Car Rental Industry: Growth, Trends, Challenges, and Future Scope

ABSTRACT: 
The car rental industry is experiencing growth due to an increase in the number of people traveling for both business and leisure purposes worldwide. The industry has benefited from the increased availability of the Internet and mobile applications that make hiring rental cars super easy. The demand for rental cars will further increase due to the higher maintenance costs of owned cars. Moreover, digital natives like Gen Z prefer rental car subscriptions rather than owning a car, which is a positive development for the car rental industry. 

Many of the challenges, like supply chain disruptions and chip shortages, are easing now, and the industry seems to be headed toward technology-based transformations. Providing seamless customer experience, priority customer support, subscription and on-demand price models, clean fleets of vehicles, and eco-friendly vehicle options appear to be the new goals of the car rental services providers. By leveraging smart techs like automated inspection systems, telematics, GPS systems, 360-degree video capture, ride-booking apps, and remote car dashboard support, car retals can differentiate their services and lure customers. 

This survey, “Car Rental Industry - Growth, Trends, Challenges and Future Scope,” aims to explore the current state of the car rental industry, key trends, opportunities, and the major challenges associated. The survey will uncover user perceptions about the industry, their needs, and expectations from the industry. The research also aims to provide valuable insights of the car rental industry to help the service providers understand the changing customer behavior and devise strategies to grow their market further.

 

The car rental industry has seen a boom in recent years. Like all the other industries related to the travel and hospitality industry, the car rental industry also got adversely affected by the Covid19 pandemic. The industry is recovering from the slowdown caused by the global lockdown and challenges like rising fuel prices, chip shortages, and changes in customer behavior.

Rental cars have always provided a convenient and cost-effective solution for business and leisure travel. The technological advancements in the industry are improving the services even more. Car rental companies are striving to meet customer expectations and improve their services to gain an edge over the competition.

The increasing demand for electric vehicles  along with government policies to keep pollution under control stand as the prime driving factors for car rental companies to flourish. Although the car rental industry is gaining momentum, it has a great scope to grow in the future.

GoodFirms’ survey ‘Car Rental Industry: Growth, Trends, Challenges, and Future Growth’ attempts to study the growth of the industry. The survey also aims to dive into the trends and challenges faced by the industry. It also tries to uncover the future scope of the sector.

The extensive network of roads, fast-speed train systems, and air travel availability worldwide has boosted the overall number of individuals traveling for personal and business purposes. There has been a rising interest among young individuals, particularly Gen Z, regarding self-driving to picturesque areas and remote towns. The widespread usage of personal devices, like smartphones, has contributed to streamlining car rental processes. Today, customers can rent a vehicle and pay through the rental company's online app. 

Generation Z consumers are more open to embracing new technologies compared to earlier generations and greatly appreciate digital experiences such as car rentals.  Gen Z rental car users are fueling the demand for smart driving, leading to a growing emphasis by car rental companies on features such as in-car entertainment, keyless access, autonomous parking, and many more. 

The industry saw steady growth over the years. It was, however, badly hit by the Covid19 pandemic. The global lockdowns kept people at home, which brought the car rental sector to a standstill. However, the industry was quick to rebound. Top rental car companies like Hertz have posted strong results in the first quarter of 2023. 

“Our continued investments in the business, particularly in the areas of technology and electrification, are improving our operational cadence, extending our reach in rideshare, and enabling the revitalization of our value brands, all with a view toward delivering sustainable returns for our shareholders,” says Stephen Scherr, Hertz Chair and CEO.(1)

Even Avis Group, one of the largest car rental groups globally, posted 5% higher revenues in the first quarter of 2023 than the previous year’s quarter of the same period. The company credited this success to strong demand and improved utilization.(2) 

The global car rental market is expected to reach USD 104.00 billion in the year 2023. The market is speculated to grow at a CAGR of 3.49% to reach USD 119.30 billion by the year 2027.(3)

The executive class cars have seen growth in recent years because of the increased number of business travelers across the world. The segment is expected to see a growth of CAGR 5.5% between the years 2021 and 2028.(4)

North America as a region dominated the car rental market and held around 53% of the market in the year 2022 due to a rise in the number of leisure as well as business trips across North America. The Asia-Pacific region is expected to see growth with a CAGR of 8.4% during the forecast period. The reason for the growth can be attributed to the rise in spending on tourism and the increase in disposable income.(5)

GoodFirms’ survey further provides valuable insights on the current situation of the market, the trends in the industry, ongoing challenges, and the future of the industry.

Car rental companies offer a variety of cars that customers can choose from. Generally, customers choose cars based on the number of people traveling, the distance to be traveled, and their budget.

Survey and Data Analysis

GoodFirms surveyed 960 users, and car rental service providers for this research. GoodFirms also queried the participants about the challenges they face while using the service. 

Below are the survey findings and analysis: 

GoodFirms' survey on the Car Rental Industry reveals user preferences about the choice of rental cars.

Around 27.5% of survey respondents prefer to rent an SUV (Sports Utility Vehicle). SUVs are better when traveling long distances with respect to space and comfort. 

While 24.7% of surveyees said that compact cars are their preference to rent, 21.8% said that they prefer a mini car. Both the car segments are cost-effective. They are a go-to choice when consumers are looking for budget-friendly commute options. 

The premium and luxury car segments are generally preferred by consumers when they want a luxury experience without spending on buying a luxury car. These cars are also an option for business trips. Around 20.7% of surveyed users mentioned that they opt for premium cars, while 20.1% said that they prefer luxury cars for renting.

19.3% of survey respondents mentioned that mid-sized SUV is their preferred rental car segment, whereas 17.4% of survey respondents prefer to rent a convertible car. 15.9% of rental car users prefer to rent a sedan.
 

The car rental industry has been growing ever since it came into existence. However, it has seen the biggest disruptions and technological advancements over the last ten years. Higher personal consumption, penetration of smart vehicles, the advent of autonomous vehicles, and upgrading of car booking tech have changed the core functions and accelerated the industry transformation process. 

GoodFirms’ survey on the Car rental industry has identified the current market trends in the car rental industry. 

Car rental companies offer a variety of modes for customers to book cars. However, online booking has become a popular choice among customers to book cars. 

According to Statista, around 72% of the total revenue generated in the rental car industry is expected to come from online booking by the year 2027.(6)

The convenience of booking a vehicle from a remote place, right from their mobile, while fulfilling all the expectations is the major reason customers choose the online booking method over others. GoodFirms’ survey finds that online booking methods like rental service provider’s websites, rental aggregator platforms, social media integrated booking pages, and chat messengers together account for more than 75% of all the bookings for car rentals.  

GoodFirms’ survey reveals that around 34.7% of rental car users prefer to book a car using the car rental service providers’ website, while 26.7% of users prefer to use car rental aggregators to book a car.

Although the major section of users said that online bookings are a go-to option for them, 14.6% of the respondents prefer to book a car on a call. Social media and chat messengers are also a way to book a car for 8.5% and 7.8% of survey participants, respectively. With a higher preference for online bookings, only 6.4% of survey respondents book a rental car after an in-person visit to the car rental provider.

The pandemic has changed the parameters of hygiene. While public transportation lacks hygienic conditions to some extent, it has become necessary for service providers to maintain the utmost hygiene in all their fleets. 

Although hygiene has always had its importance, the new normal after the pandemic has made hygiene a prime focus for car rental companies to assure the trust of their consumers. 

Deep cleaning and regular sanitization have become a new norm to highlight that the agencies are meeting all the health protocols for the consumers. There are protocols and hygiene guidelines that car rental companies should follow as laid down by OSHA (Occupational Safety and Health Administration), WTTC (World Travel and Tourism Council), and other local regulations to protect both drivers and passengers. 

Technology can do wonders for the growth of any industry. It has been the same for the car rental industry as well. Car rental companies today focus on introducing technical advancements to make the brand popular among their consumers. An AI-based car rental software that supports a multi-payment facility is one such advancement that works as the best investment.

Facilities like WiFi while riding or geo-tracking helps customers with better connectivity. Introducing a mobile app can expedite the process of booking or canceling a ride owing to the less time required for uploading documents or better customer support. GoodFirms queried car rental customers regarding their technology expectations from car rental services. 

The participants of the GoodFirms’ survey regarding the Car Rental Industry mentioned the technological features they expect to be provided when renting a car. Around 83.7% of the consumers expect WiFi to be available in the car they would rent. 

While 78.3% of respondents feel that the service provider must provide multiple payment options, 67.8% of the consumers expect that the service provider must accept multiple currencies for payment.

Geo-tracking is another feature that 54.9% of consumers wish to have in a rental car.

Most of the car rental companies today provide on-the-way assistance or roadside assistance to their customers. These services are generally optional and carry extra charges. On the way, assistance is of great help in emergency situations when traveling.

Car rental companies provide services in cases like lost keys, keys locked in the car, dead battery, out of fuel, and spare tire mounting whenever and wherever required.

Companies like Hertz also provide emergency assistance over a hotline 24 hours which is a basic service without any charges.(7)

The rising international travel and spending capacity of the middle class is one of the driving factors for the growth of the car rental industry. While owning a luxury car can be expensive, renting one can be affordable for many.

The younger generation today prefers renting a car over owning one. This forms a major driving factor for renting luxury cars. The inclination towards driving in luxury and comfort is a reason why millennials rent luxury cars without having to worry about the costs of maintaining the car. 

The role of electric vehicles in the car rental industry is a revolutionary trend toward sustainable mobility. 

The announcement by the industry giant Hertz about the massive order of about 100000 Tesla cars shows the increased inclination towards the introduction of electric cars in the industry.(8)

Eric Sornoso, Chief Executive Officer of mealFan says, “One of the biggest trends currently shaping the industry is the move towards electric and hybrid vehicles, as consumers become more environmentally conscious.”

Increasing the share of EVs in the fleet of rental cars is a remarkable trend that can add to bringing electric vehicles to mainstream mobility.

Manual inspection of a car is full of risk and time-consuming. Also, manual assessment can sometimes be a reason for conflict between the customer and the service provider. 

Remote damage assessment is a growing trend in the car rental industry that allows the customer and service provider to leverage technologies like AI and ML to monitor the damage more precisely than humans can do. Inspection done through artificial intelligence also improves with repetitive use and improves the overall efficiency of the process.

Remote damage assessment is a useful trend that saves customers their time during pick-up and drop-off with an error-free approach.(9)

Subscription-based models have entered nearly every service industry, and the car rental industry is no exception. Industry giants like Hertz, Enterprise, and Sixt+ have introduced subscription models that are becoming popular. (10)

Subscription models in the car rental industry are a growing trend due to the perks they can offer customers. These models are a great option for customers who require a car for a longer period without owning it. Subscription to a car rental service can enable a customer to switch cars and enjoy flexibility without having to worry about maintenance and insurance costs. Roadside assistance is another benefit that customers can leverage by opting for subscription models.

Although subscription plans vary with companies, all the basic requirements are met through subscription models.

Along with the big names, the car rental industry also has newer players that have increased the competition in the sector. However, there are several factors that determine the selection of a car rental service.  GoodFirms’ survey about the car rental industry gives an idea about the factors that are responsible for deciding the right car rental service for the customer.

Comfort and Quality of the Vehicle

75.3% of survey respondents said that the comfort and quality of the vehicle is a major factor in deciding on the rental car service.

One of the major reasons that consumers opt for rental cars is the comfort that they need. When traveling for longer distances, the comfort of the vehicle is a prominent factor. 

When choosing among a variety of service agencies, consumers consider the quality and comfort of the rental vehicle. The quality of the vehicle to be rented contributes to the selection of the rental service.

Around 63.9% of surveyees select a rental car service considering the locations served throughout the country.

When taking a daily or friends tour, the trip often involves traveling to various locations across the country. However, traveling to various locations can be complicated with public transport.

Rental cars can provide the convenience and flexibility to take leisure trips. It is necessary for car rental companies to serve across a maximum number of locations to make traveling convenient for their consumers. The number of locations served across the country is an essential factor that can assist customers in choosing the car rental service.

58.4% of the rental car users consider the mileage offered by the car rental service while choosing one.

Car mileage is the limit stipulated by the car rental companies to the customers to be traveled in a day. While most companies offer unlimited mileage in prominent locations, there are certain rules regarding the miles or kilometers that the renters can travel in a day. 

Car rental companies generally charge an extra amount for the distance that is traveled more than the limit mentioned by the car rental company in the rental agreement. When the car mileage offered by the rental company is maximum, hiring the car becomes cost-efficient for the renter. Thus, car mileage offered by the company is a prime factor for deciding the suitable car rental service for the users.

Customer service is a deciding factor for selecting the right car rental service for 53.3% of the survey respondents.

Renting cars might not involve the service provider while traveling. However, customer service plays a vital role for the customers in picking the right service provider. The experience while picking up or dropping off the vehicle matters for retaining the customer.

Aspects like punctuality, conditions of the vehicles, the responsiveness of the support team, and even on-road assistance can affect customer satisfaction and play a critical role in the customer experience.

Terms and conditions of the car rental company can help around 49.8% of the car rental customers in selecting the appropriate service for them.

The renter has to sign a rental agreement while taking charge of the car. The rental agreement has certain terms and conditions that the service provider and customer are both bound to agree upon. 

These terms and conditions may vary based on the service provider. Mileage limit for the day, number of passengers, fuel policy, number of allowed drivers during the journey, and refund and cancellation policies are a few of the points mentioned in the agreement. Since abiding by these rules for customers is a mandate, it is essential for consumers to consider them when choosing a car rental service. 

Booking a rental car has become very convenient owing to the availability of the online mode. While consumers can book a rental car from the comfort of their homes, there are certain issues that they face when booking the vehicle. 

The most common issue that users face while booking a car rental service online is the lack of clarity in the terms and conditions. Around 37.8% of users find the terms and conditions mentioned on the rental providers’ websites unclear. Lack of clarity in terms and conditions can create last-minute problems for the renter and service provider both.

32.6% of rental car users mentioned that 360-degree images of the car are not available on the website. The unavailability of these images does not help the consumers to make a decision while selecting the car.

Around 30.5% of survey participants admitted having faced an issue with incomplete pricing information mentioned on the website, while 27.4% of the respondents said that they had faced an issue with incomplete information on the website while booking a rental car online.

While 29.6% of surveyed consumers have faced payment processing glitches when booking a rental vehicle online, 23.9% of the respondents have encountered issues while finding their pick-up and destination location in the drop-downs on the service providers’ websites.

Selecting a rental service can be a task at times. There are several concerns that consumers have while selecting the right service provider. The car rental companies have to work on solving these concerns of the consumers.

Imposed distance limitation is a primary concern of consumers. Around 47.3% of surveyed customers believe that the distance limitation imposed by the service provider that can be traveled is a major influencer while booking a rental car.

Punctuality is another concern for consumers. For important travels, especially when they are long distances, punctuality plays an important role. Miss-management of the  pick-up and drop-off of the vehicle timings are a top concern for 38.1% of consumers while hiring a rental car.

Both the renter and the service provider are bound to accept the terms and conditions while signing the agreement. The disparity in terms and conditions, therefore, is a major concern when renting a car for 31.8% of rental car users.

Consumers are often concerned if there are any hidden costs mentioned in the rental agreements while renting a car. These hidden costs are often associated with the insurance coverage provided by the company. Around 29.4% of survey participants mentioned that hidden costs are a concern while opting for rental cars.

Travelers often opt for rental cars despite owning a car since there are special requirements for particular journeys, like space or comfort. Availability of the required car is, therefore, a concern for 23.6% of the survey respondents.

While 17.5% of surveyees are concerned about the customer service provided by the company while pick-up and drop-off, 15.9% of surveyees consider the presence of mechanical issues in the car as a major  concern.

3.7% of surveyees also raised concerns related to their safety and legal troubles that may arise due to false theft allegations. For instance, Hertz, the car rental giant, has accused a number of customers of car theft, which led to arrests and jail time for these customers. However, the company is set to now pay an amount of USD 168 million to settle these claims.(11)

 

There are several factors that are fueling the growth of the industry. Some of these factors are: 

Tourism industry was one of the most impacted industries during the pandemic. Due to the large source of revenue it generates, governments throughout the world prioritized the recovery of the tourism industry. 

Government policies aided in revamping the travel and hospitality industry in the post-pandemic period. The rise in tourism is a favorable factor for the growth of demand for rental cars by tourists.

Also, the increase in the importance of sustainable vehicle options is the reason that there is a demand for EVs or hybrid vehicles. This contributes to the growth of car rental companies that provide electric rental cars.

Despite the luxury and time-saving options provided by railways and air travel, road trips are becoming a popular choice among the modes of travel. 

Owing to technological development like GPS navigation, travelers are well aware of the accommodation options available on their way. Road trips offer the convenience of stopping and visiting a place that is not possible when on a train. 

With the fun element and the convenience of planning, road trips have become a favorite. A survey by The Vacationer in 2022 reveals that nearly 80% of Americans wished to take a road trip in the summer.(12)

Car rental companies can provide travelers with comfortable cars to meet their requirements. The inclination of tourists towards road trips contributes to the growth of the car rental industry.

Developing countries have seen a rise in the disposable income of the middle class and upper middle class. This has given rise to the trend of leisure travel. Also, the convenience and availability of facilities have led to a rise in overseas travel.

Around 45.6% of the survey participants book rental cars for personal travel. The figure is indicative of the rise in the number of personal travels.

Matt Benton, CEO of NoDig.com says, “Another factor is the rapid growth of the middle class in emerging economies, which has led to an increase in demand for luxury items such as cars. This has also resulted in an increase in income levels, which makes it possible for more people to afford to rent a car when they travel.”

Car rental companies strive to provide their customers with vehicles that meet their requirements with respect to comfort and affordability.

Leisure travels with friends or family have seen a rise in recent years. Self-drive rental cars can be a great option for travelers that can preserve their privacy.

Shanal Aggarwal, COO of TechAhead said, “Due to shifting customer habits, technological improvements, and environmental concerns, the car rental sector is expanding significantly”.

The higher demand for travel options that can give freedom to plan trips as per the convenience and flexibility of the travelers is a critical aspect that helps the car rental industry to grow.

Commuters and travelers are getting increasingly aware of the environmental impact of their activities and, therefore, prefer green mobility options. While it is not possible for everyone to buy an EV right away, using public transport or rental EVs is a feasible alternative for those who prioritize sustainability and environmental responsibility. This shift of mindset towards green mobility solutions and other environmental-friendly mobility services (shared mobility) is an important factor driving the growth of car rental businesses. 

Car rental service is often considered an alternative to owning a car for people who do not frequently require a car to commute. There are several benefits of renting cars over owning a car which was highlighted in the GoodFirms survey.

Around 52.5% of survey respondents believe that opting for rental cars cuts down the time and cost involved in maintenance which is needed when owning a car. Also, 48.7% of surveyees consider that the investment involved in buying a car is not required when opting for a rental car.

Owning a car comes with yearly taxes and insurance costs, which is not the case when hiring a rental car. 42.9% of survey participants consider this as a major benefit over owning a car. 

Most car insurance plans offer comparable protection for a rented vehicle when utilized for personal reasons. If the renters have comprehensive collision coverage, their car will be insured if it experiences damage or theft. 

Rental car companies provide a wide range of cars to be chosen from. Choosing a car based on the needs of the user is a benefit for 37.3% of survey respondents.

In densely populated areas, especially in developing countries, the availability of parking space is a problem for car owners. When renting a car, users do not have to worry about parking space. 31.4% of the surveyed users mentioned this as a benefit.

For 29.6% of respondents, the availability of a rental car just on a call is a benefit, while rental cars are beneficial for about 25.1% of survey participants since they do not have to worry about the wear and tear maintenance of the car.

Rental cars are not only beneficial over owning a car, but they also have benefits over opting for public transportation.

Traveling by public transportation modes comes with finding the vehicle, which might require time which is not the case with rental cars. Around 57.6% of the survey participants find rental cars beneficial as they save them time.

Public transportation modes also have designated times, and commuters need to wait for the right vehicle to take them to their destination. Rental cars do not have the issue of waiting times when booked in advance. Around 49.8% of surveyed users find this as one of the major benefits of opting for rental cars.

44.9% of surveyees find rental cars beneficial over taxis or public transport as they are more convenient, while 32.7% of them find rental cars arriving at doorsteps one of the major benefits.

The car rental industry has seen gradual growth over the years. The companies that have expanded due to the increasing demand for sophisticated transport options also have a set of challenges to overcome. The covid-19 pandemic was responsible for adding to the existing challenges further. 

GoodFirms’ survey ‘Car Rental Industry - Growth, Trends, Challenges, and Future Scope’ tries to highlight the challenges before the car rental industry.

When the lockdowns were imposed across the world, many car rental companies were forced to sell off parts of their fleet to meet their financial needs. However, when the travel resumed, these companies felt the need to increase their fleet inventory.

The lockdowns also had, however, impacted the automobile industry, which led to the reduced production of semiconductor chips. The semiconductor chips are required in automobiles for various operations, from infotainment systems to parking cameras and braking sensors. The lessened supply of semiconductor chips made major automobile companies like Ford, Volkswagen, and Jaguar Land Rover had to cut down on production and even shut down their factories.(13)

The reduced supply of semiconductor chips resulted in lesser vehicle production, which kept the car rental companies waiting for the required number of cars. 

Car rental companies are supposed to deal with tourists coming from various countries. These tourists often belong to countries that have varied driving laws, traffic patterns, and techniques. One of the major troubles that drivers from other countries face is the side of the driver’s seat (left and right). 

It is difficult for the car rental companies to pay attention to these customers. The severity of the traffic or pattern of the roads can be a hindrance in the smooth driving of cars for these tourists. 

It is, therefore, necessary for automobile rental companies to give brief training to these tourists to avoid any inconvenience for them.(14)

Maintaining fleets is an essential part of running a car rental business. Keeping the cars always ready to be rented out can be challenging. Keeping the vehicles free from any technical issues is a major factor that can ensure the safety and reliability of the vehicle. 

Maintaining the quality and cleanliness of the vehicle inventory and keeping a minimum fuel level available in all the vehicles is necessary for preserving customer trust and satisfaction.

Maintaining the cars in good condition is necessary for retaining the customers. Around 24.7% of the surveyees asserted that rental cars could incur higher costs if the car is not in good condition.

Cars not in well-maintained condition can impact the buyer's decision.

Also, the high costs involved in the maintenance of the vehicles are also a challenge for the companies as the price of vehicles depreciates over time. 

Erin Kemp. PR Specialist at  Bumper points out, “Maintenance and depreciation costs are expensive. Maintaining a large fleet of vehicles can be costly, and the value of vehicles depreciates over time. This can be a major challenge for car rental companies.”

A systematic approach towards fleet management can help businesses in fleet maintenance. Using fleet management software can be a good option for maintaining the fleet inventory.

Booking management is a concern that can possibly arise from various aspects like meeting the demand and supply in peak seasons, managing prices, and providing special offers.

Maintaining all the bookings and making vehicles available for the customers is an essential part of customer satisfaction. It becomes necessary for car rental companies to meet the booking requirements, especially when the demand is high during the peak seasons,

Booking management also gets complicated for businesses when they offer certain discounts on the booking prices. Offering deals or fluctuating prices based on demand seems tricky for companies. Adjusting the prices and keeping track of all the bookings can result in confusion, if not managed well. 

Online booking has assisted rental companies in providing an easy way for consumers to book cars.

While online booking has helped to drive an increase in the number of sales, it has also created a challenge for rental companies to maintain the data privacy of their consumers.

Businesses try to get the personal details of their consumers to provide a personalized experience to their customers. However, consumers are hesitant to share their details due to the threat to data.

Around 15.4% of survey respondents are concerned about sharing their personal details, and so do not hire a car.

Recent years have seen a rise in car-hailing services. With several benefits offered by them, car-hailing services have grown popular among car renters.

Although car-sharing services are not convenient if the consumer requires a vehicle for a longer time, they have impacted the choice of consumers who require cars for commuting daily. With easy access and readily available options, consumers tend to opt for car-hailing services to commute for smaller distances. 

It is a challenge for car rental companies to overcome the competition brought by car-hailing and car-sharing companies like Uber and Lyft. 

There are consumers who opt for rental cars when their cars are not available due to repairs. Around 49.8% of surveyees admitted that they opt for rental cars when their cars are unavailable due to repairs.

These consumers are most likely to opt for ride-hailing services. 

Car rental giants like Hertz, Sixt, Enterprise, and Europcar have introduced programs that can withstand the competitive landscape. 

For example, Enterprise introduced a mobility-as-a-service program that enables customers to opt for on-demand vehicles along with its transitional car rental service.(15)

Service industries primarily depend on the level of customer satisfaction. Although businesses emphasize providing better customer experiences, one bad experience can be the reason for not opting for a particular service provider in the future.

Improving the customer experience has become a prominent challenge for car rental companies with the entry of new players and increasing mobility options. 

The overall customer satisfaction associated with Airport-based car rental services in North America saw a decline in the year 2021. The major reason contributing to this decline was the surge in the prices of rental cars.(16)

With all the technological advancements and growing demand, the car rental industry has managed to show all growth despite the challenges. With the advent of numerous mobility solutions, the car rental industry has evolved with time and is expected to show more improvements in the future. GoodFirms’ survey tries to capture potential changes that can be expected in the future.

IoT has touched all industries, and the automotive industry is one of the most impacted industries due to the introduction of IoT.

While IoT has brought about a huge revolution in the automotive sector which has resulted in the invention of autonomous vehicles, the car rental industry is set to see a disruption due to the introduction of IoT-enabled solutions. 

Car rental companies can leverage the benefits of IoT, right from preventive maintenance of the vehicles to maintaining better customer service to remain competitive.

The introduction of autonomous vehicles can assist businesses to efficiently maintain fleets while reducing costs and providing access to user data to provide them with a personalized experience.

The arrival of car-sharing companies like Uber and Lyft is having a tremendous impact on car rental companies. 

The convenience of online bookings and the availability of vehicles on demand shook the taxi and rental markets. To overcome the challenges posed by car-hailing or ride-sharing companies, several car rental giants have opted to provide alternatives in the past. 

The acquisition of Zipcar by Avis is one such example where a car rental giant joined hands with a car-sharing company. Companies like Sixt aim to provide alternatives to ride-hailing apps by offering third-party vehicles for rent on their own platform.(17)

The future may see more collaborations and alternative renting models by car rental companies to make themselves more relevant in the competition.

Artificial intelligence is used in many service industries today. The car rental industry also has seen the influence of AI-based applications. These applications will have a greater take by car rental companies in the future days to come

With AI, companies will be able to deal with many of the issues they deal with through manual intervention. Some of the issues that rental car companies face today include higher customer service expectations by the customer, maintenance of the fleets, and lower revenues.

“Artificial intelligence (AI) is being increasingly incorporated into the automobile rental sector, with companies adopting it to improve operations and enhance the customer experience. This trend is expected to continue in the foreseeable future. Artificial intelligence can be used to forecast demand, which can then be used to determine optimal prices, and it may also be used to make personalized suggestions to clients”, says Keith Eneix, President at FANNIT.

Implementation of AI has a significant role to play in remote damage assessment, improving customer service by reducing the time and probability of errors involved with manual inspection. Also, AI can be applied to predict market demand, which can help the company to stay ahead in the race.

Artificial intelligence can even help in analyzing car depreciation to make decisions regarding time to de-fleet a particular vehicle. It can be useful for managing revenue.(18)

The arrival of Airbnb, the online platform that allows property owners to rent out their properties for short or long-term homestays, has impacted the hospitality industry. Following the footsteps of Airbnb, marketplaces like Turo and Getaround were launched. Using these marketplaces, fleet owners can rent out their vehicles to renters who need a vehicle for some time.(19)

The future may see a rise in the ‘Carbnb’ kind of rental models. These models may have certain drawbacks and advantages at the same time. 

The introduction of autonomous vehicles to this business model can be a huge advantage for car owners due to the growing inclination towards these vehicles. 

• After being hit by the Covid19 pandemic, the car rental industry is recovering to see steady growth
• The global car rental market is expected to grow at a CAGR of 3.49% and is expected to reach a value of USD 119.30 billion by the year 2027.
• With the North-American region being dominant, Asia-Pacific is expected to see a growth of 8.4% CAGR
• Around 34.7% of the survey respondents like to book a rental car through the rental providers’ website
• Improved technological features and greater emphasis on hygiene are the current trends in the industry.
• The focus on luxury cars is increasing owing to the mindset of the millennials.
• The introduction of higher numbers of EVs to the fleet is promoted by the growing awareness of environmental issues.
• Quality and comfort of the rental cars are primary factors for rental service selection for 75.3% of survey respondents.
• Terms and conditions present on the rental agreement are another crucial factors for 49.8% of the respondents when selecting a rental car service.
• Various issues that can occur when booking a rental car online also impact the buyer's decision.
• Supportive Government policies and changing travel modes play a crucial role in driving the growth of the rental car industry.
• Rental cars offer several advantages over owning a car which promotes the growth of the industry.
• Global semiconductor chip shortage has led to a fall in vehicle availability creating a challenge for the rental car industry in matching the demand and supply.
• The future of the rental car industry can expect the increased implementation of technologies like IoT and Artificial Intelligence to enhance services.
• The collaboration of car rental companies with ride-sharing is another development that can be expected in the future.

The growing demand for sustainable mobility options and supportive government policies have facilitated the rise of electric or hybrid vehicles in the car rental industry. Along with EVs, autonomous vehicles are also a growing trend among car rental companies.

Although the adoption of technologies like AI and connected cars has kept businesses competitive, the competition from the ride-hailing industry is a growing concern for the traditional car rental industry. Businesses are also expected to consider newer business models like peer-to-peer ride-sharing to provide a varied range of options to their customers.  

Apart from the several driving factors, the car rental industry has a number of challenges to overcome. The shortage of fleets to meet the rising demand is a major concern. It is also a task for companies to provide the best possible customer service to retain their customers.

We sincerely thank our Research Partners for their valuable insights.

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