You can’t beat a global pandemic to appreciate the value of a rental car. Forgive me for the flippant statement, but I’m being provocative to make a point. Hertz just posted revenue per unit, per month (RPU) of $1,685 in Q3. Sure, inflation. But that’s insane.

After two years of utter turmoil, the car rental industry is making money hand over fist and expanding profit margins. An industry that had been regarded as a washing machine for used cars (again, I’m being provocative) is now deriving value from actually renting the car itself. Credit healthy demand and a tight fleet.

This is the way it should be — but how long will it last?  

Let’s tackle demand first: Whatever recessionary pressures are upon us, travel doesn’t seem to be affected. Both leisure and business travel are strong, though there’s still room for improvement to the 2019 baseline. Next year, car rental can also look forward to an accelerated rebound in international inbound travel.

Fleet is more complicated. The microchip and supply issues are ameliorating, but lingering. Year over year, sales into rental fleets have improved every month through October. However, overall rental sales are still at a whopping 66% deficit compared to the same period in 2019. Yes, everyone could use more cars, but this forced under-fleeting is keeping rates high and driving that record RPU.

Dealer day’s supply is improving, though those units are going first to retail and non-car rental fleets. For rental, the post-pandemic paucity of vehicles will continue in the short term. In the words of Avis Budget Group CEO Joe Ferraro on the company’s Q3 earnings call, “The 2023 industry fleet buy will be tight.”

As supply loosens, rental companies are no longer paying $3,000 over MSRP. But the recent decline in used car prices — to be expected off such historic highs — is driving higher depreciation. The bottom won’t fall out, however, as flow into the wholesale market will constrict again in Q1 and Q2, keeping prices elevated over historic patterns.

Are these conditions a glide path to normalcy, or perhaps a long-hoped-for new normal? Can we look forward to a rational environment of strong demand, tight-but-manageable fleet availability, and buoyed — but not CSI-killing — rates?

It’s too soon to tell. But if we can move into 2023 without another wildcard disruption, what forces could be lurking around the corner to pressure car rental?

Threat from Within

A renewed migration to Uber and Lyft seems less a threat now than it did pre-pandemic. Those rides are no longer subsidized by venture capital; the driver pool has shrunk, and it’s often easier to just get a taxi anyway.

The pressure won’t be coming from autonomous vehicles, as robotaxi deployments at scale are receding further into the horizon.

There are signs that subscription services might be gaining traction again. Subscriptions aren’t competition for daily rental — as their usage is in months — but they represent opportunity for car rental companies that understand transactions, fleet, and utilization better than other players.

I bet we’ll hear news of a subscription program for the U.S. market involving a partnership between a car rental company and an automaker soon.  

For car rental, look for the threat from within the industry — from your competitors. Again, I’m being provocative, but it’s true. Let’s parse three areas: electric vehicles, telematics, and contactless rentals.

EVs and Your Customers

Sure, we all chafe when the government and media scream “EV!” and fleets are left managing the capex to get the chargers installed and figuring out the formula to rent EVs profitably.

And even with the talk of banning ICE vehicles, the sober prognosticators say we’ll still only be at 50% zero emission vehicles (EVs) by 2050. If that gives you comfort, however, don’t let it.

EV sales spiked 41% this year compared to 2021 and now comprise 6.2% of all new-vehicle sales, up from 3.6% in the first half of last year. Rental companies in California should note that battery-electric vehicles now command a 15.1% market share of overall sales in the state. We can argue about the pace of growth, but the growth is happening faster than expected two years ago.

Ubiquitous Telematics

For the major car rental companies, telematics is almost ubiquitous: Hertz says that by the end of this year, 100% of its U.S. fleet will have telematics. Enterprise (privately held) and Avis aren’t far behind.

Telematics use has gone from tracking stolen units to broader fleet management around geolocation, breakdowns, protecting resale values of high-mileage units, accurate fuel readings, and customer data analysis.

Systems are easier to manage operationally now that modems come direct from the factory and not an aftermarket install.

Many Forms of Contactless

On-demand or “automated” rentals have been a part of the traditional car rental lexicon since carsharing took hold, but there hasn’t yet been wide adoption. The pandemic jumpstarted the movement, and even gave it a name that will stick — “contactless” rentals.

This new model is not defined by a specific process. Contactless could involve placement of vehicles opportunistically, accessible to renters through an app. It’s also part of a process to deliver vehicles directly to renters.

Or, contactless could be as simple as installing touchpads on rental cars to allow renters access to vehicles afterhours, with keys and a rental agreement inside.

Driving Value

The macro factors of supply and demand are still trending positively, but you have less control over those. You do have the ability, however, to stay ahead of the “threat from within.”

EVs may not yet be in your future, but are you surveying your customer base on the vehicle types they expect to drive? Are you on top of those expectations so the company across the street doesn’t get there first?

You may have resisted telematics before, but have you investigated newer systems’ benefits? The ability to measure fuel down to a tenth of a gallon is becoming table stakes for the car rental industry.

Think of contactless more broadly as a way to get cars to your customers as efficiently as possible and with less personnel. Are you examining all the permutations?

Your customers are finally realizing the true value of a rental car, and they’re willing to pay for the privilege. But this isn’t the time for complacency — your competitors know this too. Investigate ways to reach and serve customers more efficiently and with better value. Those that succeed will win in a good market and prevail in tough times.

Editor's Note: This blog appeared in the 2023 Auto Rental News Fact Book! Find it and more insights and stats about the industry, online soon.