The battleground is staged for the deep-value brands.
Advantage has received a new round of fleet funding, so it will be solvent in the near term. Nonetheless, Advantage will be constricting, which will leave openings — 20 or more — in near-airport locations in some major markets. Who is likely to go after those stores?

Fox is an obvious guess, if it wants to get out of its comfort zone of sunny leisure destinations. Sixt decided not to counterbid for Advantage at auction, but ironically, Sixt would have an opportunity to pick up a few new stores that Advantage is leaving on the table. Meanwhile, Sixt’s franchising effort is gaining steam with locations in Tampa, Myrtle Beach, S.C., Las Vegas, and New England. Expect more franchise announcements from Sixt soon.

Hertz’s deep-value initiative, Firefly, has grown rapidly to 19 domestic airports, though Hertz appears to be piggybacking Firefly on existing Hertz, Dollar and Thrifty on-airport locations. What about Payless? Could Avis make a push with its newly acquired discount brand?

According to Avis and Hertz’s quarterlies, leisure volume is healthy and growing. This is where the action is right now. We’ll see if this has a drag on rates, which have been in a good place for a while.

Expect a tighter labor market.
The unemployment rate stood at 4.8% in 2008, just before the crash. After climbing to 10%, unemployment has steadily dropped. We’re now within striking distance of 6.5%, the threshold at which Federal Reserve Chairman Ben Bernanke said would “start the conversation” for a raise in interest rates.

A consequence of a better economy, car rental companies may find more competition for workers at higher wages. Outsourcing of backend service operations such as shuttle drivers, car washers and cleaning services is increasing. One such employment company, Employment Partners Inc., reports a 32% year-over-year growth in 2013 in car rental, and is looking to grow 45% to 55% in the segment in 2014.

Mobile bookings are exploding.
A 2013 study by JiWire found that 52% of respondents booked (not just researched) travel on a smartphone (23%) or tablet (29%) in the past 90 days. Mobile bookings on Expedia and Hotwire apps have grown 70% in just the last year. Overall, mobile traffic will outpace traffic from desktop computers by late 2014.

The consequence is shorter booking windows — decreasing lucrative walk-up business and making hotel room, airline load and fleet planning harder to forecast.

Prepaid reservations are gaining traction.
While the car rental industry has for years wrung its hands over the lack of an industry-wide initiative toward cancellation fees for car rental reservations, the infrastructure is being put in place to facilitate prepaid reservations.

Avis held the prepaid torch for the industry initially; Budget is now doing modest prepaid business and Hertz has jumped aboard. Advantage’s bankruptcy filings show that it had $13.9 million in prepaid reservations in the previous 45 days. Look for another discount brand to begin offering prepaid reservations in January.

CarRentals.com is now accepting credit card prepayment for a 10% discount. Affiliate systems have the IT infrastructure in place for prepaid, as do the major car rental software system providers. As a result, local independent and franchise operations are making a go of it and are reporting success.
Certainly, the industry should get excited about this customer-friendly version of a guaranteed reservation that is cutting no-show rates in half.

Look for new competition in the used car market.
Like Paul Revere, we’ve been trumpeting the coming wave of used car supply for years. (“The off-leases are coming! The off-leases are coming!”) Fleet lease returns were the first to hit the wholesale market, starting last year. In 2014, expect greater numbers of consumer off-lease units. What’s the problem for rental consignors? Those consumer leases have much lower miles — creating competition in the auction lanes with year-old and 18-month old rental units.

What’s more, there are lot more compact and midsize models in the marketplace than before the Recession, creating used car competition for popular rental segments. And with the average loan term for an auto purchase now 65 months, the longest ever, according to Experian, used car payments won’t be much less than those for new cars.

On average, vehicles depreciated 15% to 17% before the Recession, according to Black Book. In the Recession years — on short supply — those numbers dipped to 12% to 13%. For 2014, Black Book estimates first-year depreciation to run 14.5% to 15%.

Beware the specter of the market share grab.
Fleet sellers, fleet leasing companies and rental companies are getting calls from manufacturers on year-end deals with money on the hood, leading some to question if OEMs have lost the commitment to control the number of cars they sell to rental accounts. This isn’t bad if you’re in a position to fleet up opportunistically, but not good if you paid $500 more for the same car a few months ago — in essence, your competitor just got $500 to play with.

Some are using the term “firesale” and “play for market share.” Is this a return to the pre-Recession days of oversupply? No, a right-sized manufacturing footprint will temper that. But residuals could suffer.

Rental cars will run lower miles.
If manufacturers have wiggle room to cut deals into rental, this additional fleet availability would make it possible to turn cars more often. It may be smart to do so — if you’re holding cars until 40,000 miles, you will be competing with those low-mile consumer leases coming into the used car market.

In 2013, Manheim Consulting reported average miles on rental risk units to be the lowest since 2008. The trend lower will continue.

In 2014, pay close attention to adjusting depreciation to reflect the changing market. Car rental companies, after years of good returns on their used inventory with minimal effort, will have to manage their fleet very carefully again.