30 May, 2019

European car rental market set to struggle

Europe’s car rental market is in decline as increased competition from mobility services and economic slowdown is affecting demand.

Increasing technological sophistication is also driving up fleet and maintenance costs for rental providers, found the American Express Global Business Travel (GBT) report. These businesses are already having to deal with tight margins in an unstable economic environment.

An expected economic slowdown, together with strong competition, both within the market and from external forces, will push rates down rather than up, according to the report. In order to generate new revenue, rental companies are turning to new business models, such as car-sharing schemes and corporate mobility.

However, in these markets, such businesses are newcomers, with established brands, such as Uber and Lyft, already taking a big market share. Even so, there will also be increasing competition from car manufacturers, especially in the car-sharing sector, which will offset falling new vehicle sales. With consumer attitudes towards vehicle ownership changing, this is likely to be a hotly contested market in the future.

Collaboration effect

Two of Europe’s largest rental firms, Sixt and Europcar, are both looking to enterthe car-sharing market, thanks to financial injections caused by the sale of their stakes in manufacturer businesses. Sixt sold its shares in BMW’s DriveNow, while Europcar released its holding in Daimler’s car2go. With the two German manufacturers combining their services, it has given the rental businesses better access to go it alone in the market.

Sixt’s plans are in line with a broader change in its corporate strategy, which increasingly views the company as a holistic mobility provider, offering vehicle leases ranging from a few minutes to several years.

The report suggests that rental rates are expected to fall in Belgium (by 4.5%), the Netherlands and Spain (both by 2.5%), Italy (by 2%), Germany (by 1.5%), Sweden and Norway (both by 1%) and the UK (by 0.5%).

Worldwide differences

The report suggests that the car rental business model is under pressure globally. Costs are rising but overcapacity and competition offer little scope for companies to raise their Average Daily Rates (ADRs).

While Europe may struggle, the market in the US is looking in better shape. Car rental companies in the country achieved record revenues of $30 billion (€27 billion) in 2018, despite ongoing disruption. With both demand and costs rising, car rental rates in North America are in for a modest rate rise of 1% in both the US and Canada. 

In the US, ride-hailing is popular for urban transport but opposition from traditional taxi opeartors is leading to more regulation (e.g. a minimum-wage rule in New York) and higher fares. 

In Canada, the report says that ride-hailing will finally become available by Q4 2019, following a decision by the provincial government of British Columbia.