What a Year Brings in Car Rental & Chauffeured Transport

I wrote an opinion piece in BTN on Jan. 28, 2022, titled “Where Have All the Fleets Gone?” I just re-read it and thought, “It’s been over a year later. What has changed?” 

The answer to that question is not as much as I—and probably everyone else—would have liked. There have been improvements.

There are fleet shortages (parts shortages, also), but they are not as bad as they were last year. Yes, there is still a semiconductor shortage. The price for vehicles is still high, and the interest rates for borrowing for fleet purchases also increase the cost, whether it is a new or used vehicle. 

The used car market, which is very important to the whole industry, still has vehicles selling for higher prices, but now there is a shortage in there as well. During the summer, as leisure travel picks up, suppliers will hold on to current fleet and there will be even fewer used cars available for purchase in the open market. 

New car availability is still an issue. This has resulted in older fleets, and the user is noticing. The extent of the issue, however, will vary by supplier and location and so will the impact to the user. In high-demand areas, such as during the summer where vacation and leisure rentals are heating up, there can be scarcity. This may result in short-term rentals being turned off and/or higher prices for them compared to weekly rentals.  

Uneven Impact

Having worked in and with both the rental car and chauffeur-driven industry, there are similarities but differences in the two—though they are impacted by many of the same market dynamics.

The most significant difference is in profitability, which is very difficult to achieve in the chauffeur-driven space. For one, the chauffeur-driven market, unlike rental car suppliers, doesn’t have the same strong mix of leisure customers. 

The rental car industry’s profitability since the Covid recovery has been subsidized from rising leisure pricing. That may not last forever. Already, some rental car suppliers and the majority of chauffeured suppliers have and are pushing price increases on the corporate side as costs have gone up and are continuing to do so.

The chauffeured industry has lost over 40 percent of suppliers with five or more cars in their fleet since 2019, Driving Transactions principal analyst Ken Lucci recently told me. That means more than 5,000 suppliers have disappeared from the market. The remainder have had a much better year thanks to price increases and the fact that there is less competition. However, that 60 percent is operating only at about 60 percent of capacity.

There is still an issue with fleet: Sedan production has been severely cut back, and larger vehicles from sprinters to buses are hard to obtain. On the labor side, drivers are being paid more, and there are fewer of them, especially for the larger vehicles that require a harder-to-obtain CDL license. For every three drivers who leave the business, Driving Transactions estimates only 1.2 are coming back. 

Insurance costs are continually rising, either driving suppliers out of the business or increasing the cost of doing business. Fuel costs also significantly impact this industry as it is difficult to recoup rising prices. One rental car company told me their No. 1 issue is the ability to hire employees, it is a problem for everyone.

Flashback

I wrote in March 2019 an opinion piece in BTN titled, “The Effect of IPOs on Transportation Network Companies.” At that time, I suggested that going IPO for both Lyft and Uber would put pressure on them to be profitable and that prices would increase as they would have to answer to analyst and the investment community. 

According to Forbes, Uber has become 41 percent more expensive since the start of the coronavirus pandemic. Lyft has had a similar trajectory.

TNCs' pricing increases negatively affect corporations because of the corporation’s inability to control pricing in that segment of the business. It is unlike rental car and chauffeured pricing, which is locked in for a set amount of time and can be negotiated. To control the TNC segment, it will have to be monitored, and companies must be willing to look at and move business to chauffeured service, rental car, and other forms of transportation, which may be more economical, and—as I will continue to argue—safer. 

No one can escape the driver shortage. According to Ridester, the TNCs’ high turnover rate is one of the most significant issues that Uber and other rideshare apps face, both before Covid-19 and now. Every year, a vast percentage of new Uber drivers quit and move on to other jobs. Ridester published a report in March that showed only 3 percent of drivers who signed up to drive for Uber are still driving with them a year later.                           

There is a looming question of whether the U.S. will enter a recession. Will it be mild, or will we avoid it? With Silicon Valley Bank and now with First Republic, we are seeing some ominous signs in the banking industry. There are global issues, as well. How will the Russia-Ukraine war and China’s abandonment of its zero-Covid policy evolve? Technology companies are also currently experiencing a challenging time. This may result in a less of an increase in corporate business in 2023. We will have to wait and see.

Sustainability’s importance has been increasing, as have electric vehicles in fleets. This also raises the cost of doing business. 

So what’s important for corporate buyers right now when it comes to managing supplier agreements for car rental and chauffeured ground transportation? 

For me, it’s back to basics: There are shortages and costs are going up. They will continue to do so. Companies need to pay attention to their cost, and the service levels they are receiving. A company should not take price increases without checking the marketplace to mitigate the next price increase. And the next one will be coming.