The car rental industry has been around for over 100 years. It now consists of two publicly traded entities, a large private company, a single peer-to-peer marketplace, and thousands of franchised and independent operators.

All have converged on the trends and challenges that have made 2025 a year of adjustments in response to unforeseen macroeconomic conditions and emerging technologies.

The industry is redefining the rules that have been in place for more than 100 years.

Tariffs Disrupt Market

Tariffs have affected not only our industry but the entire transportation sector. Whether or not tariffs are enforced, tariffs on new vehicles and auto parts from around the world have prompted an immediate purchase of existing inventory, drying up the market and creating uncertainty about new rental vehicles for the remainder of 2025 and 2026.

Most independent operators entered a fleet-holding pattern, altering the vehicle life cycle and affecting the recapture of equity into the operator’s free cash flow.

The Trump Administration’s delay in imposing tariffs, especially on Mexico and Canada, eased concerns. Manufacturers added inventory and provided guidance that fell well short of the expected 20% average increase in new-vehicle prices. Inventory is back, and purchase banks for model years 2025 and 2026 have hit the market, indicating that announced tariffs didn’t necessarily have the expected impact.

By the end of 2024, industry analysts, including PwC and EDS, had predicted modest growth for 2025 relative to 2023 and 2024. Some industry experts were even more aggressive, believing in a strong recovery.

Tourism Takes A Hit

Unfortunately, the U.S. political environment has led to year-round declines in tourism. The decline in tourism and intensifying competition in a handful of markets nationwide led to lower-than-expected daily rate growth, a shorter average rental length, and lower-than-expected usage.

The declines proved true for both large operators and independents. For these independents, 2025 saw very slow growth, with slight stabilization, and a few smaller players who couldn’t adapt went out of business.

Banks and leasing companies responded to these trends by restricting access to financial products or tightening underwriting standards.

2025 became a year in which fleet planning, purchasing, management, and disposal, along with pricing and optimal usage, were key for independents’ survival. Nonetheless, these independents have had to emphasize efficiency.

AI Tool Usage Growing

While AI tools have not yet fully addressed the car rental industry, more sophisticated operators have embraced building their own AI-driven predictive and agentic solutions to augment productivity across their fleet management, operations, sales, customer service, and risk management divisions and processes.

Some tech providers, mainly in the transportation and telematics sectors, have begun exploring the industry to potentially supply new solutions. Operations are deploying AI in vehicle damage detection, predictive fleet planning, pre-fault vehicle diagnostics, fraud and crime prevention, fleet costing, customer service, price and rate analytics, and automated renter check-in.

These large, independent operators are seeing their fixed expenses and cost of sales decline significantly, making them better positioned to compete successfully.

Digital Options Multiply

Digital transformation throughout 2025 is more than just AI. Contactless rentals and rental check-in automation via apps and kiosks have reduced wait times at the counter.

Supplier-direct bookings have grown throughout the year, and small, independent operators have shifted toward mass OTAs and franchised systems. Large franchise networks and industry software vendors have bridged the gap between operators and technology, making it easier to implement these tools and connect with brokers and OTAs, leveling the playing field with larger operators.

While 2025 has been an interesting year, all eyes are now looking into 2026. Independent operators hope for a faster recovery, greater growth, higher rates, longer rental durations, improved profit margins, greater access to software and AI tools, more financing options, increased fleet availability, and the ability to expand into new booking sources. 2025 proved challenging, but 2026’s landscape is optimistic. 

This column originally appeared in the print edition of the 2026 Auto Rental News Fact Book.