Are We Seeing Enough Evidence to Support the Convergence of Car Rental and Car Sharing?

Industry Trends

The answer it would seem, isn’t as black and white as many industry professionals first concluded. On one hand, car sharing as a niche has seen steady growth since the early 2000’s.

On the other hand, there were still only 65,000 vehicles recorded in North America at the end of 2015, compared to 3 million vehicles in traditional car rental. In fact, total annual revenue for carsharing in North America is about $400 million annually, compared to $27 billion in revenue for traditional car rental, emphasizing a significant contrast between the two.

While these numbers might suggest a trend of complete domination by car rental in the ground transportation industry (not including ridesharing), it’s important to remember that these numbers are only representative of the outlook in North America.

Experts strongly believe that the North American market has mostly grown through acquisition, consolidation and expansion by the major car sharing companies (Enterprise Carshare, Zipcar and Car2Go), and that the real growth for carsharing is found in emerging markets including Latin America, Eastern Europe and South East Asia.

When looking at this from a North American perspective, “carsharing in part is just an offshoot of traditional car rental that uses new technologies to create an enhanced user experience”.  In other words, major car rental companies are introducing their own carsharing model to attract more urban consumers. Designed as an on-demand model that allows customers to access vehicles without the need for an in person transaction (a very traditional car rental concept). This trend is illustrated through Avis’ acquisition of Zipcar (North America’s largest car sharing brand) and by Enterprises’ acquisition of Autoshare.

In fact, as noted by Chris Brown of Auto Rental News, the car sharing market is dominated by the top car rental companies – “Avis Budget Group (Zipcar), Enterprise CarShare and Hertz 24/7 control about 85% of the total carshare market in the U.S.”

What Distinguishes a Carsharing Operation From a Traditional Car Rental Company?

Carsharing allows customers to reserve, access and use vehicles remotely. It is more prominent in urban areas and on university campuses and vehicles are typically rented on an hourly basis by members looking for a high level of convenience and a low level of commitment.

Fleets are usually placed throughout a community in public parking spaces, easily accessible by nearby residents. The idea of carsharing is for a community of residents to figuratively ‘share’ a fleet of vehicles and for that fleet to be as accessible as possible. Reservations can be either one-way (pick up and drop off in different locations) or round trip (pick up and drop off in the same location).

Car rental on the other hand is not as straightforward. The process is specific and requires more time and commitment from customers.  Rentals are usually daily or weekly, more often than not by business travelers or vacationers, while fleets are traditionally kept in fenced off lots where an in-person handoff of keys finalizes the transaction.

Car rental still dominates the airport space, where the majority of their customers are. As rentals range from days to weeks, it’s easier for a business traveller who is in a city for an extended period of time to rely on one vehicle that they can easily pick up and drop off at the same location.

The Convergence of Carsharing and Car Rental

The potential for growth within the car sharing industry is significant. As ground transportation continues its transition to becoming more community-oriented, it would be safe to assume that the merging of car rental and carsharing is a foreseeable conclusion.

According to Ryan Johnson, Assistant Vice President of Enterprise Carsharing, “The core carshare customer will grow because we’re providing a bigger and better network, with better technology, and this traditional niche will become more mainstream…At the same time, we’re putting carshare technology into all phases of car rental, so that picking up a car in an unattended way is not just for someone who has made the predisposed decision to become a carshare member — anyone can access the car.”

Johnson goes on to say “we’re doing some exciting things to pull the technology that’s used in carshare into all phases of car rental. In looking at carsharing and traditional car rental, there may be little distinction in 20 years. As carsharing moves from first adopters into the mainstream, traditional car rental moves into the tech-enabled, on-demand and self-service model”. Julian Espiritu, Managing Director of Abrams Carsharing Advisors describes this transformation as the “new wave of mobility.”

To summarize this idea, Kyle Sabie, corporate rental manager for Enterprise CarShare, suggests that carsharing in part was an offshoot of the local rental car transaction using technology to create a new experience. While he sees the blurring of the traditional lines continuing, “We’re very much in the education phase before we can find new avenues for automated car rental”.

From this, it might be easy to conclude that all aspects of car rental and car sharing, are converging into the same ground transportation model. One that offers the highest level of convenience and that places the vehicle closer to the consumer than ever before.

Fleet Size and Total Revenue

While carsharing continues to see steady growth in North America, it’s still just a fraction of the size of traditional car rental. At the beginning of 2016, there was approximately 65,000 car sharing vehicles on the road in North America, compared to nearly 3 million traditional rental cars.

Alan Woodland, executive director of the Carsharing Association notes “the North American marketing has grown through consolidation and expansion by the major carsharing companies, but the real growth for carsharing is found in emerging markets such as Latin America, Eastern Europe and Asia”, areas that don’t already have a mature car rental industry in place.

According to Auto Rental News, the car rental industry produced a revenue of $27 Billion in 2015, while car sharing produced a revenue in the neighborhood of $400 Million – All figures in US Dollars.

Costs

The main difference in cost between car rental and car sharing is monthly/yearly membership fees. On average, users will pay anywhere between $35 and $60 (annually) as a car share member. From there, hourly rates range from $8 to $16 per hour, depending on supply and demand, time of year and geographic location.

Car rental on the other hand does not typically require a membership and hourly rates are usually between $10 and $25 per hour.

One Thing’s for Sure – Conclusion

 On-demand is the future.  As millennials continue to change the way they interact with products and services, car rental and carsharing companies will continue to adapt. Whether it’s technology, shifting demographics or changing attitudes on mobility and environmental preservation, it’s clear that there are new opportunities for car rentals to take advantage of industry transformations.

Carsharing has, in turn, become car rental utilizing an on-demand or self-service model. A model that “automates and decentralizes the car rental process, freeing the rental car from the traditional confines of the rental lot and counter”.

It’s clear that “traditional car rental companies seem like obvious choices to start carsharing companies. They’ve got a few built-in advantages out of the gate: access to capital to buy fleet, personnel to manage it and channels to sell de-fleeted units”.

While the major car rental companies all have carsharing divisions, they are concurrently developing the on-demand model that will further blur the lines between traditional carsharing and car rental; making it even more difficult to distinguish between the two. However, because of this trend, it is fair to conclude that the two ground transportation industries are in fact converging into one.