The Dent In Car Rental

Could disruption in transportation make car rental obsolete…

Car rental services have been around for more than a century, providing drivers and their assorted passengers with temporary, fixed term contracts. The very first car rental companies are still alive and kicking today, even as startups like Uber and Waymo nibble away at their lunch. These challengers now offer a similar service, but with greater efficiency and at a lower cost. It would make sense, then, that the traditional car rental era is at an end. However, Zion Market Research Group predicts that the global car rental industry will see an annual growth rate of 13.55 per cent, reaching over $124bn by 2022. Given the rate of disruption in the transportation sector, is this a realistic prediction? What can car rental companies do to survive?

Exhausting incumbents

It’s a worrying time for traditional transport companies. Car sharing, ride hailing, self driving vehicles and futuristic networks like the underground warren proposed by The Boring Company are gearing up to leave incumbents in the dust. Generally speaking, they are risk averse, wary of emerging technologies, and don’t have the flexibility of a startup infrastructure. One of the many transportation firms grappling with these problems is car rental company Avis, which was founded in 1946. This longevity provides an important tool with which to survive disruption – data. Initially, decades of data about a potentially irrelevant process might not sound very useful for predicting future travel patterns. However, if a company knows why, where and how somebody has rented a car, they can form a better understanding of what disruptive products and services will be most attractive to them. They also know how to maintain vehicles that aren’t owned by any one person – which isn’t an area of expertise for most tech companies. Hertz, for example, has partnered with Apple to manage a small fleet of autonomous test cars. Avis has done the same with Waymo.

The future of car rentals

Partnerships between disruptive transportation providers and existing car rental companies show that the latter are not afraid to uproot their traditional structures to keep up with the pack. Even when fleets of readily available and cheap vehicles become widespread, car rental companies still have a role to fill. They may even become a vital stepping stone that enables the switch from car ownership to car sharing. It’s true that there will be far less need for car rental in its current form when innovative travel options become widespread. But although consumers may not need to rent a car, that doesn’t mean they won’t want to. Manual driving might be the bane of some people’s lives, but for others it is a leisure activity. When the need to drive is taken away by autonomous systems, it will be done entirely out of choice. This presents an opportunity for existing car rental companies to offer a tangible experience in a world where the lines between real and digital are blurred. Supporting transportation changes is one possible route for car rental businesses. The other is to become mobility companies in their own right, and develop exactly the kind of services that threaten to displace them.

So, is there still a place for car rental companies? Yes, if they can market the driving experience as a leisure activity. For many people, driving is an enjoyable experience – one that becomes all the more enjoyable if they are behind the wheel of their favourite vintage model. Relying on people to go out of their way to drive, however, is unwise. Another approach is to partner with leading businesses, who require their experience. Car rental incumbents are also transitioning into mobility companies to compete directly with disruptive players. By combining a responsive, industry relevant strategy with extensive data about user habits, car rental companies are arguably in a strong position to ride the change.

Will consumers still buy into car rental companies in a world of disrupted transportation? Is it wise for incumbents to prepare to pivot? Will all transportation businesses begin to transition into mobility companies?

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