Car Rental Industry: The Threat Of Car Sharing To The Business Of Short Term Car Rental

Introduction: In April 2018, two companies, Ekar and Udrive were awarded contracts by the Dubai Road and Transport Authority for launching their ride sharing startups that allow users to share rides paying by the minute.  Udrive has 70% of the market as of now. The introduction of ride sharing has allowed consumers to avail a larger variety of cars, instantaneous transport on demand and the comfort of travel in a car, all without having to bear the expense of purchasing or servicing a car. Although car rental market had a way to minimize the purchase of cars by allowing consumers to rent cars on a required basis, the high cost of renting a car for a day from a car company had led to an inverse effect with consumers. The increased need for rental cars became a dependency only for travelers. The growth of the market has been due to the increasing needs of business and leisure travelers. This was the major purpose of renting a car, to have it available when you need to travel anywhere, anytime.

Ride Sharing:   March 2009, pegged the launch of Uber , the world’s largest ride sharing company, which was created as a solution to the issues of  car rental allowing customers to order a car for their travel based on need for which the car would arrive in a few minutes . The cost of travel would be including everything required.  Since then there have been petitions and protests by taxi drivers in multiple countries asking to ban apps like Uber although there has been regional adoption of the Uber business model in many countries as well. The advent of applications like Uber led to a major hit in the business of the taxi market. And today, ride sharing as a whole poses a threat to the rental car market. The largest rental car company in the US, Enterprise car rentals, was losing significant business due to the introduction of Turo, an app that allows users to list their own cars to be rented to make income and also allows users on the app to find their dream car to rent or to finance a new car. The point of the app is connecting car owners to people in need of a car just as Uber connects people in need of a car ride to people capable of providing one. The usage of applications like these has led to a major problem for rental car companies. Uber itself exists in 72 countries as of March’2018. The availability of cars allows most business and vacation travelers the opportunity to avail a ride on demand by ordering a car for a trip with a driver and ensuring that there is no further need for the car. The only time this is an issue is if the car is needed to wait for the customer or if there is luggage that needs to be stored and hauled around. Usually, in business travel especially, there is a very minimal need for luggage to be carried around allowing most travelers to book an Uber between destinations for business travel and for a majority of vacation travel purposes as well. Hence the need of a rental car is not as high as before.  Multiple car rental companies like Hertz and Avis have been constantly losing business due to the intrusion of Uber in the car travel market. Although the effect is not major yet, there is an expected trend that companies like Uber will become a major substitute to travelers who feel the cost of renting a car is too high to be justified as it is already happening with premium travelers and car rental is virtually inexistent among locals, there seems to be a growing threat to the car rental market from the ride sharing market

Conclusion: The companies that use ride sharing are taking away a portion of business for short term car rentals. The portion is expected to increase over time. The adoption of strategies such as gamification, increasing customer service, Real time GPS positioning and system automation are efforts made in improving operations and customer experience but cannot be adequate to win consumer confidence if the cost and satisfaction factor is not improved.

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Ken Research

Ankur Gupta, Head Marketing & Communications


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