for people. They can comfortably hold up to five people. The trunk also has a lot more room and can hold up to three large suitcases. Full-size vehicles can be used for vacationing families but also tend to be used by people who need to travel long distances for work. The average price for a full-size vehicle is $65 a day.
The fourth and final type of vehicle that rental companies offer is the premium range. The type of vehicles that are included in the premium range varies far more than the previous ranges. The premium range includes a wide variety of vehicles. Luxury cars like two seater sports cars and large comfortable saloon cars are the first type that are included by the premium range. Then there are SUVs and minivans which offer a number of seats far more than a normal car. Finally vans with storage space in the back. These vehicles all offer various different functions. The sports vehicles allow for a relaxing drive in style. The luxury saloon offers the same but with even more comfort. The SUV and minivans allow for large families or groups to travel wherever they need to be. Finally the vans with storage space allow for transporting large items or many items long distances across the country. All of these have different target markets but the average pricing for them is generally consistent. The average price for the premium range is $100 a day.
Of course none of these prices include extras like a GPS navigation system, onboard Wi-Fi or child seats. They don’t impact on the average cost of hiring a rental car because they’re optional, but they do increase the revenue of car rental companies when customers choose to use them..
The popularity of rental cars has been constantly growing over the last eight years. The revenue has been rising steadily even in the face of some streamlining from larger rental companies. Will this continue into the future though?
The short to mid term future of the car rental industry is predicted to continue to grow at a healthy rate. A report undertaken by Lucintel shows that over the five years from 2016 to 2021 the car rental industry is going to have a compound annual growth rate of 5.6%.
This means that the total annual revenue for the car rental industry in 2021 should be $37.33 billion. The growth rate shows very healthy revenues for the car industry over the next four years from 2017 onwards. The report does make some assumptions that cannot be guaranteed however. The first assumption is that global tourism will continue to grow.
This cannot be guaranteed, especially as the current state of tourism in the USA is falling. Since the report was made the number of international tourists visiting the USA during the first quarter of 2017 has dropped by over 4%. This equates to almost 700,000 people and most tellingly it means spending has fallen by $2.7 billion. When the increase in tourism is equated to part of the increase in the car rental industry it cannot be guaranteed that the findings of the report will be completely accurate.
Another assumption that the report made is that the car rental industry will continue to make technological advancements in order to keep revenue rising. This assumption is certainly more likely than the tourism one as historically the car rental industry has used technological advancements in its stride.
Whether it is the increase in use of smartphones or advent of the internet the car rental industry has made sure that they use this technology to keep their business thriving. Whether it has been automated ordering systems or smartphone apps that allow people to have an account with the company car rentals. This bodes well for the future when it comes to the car rental industry maintaining the growth over the last eight years and into the next four.
Technological advancements aren’t always a positive for car rental companies though.The formation and rise of ride hailing services like Uber has hit into some of the market share of car rentals. Fortunately it hasn’t had the negative effect that was expected. Uber mainly caters for short rides and not cross country journeys. So while a family who are on a family vacation might use Uber for short trips around a city, they are unlikely to use it if their vacation involves long journeys.
This shows that Uber is more of a threat to the taxi industry than the car rental industry at the current moment in time. This doesn’t discount them from being a threat in the future though. Uber have already shown they can change with the times with their willingness to engage with the various different issues they have faced, like their admittance that they will have to change their business model over the employment status of the people who drive for them.
This willingness to change when needed means that while Uber and other similar firms are not currently a large dent in the revenue of car rental firms, if their business model changes it might not always be the case. If ride hailing firms change their business models in a way that impacts on car rental business then the car rental business will need to change to combat this.
Another issue that could impact on car rental business in the future is the consistent rise of car parking fees. The increased cost of parking a car could encourage drivers to take public transport for trips where they would have previously rented a car. Car rental firms may need to find a way to make renting a car more affordable without impacting on their own profits.
Overall the future for car rental firms looks promising, but if the issues and possible issues are not dealt with head on the predicted compound annual growth of 5.6% may not be accurate.
There are many different ways that car rental firms can combat the potential threats to their continued growth over the next four years. Some issues that they are facing are out of their control though.
The first issue that the car rental firms will be facing in the future is a decrease in tourism. As already stated the first quarter of 2017 has seen a huge drop in international tourism. This is an issue that the car rental industry doesn’t have much influence on and all they can do to combat this potential hit in their business is to try and increase the amount of their domestic business. This is possible by increasing marketing, offering better deals on rentals and with loyalty schemes.
The technology issue is one that is a positive for the car rental industry. Car rentals have a good history of using technology to their advantage. Any new technology that comes along in the near future, like self driving cars for example, the car rental industry will have a good handle on using it to increase their business.
Currently Uber have little impact on the business of car rentals, but with potential changes to their business model on the horizon it could soon be very different. The car rental industry need to be prepared to ensure that any changes to Uber and other ride hailing companies doesn’t have an impact on the continued growth of car rentals.
The car parking issue is the easiest solution of all, although it could be the most expensive. If car rental firms bought out car parking firms, or even bought land and made their own car parks it would give them the opportunity to include free car parking for all of their rental cars. This will allow car rental firms to have both another revenue stream, as other people would use the car parks, but also to keep their customers happy. It would also bring in new customers as car rental would be more cost effective than ever.
Overall, car rentals are more popular than ever before, it’s also predicted to keep rising for at least the next four years. As long as the car rental industry remains vigilant and keeps at the forefront of technology, as it has done for the last one hundred years then the popularity of car rentals in the USA should continue growing for many years to come.