I just flew back from Las Vegas, and boy, are my arms tired! Bah-dum-bum. My brain, on the other hand, is invigorated. This sensation washes over me once every year upon returning from the International Car Rental Show.
When more than 700 industry professionals from around the world gather for two and a half days in the desert to discuss business and industry sustainability, it’s a good time to take the pulse of the industry.
The U.S. market is performing rationally right now.
In our investor’s meeting, put on by John Healy of Northcoast Research and Michael Meyer of Rate-Highway, the industry’s short-term fundamentals look good.
Car rental rates have trended positive for 10 of the last 12 months, driven by a good economy and strong travel demand. More importantly for car rental, the overall fleet is right sized. This is driven by a continued austerity on the part of the manufacturers regarding sales into rental (with a recent sales uptick) and a continued softening in used car values — the old adage that increasing holding costs pushes increases in pricing.
Headwinds? Vehicle overproduction in the face of slightly softening retail demand and rising interest rates could put further pressure on holding costs and overall profitability.
Meanwhile, European pricing isn’t faring as well. And gleaning from other conversations, operators in many areas in Latin America are still stuck in an unhealthy, cutthroat rate environment that forces agents into hardball sales tactics and is damaging the customer experience. They’re looking for a way out.
Sixt’s intentions for the U.S. market are crystal clear.
In a sudden twist of event production fate, keynoter Alexander Sixt was prevented at the airport from boarding his plane due to visa issues. Sixt speculated it was brought on by a set of recent (innocuous) travel circumstances that set off an alarm with U.S. authorities. (Attendees of another seminar discussed the dark side of technology and Big Data — would this quasi-Minority Report situation have happened 10 years ago? Probably not.) We were able to deliver the speech on time and live via Skype. Ironically, technology actually ended up saving the day.
Sixt said the company wants to be in the top 30 airports in about two years, complemented by a select number of downtown locations, with a 15% share in those markets. He was clear that the company has no desire to take over every corner of the U.S. market, but will focus predominantly on the retail leisure business with a premium product. “Our strategy is not to become the largest player in the U.S.,” Sixt said. “We are a niche player.”
In the U.S., the most mature market, Sixt understands growth will come through taking share. One low-hanging fruit is the industry’s perceived reputation for poor customer service. Sixt was openly confident that the company can win customers with a better experience.
In China, the opportunity for car rental is immense and only beginning.
The second largest Chinese car rental company, eHi Car Services, grew from nothing to a 70,000-unit fleet in 12 years, said Leo Cai, one of EHi’s top executives, in his breakfast keynote address. There’s plenty of room for more growth for car rental, as there is a lopsided imbalance to the population of car owners compared to those with driver’s licenses. In Shanghai, a license plate comes with a $25,000 one-time fee incurred before you even walk into a showroom. Parking is expensive, and the younger Chinese generations do not covet car ownership like previous ones — but they have licenses and still need transportation.
Another benefit to such a young industry — tech-savvy users predominantly book direct on mobile, alleviating exorbitant OTA fees.
Car rental companies are partnering with high-speed rail, which went from nothing in 2006 to the most extensive system in the world today, by delivering train riders from those stations into the country’s interior. In the big cities, carsharing has grown, particularly with electric vehicles, though bike sharing has exploded — creating “bike graveyards” that are becoming environmental disasters.
New platforms are gaining momentum to get rental vehicles into the hands of users.
Anyone with friends in the taxi, limo or hotel industries might have a knee-jerk reaction to the phrase “peer-to-peer.” But we need to redefine what that actually means. To meet growing demand, peer-to-peer networks such as Turo, Getaround, and HyreCar (rentals for TNC drivers) are actively seeking professional fleet suppliers.
For these networks, onboarding multiple units through professional fleet managers and owners is an attractive option. For the supplier, it’s just a question of finding the right sweet spot of capitalized cost, mileage, and maintenance.
While most of HyreCar suppliers are individuals, HyreCar sees the majority flipping to professional fleets very soon. Those suppliers vary from individual entrepreneurs and used car dealerships to car rental companies — one South Florida independent is running 90 cars on Turo and has found the right formula.
Announced last week, Uber’s partnership with Getaround (another peer-to-peer platform) could be a tipping point — though it’s hard to tell when you’re in the moment. Uber also bought Jump, a maker of electric bicycles. Uber is showing the world it’s no longer just a ride-hailing platform, but a transportation hub.
Counter bypass technology is finally moving from theory to reality.
On-demand, decentralized car rental is still the domain of “traditional” carsharing. Yet the first step —technology to bypass the counter — is finally finding its way into real use cases after years of talk. Not just the majors, enterprising independent brands are implementing app-based solutions with full registration and authentication, keyless entry, and key kiosks.
The urgency lies in the heightened realization of the need for a more efficient experience. When it comes to efficiencies at airports, talk concerning consolidated rental facilities (conracs) focused on the added fees pushed to the customer, while ride-hailing pickup and drop-off points are becoming more convenient.
The less tech, high-touch local market will be sheltered longer from disruption.
It’s not as easy to win repeat customers doing volume rentals at airports, where car rental is viewed as more of a commodity. Ironically, the local market, with its more traditional way of doing things, may be sheltered a bit longer from the encroachment of new models and technologies. In these situations, the savvy operator can establish a rapport with the local community to find out its wants and needs, and give better face-to-face service in a less frenetic environment.
That said, those in the local market will only survive by finding a niche (van rentals to universities, serving the snowbird communities, delivering vehicles to studio executives, etc.) and serving it well. I reconnect with those successful independent companies every year at the International Car Rental Show. I hope their best practices are rubbing off on other new companies — the event depends on their success.