Changing consumer habits and technological advances are driving the car hire market into the digital age. Jenny Southan reports.

At the end of last year I spent a month living and working in Los Angeles. Everyone says you cannot survive without a car in a city like this, and they are right. I looked into renting a car but in the end decided  that it would be too stressful to drive in this unfamiliar city and opted instead to use Uber.

I spent about £800 but did not have to shell out on petrol and parking. Meanwhile, a friend who was also in the city for a month woke up on the day she was leaving for the airport to find her hire car stolen and a heap of paperwork to fill in. She swore to follow my example the next time she was in town.

It is these kinds of shifts in consumer behaviour that have put a dent in the car hire market in the past few years. Hertz Global Holdings’ chief executive John Tague stepped down last year after the company’s shares fell 52%, equating to a loss of $1.5 billion in equity value. Avis Budget Group faired somewhat better, with revenue increasing 7% in the fourth quarter of 2017 to $2 billion, but it constantly needs to shift gears to keep pace and has had to modify its financial projections down.

Innovation, however, equates to optimism. Alexander Sixt, Sixt’s chief administration officer, tells WTM Insights that ridesharing, for example, is not to be feared and that if you can’t beat them, join them.

“Uber and Zipcar serve a completely different demand to Sixt. Our goal is to offer comprehensive and demand-oriented mobility. One example is our mobile app [sixt.com/getaride], where our customers can choose between Sixt Limousine, Mydriver for business transfers or the low-priced taxi alternative Sixt Rides,” he says.

Smartphone revolution

Avis sales executive Lance Smith believes the future of car rental will be powered by smartphones. In a blog post written last year, he said: “In many cases, apps are already the lens through which we experience the brands we deal with and in future our every business interaction will be driven through smartphone technology. For us and our customers this means that the entire car rental experience will change. The old model of customers queuing for service at a car rental counter, then painstakingly selecting options from a checklist, is on its way out.”

Excess vehicles issue

Fleet management is a key issue that many car rental companies are struggling with, including an excess of vehicles that they cannot always sell (Sixt replaces its cars every six months, for example, to make sure customers always have the latest vehicles.) With increased focus on environmental concerns, plug-in cars are proving another disruptive force not to be ignored. Electric cars appeared on the market about eight years ago, and companies such as Enterprise Rent-A-Car and Hertz began introducing them to fleets not long after.

Today, Sixt offers three types of plug-and-go cars: the BMWi3, BMWi8 and the Tesla Model S. Toyota, Tesla, BMW and Mercedes are the biggest manufacturers of electric cars but there are also models such as the Leaf from Nissan and the Outlander PHEV from Mitsubishi for people to choose from and rental fleets need to reflect this. Car hire companies know they  have a responsibility to help cities meet lower emissions targets but they need to balance this with reacting to consumer demand, which is no easy task.

In the self-driving seat

The imminent arrival of self-driving cars also provides a new threat (and opportunity) for the industry. In an attempt to start future-proofing now, a number of rental companies are exploring partnerships, with Avis joining hands with Waymo and Hertz tying up with Apple, for example, to support autonomous vehicle development  and maintenance.

Recognising the potential, Susan Lombardo, senior vice-president of vehicle acquisition at Enterprise Holdings, wrote in a piece for the company’s website: “Many drivers experience new automotive technologies for the first time in rental vehicles. I have no doubt that the US car rental industry will be an early adopter and will be able to help introduce autonomous driving technology to millions of consumers  just as we have done with anti-lock braking, stop-start technology, hybrid electric vehicles and all of the other  new technologies.”

Sixt is also monitoring the development of autonomous driving “very closely”. Alexander Sixt says: “Imagine how customers could use an app to reserve a rental vehicle that would drive up independently at the transfer point at an agreed time. Prior to the introduction of purely autonomous mobility, however, numerous technological, regulatory and ethical issues still need to be clarified by vehicle manufacturers and politicians.”

Whatever the future holds, car rental suppliers will need to have their eyes on the horizon to win the race.