Last year, the Ukrainian car rental industry was reeling from the cumulative effect of massive immigration, unprecedented economic downturn, and most of all, intense hostilities and shelling from the war.

This year, the market sees the first signs of recovery, although the future remains uncertain. Meanwhile, on the other side of the Russia's war against Ukraine, Russian car rental businesses also face scarring circumstances.

Car Rental Companies Grapple with Fleet Losses

Sixteen months since the Russian troops invaded Ukraine, car rental companies are straining to keep their business running. One of the key consequences of the hostilities was that almost all Ukrainian car rental companies lost part of their fleets. Taras Getmanskyi, director of Getmancar, estimated that it lost around half of its 500-vehicle fleet since February 2022.

As a rule, Ukrainian businesses are losing control over the assets based in the territories controlled by Russian forces. As of writing, Russians occupy about 20% of the Ukrainian land, and as the Ukrainian counteroffensive proceeds apace, this figure is slowly but steadily diminishing. 

“Avis Ukraine, one of the leading players on the market, estimated that only 3% of its common entire rental and leasing fleets was lost during the fights or looted. But about 5% of the car hire fleet was donated to the Ukrainian military," said Haim Kapelnikov, CEO of Avis Ukraine.

When the fights erupted, millions of Ukrainian refugees, primarily women and children, streamed to the Western borders. Nearly 6 million refugees fleeing Ukraine are recorded across Europe, while an estimated 8 million others had been displaced within the country by late May 2022. Kapelnikov said that to help people get to safety, Avis Ukraine allowed refugees to drive cars abroad and return them at any Avis facility customers could find in Europe.

Last year business was tough for the Ukrainian car rental companies, some of which found themselves balancing on the edge.

"If we speak about Getmancar, we remained profitable for two to three months since the warfare started," Getmanskyi said, adding that then the company started counting losses from the lost fleet. "It was hard to embrace this fact, but we were going down. In August 2022, I fired some of the employees because we had no means to keep paying them. We had very bad news up until February 2023. Each month, instead of improving, our business was deteriorating."

Rental Car Industry Bounces Back

Kapelnikov agreed the market dynamics left much to be desired. Among other things, the country lost the inflow of inbound tourists, and the leasing segment of the business was also in turmoil throughout the last year.

"Despite this, we did not stop running our business for a single day,” Kapelnikov said. “We take care of the safety of our employees, pay salaries, and help our customers evacuate and relocate back to Ukraine our cars from abroad and occupied territories. We met all our financial obligations, to banks, to our suppliers and pay taxes to the state," he said, adding that the market perked up again before long.

"Starting summer of 2022, we achieved positive dynamics in both car rental and leasing businesses. The rental cars were in demand by humanitarian organizations and foreign media who compensate for the loss of inbound tourists," Kapelnikov said, estimating the share of corporate clients and NGOs at Avis Ukraine car rental portfolio jumped from 17% last year to 60% in the second quarter of 2023. Meanwhile, revenue per rental car skyrocketed by 61%.

"Our portfolio of leasing customers expanded by 3% due to our sustainable financing and support of our clients. In 2022, we managed to fulfil 59% of the leasing cars delivery plan. In 2023, we'll overperform our budget plan for leasing car delivery," Kapelnikov said.

Getmancar's recovery began only in March 2023, when the company saw a 30% hike in turnover after long months of the downward trend, Getmanskyi said. The company is working on expanding its fleet, although the fights in the eastern regions are now fiercer than ever.

"In December 2022, we also started Getmancar in Georgia and are now looking into some other markets. So, I believe soon you will see Getmancar in several other countries," Getmanskyi said.

Still, the Ukrainian car rental market overall suffered an 80% slump in demand, Getmanskyi said, adding that in the “good old days,” the overall fleet of rental cars in the country was close to 2,500 units. Now, it is hard to estimate how this figure has changed, as some companies lost 100% of their capacities.

The new reality also shapes up what's left of the demand on the market. The customer profile has changed, so the car rental companies need to adjust their business accordingly, Kapelnikov said.

"The small city's economy cars and luxury sedans, which are usually popular among tourists, have lost demand. SUVs and minibuses have become more popular. Avis Ukraine has acquired small and large SUVs like VW Tuareg and Toyota RAV4, pickup trucks like Toyota Hilux and Hyundai Staria minibuses to meet the growing demand in those segments. We have also launched BEV cars rent by importing VW ID5 cars from Germany."

Facing the Economic Consequences

On the other side of the war against Ukraine, the Russian car rental market has not gone through such dramatic events but still is braced for tectonic changes. In the summer of 2023, the demand on the market is nearly 20% higher compared with the same period in 2022 and about 40% above 2021, local car rental company Prokat Avto reported.

"One of the main reasons for a surge in popularity of this service [car rental], as analysts believe, is the development of domestic tourism in the face of the country's external isolation," the company said.

Indeed, last year Russian internal tourism recorded a rise of a stunning 8.5 million, the Russian Union of Tourism Industry estimated. Before air traffic with Western countries was halted by sanctions in March 2022, about 8 million Russian tourists visited the European Union every year. Now, most of them must seek travel opportunities on their home ground.

Despite the rise in demand, the Russian car rental industry is dealing with multiple challenges. Since early 2022, prices of spare parts exploded by 20% to 30%, in some cases by 100%, Prokat Avto estimated.

All Western automotive brands pulled out from the Russian market last year, and the flow of imported components to the country has narrowed. Rental car companies with a relatively older fleet could experience some challenges in these circumstances, Prokat Avto added.

Given these market pressures, it is likely that Russian car rental companies will be gradually switching to Chinese cars, the company said.

Eduard Mingazhiev, the general director of leading Russian carsharing company Citidrive, confirmed this scenario. In 2022, the company harbored plans to purchase 7,000 new cars, effectively doubling its fleet. In December 2021, Citidrive started trying Chinese cars, which as Mingazhiev claimed, saved the day for the company. Eventually, Citidrive expanded its fleet by 4,000 cars last year, 2,500 of which were Chinese.

Shortly after February 2022, Mingazhiev recalled fears of negative changes in the market. But last year, the number of orders jumped by 119% compared with 2021, triggering a 134% surge in revenue to 8 billion rubles ($100 million).

The company is not abandoning its development program. In 2023, Citidrive plans to purchase 6,000 new cars. The company certainly has room to grow, as so far, it operates only in three Russian cities: Moscow, St. Petersburg, and Sochi.

It would be wrong to say, however, that the industry is living through its finest hours. In early June, Russian President Vladimir Putin proposed to allow using only taxi and carsharing services operating only Russian cars. The rationale behind this idea is to spur the demand for Russian brands. The country struggles to revive Lada and several Soviet brands at the automotive plants abandoned by Western carmakers.

It is yet to be seen how this measure could be applied. The worst scenario envisages the Russian government to force businesses to sell foreign cars.

Market players believe it can't be ruled out completely, given that without sufficient demand, the revived Soviet brands will only generate losses for the state treasury. 

The author, Ian Skarytovsky, uses a pseudonym due to his and his family’s proximity to the Russian war against Ukraine.