What Does Ridesharing Mean for the Car Rental Industry?

Over the past decade or so, we’ve seen the ground transportation industry progress rather significantly.  New methods of transportation, most notably ridesharing, are beginning to shape the way people (urban commuters, mostly) get around in more convenient and affordable ways. As such, the impact of ridesharing on traditional car rental is an area of interest for industry experts, yet one that hasn’t been determined as either positive or negative.

In order to understand this impact, it’s important to first distinguish between the two methods of transportation, as each satisfy a different segment of the market.  Ridesharing attracts one-way customers who would alternatively hire a taxi or use a mode of public transportation. In other words, it is one-way travel that prioritizes convenience and affordability for the consumer.

Car rental on the other hand offers travellers a longer-term solution to getting around while providing the customer with unlimited access to a vehicle for the duration of a rental period. According to Auto Rental News data, the average length of car rental for business travel is about three days, while leisure rentals run slightly longer (seven days). The average length of a replacement rental, however, is substantially longer — at about 10 days.

From this data, we can determine that there is still a high demand for rental vehicles by a wide-range of users and that car rental satisfies a different need than ridesharing.

Although there is evidence to suggest that rental vehicles are still in high demand, with certain demographics, ridesharing is in fact gaining on car rental agencies across North America. A recent report by expense management company, Certify, notes that car rentals by corporate riders dropped by 10% in the final quarter of 2015, while in the same period, rides with Uber and to a lesser degree, Lyft rose by 46%. By the same token, however, (and a trend we have been witnessing in major North American cities), the number of taxi rides also decreased by 25%.

One transportation pundit, Daniel Jennings, refuses to buy into the claim that ridesharing is stealing customers from car rentals, suggesting that “many people think that these companies are competing with Avis, Hertz and the privately held Enterprise because of the inaccurate terminology “ride-sharing app.” That term is inaccurate because Uber and Lyft do not share rides; they sell them. Or more specifically, they sell a service; namely, transportation.”

So as the ground transportation industry gets more and more competitive, how can car rental companies stave off Uber and other ridesharing giants that are contending for their loyal customer base? For some, the answer is obvious. Through the adoption of new technologies and adapting to the evolving needs of the consumer.

Chris Agnew supports this notion by stating, “the way we get around is shifting, and all transportation modes need to be constantly evolving into more efficient realms. The models that continue to provide utilitarian value are the ones that will survive. The car rental industry will be integral to mobility, as long as it serves customers where they live, work and play”.

Car rental companies are utilizing the latest technological trends to remain competitive in a time where access to smart phones and other devices is at an all-time high. The “On-Demand” or Self-Service” rental model for example is becoming more common as agencies jockey to place their vehicles as close as possible to the customer (who now have 24/7 access to a wide range of rental and shared vehicles within a particular area).

The on-demand model, which is usually facilitated by an app or website is making it exceedingly simple for consumers to access vehicles without the need for arduous reservation systems, rental counter lineups or schedule conflictions. In addition to this, in some cases, consumers have the option of picking up a vehicle in one place and dropping it off in another, creating an unprecedented level of convenience in the auto rental world.

Would it then be fair to assume that the on-demand model is actually in some ways an alternative to the one-way rideshare if consumers are in fact able to pick up a vehicle in one place and drop it off at another? Let’s examine the similarities between ridesharing and on-demand car rental.

Ridesharing is attractive to consumers because it eliminates the need for an in-person transaction to occur. A user simply opens his or her app, requests a ride, exits the vehicle upon arrival and is charged automatically for the service.

On-demand car rental, alternatively, has a rather similar process. A user opens a car rental app, reserves a vehicle close by (usually in a lot or reserved parking spot), unlocks the doors through an RFID card or smartphone app and then drops the vehicle off at another lot/parking space close to his/her destination.

Agnew maintains the transitional state of the car rental industry by asserting, “renting cars won’t change, but rather evolve into more flexibility, to rent by the hour without a rental counter and using new technology to book” …[Rental] companies will adapt, in my view”.

Moreover, car rental giants Hertz and Enterprise have partnered with Lyft and Uber, respectively, to offer rental vehicles to drivers at a reduced rate. According to Bill Masterson, spokesman for Hertz, “mid-sized cars for Lyft and Uber drivers will rent for $180 a week, including all mileage and insurance costs”, which suggests that ridesharing may actually have a positive impact on car rental after all.

Car rental companies are also turning to other online platforms to address inventory difficulties such as underutilization. One of those platforms is Turo, which was designed for car owners to post their vehicles for rent.  However recently, according to Justin Esch, “car rental companies have migrated to the platform as a way to leverage excess inventory, in spite of the manual process”.

“While owners and renters must still meet for a key exchange, Turo is redesigning its vehicle posting and management system to automate the process for fleet owners.” Local and regional car rental companies are now able to utilize Turo and its technology to effectively rent vehicles that would otherwise sit on the lot and depreciate in value rather quickly.

And so it seems that through new technologies and by adapting to changing consumer needs, car rental companies are able to remain competitive in a ground transportation industry that is as precarious as ever.  While ridesharing undoubtedly has an impact on car rental, whether that impact is positive or negative is yet to be determined.