As consumers reverted to travel habits that were disrupted during the height of the pandemic, many were shocked by high car rental fees that surged due to low inventory on lots. During the same period, quality of service declined as car rental companies struggled to fill positions in a tight labor market. It is in this context that carshare services like Turo, Getaround, Gig Car Share and Zipcar merged as increasingly attractive alternatives to traditional car rental offerings.
Beyond giving traditional rental heavyweights such as Hertz and Avis a run for their money, the rise of carshare services has further complicated the economics of the used-vehicle market. It is an issue that will only get more acute as inflation rises and the business landscape deteriorates.
Discretionary Spend vs. Business Investment
The carshare phenomenon is changing the financial relationship owners have with their vehicles. For those who aggressively make their vehicles available for service, the carshare market is transforming an otherwise depreciating asset into a revenue-generating investment. And, unlike the ridesharing market, the carshare side hustle does not significantly interrupt consumers’ day jobs.
In this sense, the carshare business model has more in common with Airbnb and VRBO than with conventional Uber and Lyft services – though it should be noted the latter two are dipping their toes into the carshare market.
As a result, the carshare phenomenon is altering how financial risk and tolerance for debt is calculated. The growing carshare market is prompting some consumers to create their own mini-fleets. For others, the ability to offset insurance and car payments by putting a vehicle into service is prompting consideration for more expensive purchases. This is increasing demand for new and used vehicles while simultaneously tightening supply.
It has not been good news for the traditional car rental market. Most established rental companies sharply reduced the size of their fleets to address the dramatic early effects of the pandemic. Decisions then disrupted, and indeed broke, traditional car rental companies’ longstanding relationships with manufacturers and local dealerships.
As demand returned through 2021 – along with interest in domestic travel – the industry has struggled to replenish inventory due to ongoing production challenges caused by supply chain disruptions and fierce competition for new and used vehicles.
Still, context is important. While the carshare market is growing, it has not achieved scale. The current volume of vehicles in the overall carshare service fleet remains low, at about 161,000 vehicles. The customer base, however, is substantial, with more than 1.3 million active users.
New Role for Dealerships to Support Carshare Owners
Meanwhile, another disruptive dynamic is unfolding. There is growing evidence that the emerging community of carshare owners is being recognized as a distinct market opportunity for service department operations at dealerships.
Unlike traditional car-rental firms, most carshare operators lack the resources and infrastructure to keep their vehicles in proper working order through their in-service lifecycle. Innovative dealerships are building relationships with mini-fleet owners whose vehicles require more maintenance and repair compared to conventional car owners.
By establishing these relationships, dealerships not only are tapping into new profitable revenue streams but also are creating new pipelines to address their own inventory requirements as cars and trucks come out of carshare service.
Wild Card: A Return to Rational Rental Fees
To be sure, the conventional car rental sector will not go quietly into the night. Companies in the segment already are adjusting their pricing strategies to ensure they remain a vibrant player, especially for business travelers. From an operational perspective, the rental companies also are making progress in working with the human resources that are available to improve customer service and ensure that the right inventory is in place to meet unfolding demand.
That said, the carshare genie is out of the bottle. Despite the market seeing a slight reduction in carshare inventory (on services such as Turo), there appears to be no reduction in end-user demand. As more consumers become aware of the carshare concept – especially among vacationers – it seems clear that carshare operators are firmly in the mix of destination transportation options.
David Paris (pictured, left) is director of market intelligence at J.D. Power Valuation Services.