Why It’s Impossible to Rent a Car Right Now

From Avis-Budget to Hertz, traditional rental companies are struggling to restock their fleets. Now peer-to-peer upstarts are scrambling to fill the gap.

Europcar car rental depot exterior Lancefield Quay Glasgow Scotland UK

Photograph: Alamy

Three June days exploring the roads around Rome in a rented Fiat 500: $276. An SUV for a long weekend in July in Orlando: $455. A week in August touring the Algarve in a family-friendly automatic: $845. But costs aren’t the only problem—there simply aren’t any cars to rent in some destinations.

Content

This content can also be viewed on the site it originates from.

What happened? The pandemic, the chip shortage, and the war in Ukraine, for starters. But this isn’t just a short-term shock; the car rental market could be changed forever. That’s likely to mean permanently higher prices, an influx of electric cars, and the appearance of Chinese brands—and perhaps even the rise of peer-to-peer car sharing as a mainstream alternative, if enough people are willing to share their cars with strangers.

Things started to break down in early 2020, when lockdowns around the world resulted in the car rental market falling off a cliff. Almost two-thirds of Avis-Budget’s rental business at airports vanished, with revenues company-wide sliding 41 percent year-on-year in 2020. At Europcar, 2020 revenue was down 42 percent, and Hertz's revenue fell 46 percent before it filed for bankruptcy—though it has since restructured and recovered.

In response to the mayhem, rental companies sold off their cars. In the UK, fleets were slashed by 30 percent, according to the British Vehicle Rental and Leasing Association (BVRLA), a car rental membership organization. In 2019, Hertz had 700,000 vehicles globally. In the first quarter of 2022, that collapsed to 481,000, according to a company spokesperson. Europcar’s fleet size numbered 293,000 vehicles in the first quarter of 2020 but plunged to 187,200 in 2021.

That move made sense as the industry’s two key markets, businesses and vacation travelers, were stuck at home, explains Yusuf Allinson, an analyst at market research firm IBISWorld. “There’s no point holding onto depreciating assets that were not generating money,” he says.

But as lockdowns eased and travel recovered, car rental companies couldn’t restock, thanks to a chip shortage that stalled manufacturing, a problem exacerbated by complex supply chains that rely on parts made or assembled in Ukraine. The ensuing shortage of cars in rental lots more than doubled prices. Over Easter, car rental costs were up by an average of 135 percent across Portugal, Cyprus, Spain, Greece, Italy, and France versus 2019 levels, according to consumer organization Which. “You’re buying the car for more, you’re fueling it for more, there’s more demand—it’s very logical for prices to increase,” Allinson says.

And there’s not much you can do about it. But if you want to avoid eye-watering rental quotes, or finding out you can’t get a car for your family holiday, then it’s best to book ahead. Way ahead. Anyone making last-minute plans may not find that advice particularly useful, but there is another option: car-sharing platforms that let people rent out their vehicles. Services such as Turo and Getaround, or UK-based HiyaCar, could fill the gap in corporate rental fleets and help out car owners hit by high fuel costs. HiyaCar has reported 220 percent growth in rental bookings year-on-year, while earnings for car owners on Turo increased tenfold.

Peer-to-peer car-sharing platforms are—cliché though it is—exactly like Airbnb for cars. But, unlike Airbnb, which is currently valued at $78.8 billion, car sharing has yet to take off—despite cars sitting idle 96 percent of the time. But now, with old-fashioned rentals expensive and hard to get hold of, car sharing might finally have its moment.

Xavier Collins, vice president of Turo, says that convenience is another benefit of going peer-to-peer, with many people able to find a car a short walk away rather than at a rental lot on the edge of town. That convenience is fine if you’re already in a city, but what about people flying in for a holiday? HiyaCar currently focuses on local renters rather than tourists, saying support for vacationers will hopefully be added this year, but the other two companies do target fliers. Getaround is working to get parking spots for its cars at transport hubs; in France, for example, it has dedicated spots near railway stations.

Turo takes it a step further. Cars are delivered directly to the arrivals zone at airports, with the owner either meeting renters with the keys or leaving the vehicle in airport parking, where it’s unlocked via the app.

Apps like Turo, Getaround, and HiyaCar have the same benefit as Airbnb and other so-called sharing-economy platforms: They don’t own anything. “The cars on the platforms don’t belong to the company,” says Even Heggernes, a vice president at Getaround Europe. “The shortage of cars occurring everywhere is not something that really affects us.”

But that doesn’t mean these platforms have enough vehicles—in the UK, HiyaCar has 2,000 cars for its 150,000 registered users. Turo has 3,000 in the UK, while in the US, Getaround has 271,000. Sharing platforms rely on individuals letting strangers drive off in their car, which requires trust as well as effort to keep vehicles clean, full of petrol, and otherwise ready for renters. It’s a challenging ask, though Heggernes, whose job focuses on encouraging drivers to sign up—says supply has increased due to the cost-of-living crisis, with people seeking ways to make extra cash.

HiyaCar has one solution to the continued lack of supply: Top up the system with its own vehicles. With 150,000 registered users, HiyaCar has just 2,000 cars, of which 350 are part of its car club system. They aren’t owned by HiyaCar, but by carmakers, who are guaranteed a minimum income, and the aim is to fill in cars where there isn’t yet enough supply, what the company calls the “cold-start problem.”

“We have lots of demand but not enough cars,” says Rob Lamour, cofounder of HiyaCar. “You can’t just launch in an area and suddenly have loads of cars for people to hire; it takes time for it to build up.” Car clubs are also set up in areas without enough vehicles in general, such as central London, where public transport might reduce car ownership but demand for ad hoc rentals remains high.

But traditional car rental companies aren’t sitting back and letting upstarts disrupt their market. Even before the pandemic, rental firms were lobbying for tighter regulation of the peer-to-peer market, demanding tighter vehicle checks and restrictions on drop-off zones in airports.

Post-pandemic, they’re racing to boost their fleets in a few different ways. “Currently, our global fleet is almost back to pre-crisis levels,” says Tim Vetters, managing director of Sixt UK. But as buying cars remains difficult, the company is also buying from a wider range of manufacturers and keeping cars in its fleet for longer.

Hertz’s latest annual report shows the average holding period for a vehicle hit historical highs of 25 months in the Americas and 20 months for the rest of the world, versus 18 months for the Americas and 12 internationally in 2019. Europcar’s latest quarterly results show that the company is turning to Asian car makers and electric vehicles to fill gaps in its fleet.

Those tactics are working—but slowly. Europcar’s pre-pandemic fleet of 293,000 vehicles, which fell to 187,200 during 2020, has since rebounded to 243,700. That’s echoed by Avis-Budget, which had a fleet of 660,000 vehicles at the end of 2019; it fell to 533,000 the following year, and rose to 590,000 by the fourth quarter of 2021. Profits are recovering too, though US politicians have expressed concern of possible predatory pricing behavior, with Hertz posting a record quarterly profit after its bankruptcy restructuring.

Even without apps and peer-to-peer disruption, the car shortage could mean a lasting shake-up in the rental market—and that means prices are likely to stay high. One reason: The car rental industry was previously able to keep prices down in part because automakers produced too many vehicles, says Toby Poston, director of corporate affairs at BVRLA. Rental companies would either buy excess vehicles in bulk at a discount, selling them off after their rental career ended, or set up buyback schemes with manufacturers, cutting a deal to use a car for a short time before returning it.

Both setups favored car rental companies, but the recent shortages mean manufacturers now have the upper hand and no longer have to sell vehicles at a loss. Paired with fuel price inflation, that means car prices will stay high and renting will remain expensive.

Whether that gives peer-to-peer car-sharing firms a chance to disrupt the market remains to be seen. But, if they do, they likely won’t just hit revenues at Avis-Budget and Hertz—they could change the whole business of owning a car. While there aren’t enough new cars being made, there isn’t actually a car shortage—we have more than we need parked, underused. In the UK, there are 40 million vehicles on the road; in the US there are 276 million. Rental company fleets are down by hundreds of thousands of vehicles—a difference that could be made up from cars sitting idle on roadsides and in driveways.

*****
Credit belongs to : www.wired.com

Check Also

Amazon Workers in the UK Walk Out in a Cost-of-Living Rebellion

Morgan Meaker Business Aug 4, 2022 7:58 PM Amazon Workers in the UK Walk Out …