If an industry has many companies and products, low rates, digital customer leads, and a broad physical presence, it would typically be viewed in business circles as thriving.

While those attributes describe the rental car industry, the results are not quite adding up as you would expect, according to a keynote speaker at the International Car Rental Show.

Richard Lowden, founder and CEO of Green Motion International and U-Save Car and Truck Rental, warned during a May 15 closing keynote that if the rental car industry doesn’t cooperate and change its tactics, “we literally will implode.”

Lowden pointed out that a surplus of everything in the car rental industry has triggered a competitive race to the bottom, driven by unprofitable rates and an oversupplied fleet. The racers include independents, franchises, affiliates, and major corporate brands.

“There are no winners,” he said. “The customer certainly doesn’t win, and the operator doesn’t win.”

When Market Sanity Reigned

To build his case, Lowden turned the audience back 35 years to his start in the rental car industry in 1991.

Lowden, who joined the industry in the United Kingdom at age 21, evoked the business landscape of that time with company names such as Kodak, Pan Am, Blockbuster, Toys R Us, and nine familiar car rental companies.

He went to work for one of those notable names, Thrifty Car Rental, until he started his own brand, Eurodrive Vehicle Rentals.

To illustrate the contrast between then and now, Lowden showed that airline ticket prices have doubled since 1991, as has gasoline. A one-night stay at a five-star hotel has tripled. Meanwhile, the prices of common rental-fleet vehicles have also tripled; for example, the price of a Volkswagen Golf rose from $11,000 to $35,000.

But renting a mid-size car at the Miami airport in 1991 cost about $20 a day. Thirty-five years later, the same car averages about $6.60 per day.

“If you look at that just in terms of the context, everything else associated with travel, literally everything, has gone up, except for car rental,” Lowden said. “We've gone the other way. Why have we found ourselves in a situation where renting a vehicle is typically half the value it was nearly three decades ago?”

Four Unpleasant Causes

Lowden enumerated several self-inflicted and market-related causes:

1. Low entry barrier: “If you've got one, two, or three cars, you can claim you are a car rental business. That's a problem.”
2. Fleet availability: In 1991, fewer manufacturers made a smaller number of vehicles available to rental fleets. Now, with the explosion in Chinese OEMs worldwide, the marketplace provides the easiest access to cheaper fleets ever.
3. Too many car rental brands: Too much choice, too much saturation. Pointing to a screen of company logos, Lowden said, “You can see they're just flooding in. Brands you've never heard of and names you’ve never heard of keep appearing in our industry.”
4. Excess distribution: Travel aggregators, price comparison engines, and digital marketplaces are all competing with one another in the same space, leading to lowballing of rental rates.

Rental Rates Rough Road

With those debilitating realities, how should the rental car industry move forward? Lowden asked his car rental colleagues.

As an industry, rental operators buy too many cars, making them expensive to park, he said. That pressures operators to bring them to market at lower rates.

The simple solution is to buy fewer vehicles. The size of a fleet does not determine success as much as the type of rental cars, their appeal in the market, and the ability to profit from each rental, which cannot happen at $6 per day, he said.

“In most cases, the holding cost of your car is in excess of $5,” Lowden said. “The cost of insuring that vehicle exceeds $5. Staffing costs go above $5. So, we’re already up to $15 to keep that vehicle or get it on the road.”

If rental car companies reduce usage by reducing the number of vehicles in the fleet, the remaining pool of vehicles could increase rates, Lowden said. “Now, it's very difficult for us to do this together or do this in isolation, but it is possible, and a lot of it is about understanding your own market.”

Citing the Miami rental car market as the hotspot with the most companies and the lowest rates, Lowden decried how such lowball competition harms car renters.

“We've been trying over these years to be creative about how we upsell at the counter, and how we generate more revenue,” Lowden said. “Well, if the revenue comes at $2 a day, it doesn't really matter what you sell at the counter. It still won’t be enough.”

Move, Diversify, Stand Out

He called on operators to find other locations and alternative business models outside clustered markets. Taking a boutique approach can shift operations toward more profitable outcomes.

“Don’t chase unprofitable demand,” Lowden advised. “If it doesn’t make money, don’t do it.” He urged operators to avoid taking in bulk fleet vehicles from OEMs and leasing companies, thereby preventing easy inventory from dictating the rental car market.

“You have no idea whether there's demand for that vehicle type or if that particular grouping is over-congested,” Lowden said. “So stop the panic buying of fleet and don't look at these short-term plans. You would be amazed at how many companies don’t have a plan. They’re just trading for today and tomorrow.”

A Clogged "Brandscape"

With so many car rental brands, customers cannot distinguish among them for quality and good business practices, so they end up confused and frustrated.

“You've got a situation where customers no longer trust, and they've been educated by the press and by many other organizations that when they arrive at the rental counter, they're ready to fight with you,” Lowden said. “That's not a great place to work either,” with car renters and rental staff absorbing bad experiences.

Such companies end up cannibalizing and competing with themselves, he said.

“There's actually a big, wide market out there with customers at the top end who genuinely are not buying on price, but on convenience, service, and the product they are renting.”

Stress Service and Loyalty

By focusing on a higher level of service rather than usage, operators can shift their priorities from pushing rental cars out to making their brands valuable enough that customers return.

Meanwhile, the internet has accelerated online and app-based sales, bypassing traditional in-person airport counters that used to serve as the first point of contact and information for car rentals, he said.

Customer acquisition costs continue to climb, driven by high commissions, added rebates, and special marketing deals used to secure volume. Those expenses squeeze margins that could otherwise help rental car companies provide better service.

With Google realizing that the cost of acquiring a customer is about $35 to $40, the aggregators’ percentage cut of low-priced rentals is preventing them from breaking even, Lowden said. That will trigger online display restrictions, with customer-first operations the most eligible.

Lowden said he has already seen major brands suspended or removed from some distribution channels in certain international markets when their service standards declined. He believes customer experience will increasingly define and segment online supplier visibility and distribution.

“If you're selling a rate that is sub $10 a day, if not lower, you're creating a situation where there has to be conflict and friction with customers,” he said. “If they [aggregators] know that and they don’t want us to do it, then don’t display it.”

“If, as an industry, together we are distributing at airports, and that is our marketplace, ultimately it comes down to us to police that and be careful.”

Practical Pointers

Lowden suggested the following approaches:

• Research whether your marketplace allows you to prosper as a car rental business. Look at the number of competitors, available fleet, customer demand, new opportunities, and room for growth.
• Working with multiple brands does not guarantee success. Choose them based on how they support your business and operations, and the connections, systems, and distribution they can provide.
• Less fleet is more. Choose the right vehicles in the right numbers for your market. Is there demand for a particular type of make and model in your market, he asked, citing “20 Nissan Versas” as an example. “Have you driven around your competitors and actually looked at what they've got to offer?”
• Define your car rental offerings, services, and products: What makes them stand out? Have you refined them to ensure value in the marketplace and attract car renters? Are there opportunities outside the aggregators, such as Priceline and Expedia, which capture about 70% of car rental search traffic in the U.S.?
• Look for alternative markets to complement business from the aggregators. Do some door-knocking and relationship building, and don’t just rely on the clicks and hits from online distribution.
• Differentiate your company from all the noise in the marketplace and make sure your product is one that the aggregators, if you're selling through those channels, want to list and will support.

Recovery Requires Discipline

While the U.S. market heavily depends on a few dominant channels, emerging brokers and alternative distribution models will eventually make inroads and capture market share, Lowden predicted.

Lowden asserted that major rental car brands remain profitable by avoiding unsustainable $2-to-$10 daily rates and instead pursuing business in the $30-to-$40 range, an example of pricing discipline. That allows them to operate more strategically in a crowded market.

He also warned that recessions are not industry-specific solutions. Instead, markets eventually correct themselves when operators discover that unsustainable pricing cannot support profitable businesses.

The pandemic recovery period earlier this decade demonstrated that disciplined fleet management, reduced supply, and stronger pricing can produce some of the best financial results the industry has ever experienced, he said.

“We can lead the change, but we have to actively make this decision to change, to change the behavior and not race this industry to the bottom.”