Car Rentals

• The global car rental market is expected to reach $80–88 billion in 2022

• Globalization of businesses, business travel, and meetings are the key drivers in the market, however, COVID-19 has severely affected the business travel segment and has curbed the market growth. The prevailing mandatory safety regulations and guidelines, shift toward private vehicles usage, and travel restrictions are the challenges in the market

Car Rentals Demand Market Outlook

• With governments across the world relaxing border restrictions and vaccination certificates becoming mandatory, leisure travel is expected to rebound to pre-COVID levels in 2022, but business travel will see a gradual recovery, as many corporates as well as the car rental operators are reluctant to enter long-term deals, due to ongoing microchip shortage crisis and rising fuel prices causing supply–demand gap and increased car rental prices.

Growth Drivers and Constraints: Car Rental Services

Drivers

• Growth in business opportunities: Business travelers and expats are offered car rentals, employees with low business miles to travel are offered car rental services.

• Flexibility: Car rental provides flexibility in availing the services, they can be availed on a daily, weekly, and monthly basis. Provides perks for parking, access, and availability in all international airports.

• Global presence and availability: Buyers with global presence and increased business travel activity prefer car rental services, owing to presence in airport locations.

• Sustainability initiatives: Post-pandemic, the customers’ preferences have shifted toward the adoption of a sustainable lifestyle and that has been reflected in car rental choices. Therefore, the demand for EV has surged among the major players, like Hertz, Europcar Mobility Group, and others. EV not only offers sustainability, but also comes with benefits, like easier maintenance, lower fuel expenses, and reduced operating costs.

Constraints

• Ride hailing and carsharing services: Alternate mobility solutions are considered as an alternative to car rental solutions. Flexibility and cost-effective services are driving alternate mobility solutions.

• Availability of the preferred models: Car rental services do not provide flexibility in choosing vehicle models. Rental companies have a set of preferred models from which the buyer can choose the rental vehicle.

• Fleet shortage: The ongoing Russia–Ukraine crisis has adversely affected the OEM manufacturing of vehicles, due to semi-conductor and chip shortage, which, in turn, has resulted in a shortage of fleet for several car rental service providers and has increased the supply–demand gap.

• Declining consumer’s travel sentiments and spending capacity: With the threat of recession looming large over the world economy, factors such as Federal reserve’s interest rates hikes, rising prices of airfares, and others have dented the confidence of travelers and rising inflation rates has had the hard-hitting impact on consumer’s spending ability.

• Video conferencing and webinars: Increased adoption of live webinars and video conferencing to conduct online meetings and sales presentations, which reduce direct interaction, helps maintaining social distancing and save cost. More companies are offering work from option, which is reducing the demand for travel.

Procurement Centric Five Forces Analysis: Car Rentals
Global

Supplier Power

• De-fleeting strategy adopted in 2020 and OEM production shortage has restricted supply of fleets in current market condition leading to higher supplier bargaining power

• Higher vehicle utilization rates and optimized operating costs has resulted in increasing profitability to offset some amount of the cash burn in 2020

Barriers to new entrants

• A new entrant would have to make a high investment in resources, especially in technology, to ensure customer service is par with the industry

• Low to moderate profit margin, due to stiff competition in the industry, is another important dissuading factor for new entrants

• Rising gasoline prices have deterred new entrants from venturing into the car rental sector

Intensity of Rivalry

• The highly consolidated nature of the market combined with the similarity of service portfolios intensifies the rivalry in the market

• Car rental companies strive to overcome low differentiation by providing value-added services, like technological gadgets, new subscription-based models, etc.

Buyer Power

• The competitiveness of the market due to de-fleeting and supply constraint in the industry has resulted in low bargaining power for buyers

• Corporate buyers are looking at extending their rental period in order to avoid out of stock situation due to increased leisure demand

• The proportion of revenue from leisure travellers to corporate buyers has also resulted in lower buyer bargaining power in current market condition

Threat of Substitutes

• Shared mobility is an alternative to renting a car, but the feasibility is low for long distance travel

• Adoption of technology, such as usage of video conferencing instead of travel, is also an alternative

• However, the threat of substitutes is low–moderate, fear among consumers is high due to the impact of the pandemic