We’re seeing the rental car industry collapse as more Americans choose to zip around cities they visit with ridesharing services.
As business travelers and tourists skip the car rental line in favor of Uber and Lyft, big players in the car rental industry are imploding and facing the wrath of Wall Street investors. For instance, car rental giant Hertz has seen its stock plummet nearly 75 percent in the past year, as investors flee the ailing industry.
The shift among travelers has been so sudden that big players in the car rental industry have yet to change their business model. Rental car companies have continued to purchase cars at historic levels, doubling down on their old business strategy just as demand dropped dramatically.
Corporate ground transportation spending, a massive source of business, in the span of two years has shifted to ridesharing. Mind you, these statistics don’t capture the changing habits of leisure travelers, which are also undergoing the same seismic shift.
Car rental companies left holding the bag
The car rental industry underwent a dizzying amount of mergers in recent years, leaving three large companies controlling more than 90 percent of the market. You’ll see almost every name brand is owned by one of the giant companies. The illusion of choice in the industry is evident, as Hertz owns Thrifty and Dollar, Avis-Budget owns Zipcar and Payless, and Enterprise owns National and Alamo.
These mergers were completed in an attempt to corner the market and raise prices, just like the airline industry did in recent years. Much to the chagrin of the corporate titans who thought they had positioned themselves for profitable dominance, the rideshare industry came along and decimated their market share.
Sitting on a debt bomb
These rental car companies own an absurd amount of cars and are on the hook for billions of dollars in debt. Beyond not being able to meet their debt obligations because they’ve lost their business to ridesharing, car rental companies face yet another problem.
Many analysts are predicting a used car price crash in the near future. That means that the millions of cars that these companies own could decline suddenly in price, leaving them in the perilous position of owing money on cars that have become severely depreciated.
The bottom line is that the outlook for car rental industry is dim, as the car industry appears to be facing some serious headwinds itself.
Takeaway: Disruption is here to stay
The rental car industry is yet another tale of the massive disruption occurring in today’s digital economy. Given that millennials are now the largest living generation in America, it’s no surprise that the car rental industry is imploding.
Young people aren’t interested in driving, parking or dealing with scammy tactics at the rental counter. Our parents were ripped off for decades (largely through unnecessary insurance plans) and we’d rather have a stranger come fetch us on demand through ridesharing. Ridesharing is cheaper, faster and more convenient than the old, tired business model of renting cars at the airport.
As for the certain doom that the car rental industry faces, no one will cry a river for the fortunes that are being lost. It’s part of market capitalism, as disruption is crushing industries across the board. In the end, ridesharing has been a boon for the consumer, and we all benefit from technological advancement.
Be on the lookout for other industries to meet their fate in the coming years as technology brings giant companies to their knees.
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