Carshare Services Disrupt Auto Aftermarket – Ward’s Auto | CarTailz

As consumers returned to travel habits that had been disrupted during the peak of the pandemic, many were shocked by high rental car fees, which have soared due to low inventories on properties. During the same period, service quality declined as car rental companies struggled to fill vacancies in a tight job market. In this context, car-sharing services such as Turo, Getaround, Gig Car Share and Zipcar have come together as increasingly attractive alternatives to traditional car rentals.

Aside from traditional rental heavyweights like Hertz and Avis struggling to survive, the rise of car-sharing services has further complicated the economics of the used-car market. It’s a problem that will only become more acute as inflation rises and business conditions deteriorate.

Discretionary spending vs. corporate investment

The carsharing phenomenon is changing the way owners financially relate to their vehicles. For those aggressively making their vehicles available for service, the carsharing market is turning an otherwise declining asset into a profitable investment. And unlike the ridesharing market, the carsharing ancillary business doesn’t significantly interrupt consumers’ daily work.

In that sense, the carsharing business model has more in common with Airbnb and VRBO than it does with the traditional Uber and Lyft services — though it’s worth noting that the latter two are dipping their toes into the carsharing market.

As a result, the carsharing phenomenon is changing how financial risk and debt tolerance are calculated. The growing carsharing market is prompting some consumers to build their own mini-fleets. For others, the ability to offset insurance and car payments by operating a vehicle leads them to consider more expensive purchases. This increases the demand for new and used vehicles while the supply is tighter at the same time.

That wasn’t good news for the traditional rental car market. Most incumbent rental companies have severely reduced the size of their fleets to deal with the dramatic early impact of the pandemic. Decisions then disrupted, and indeed broke, traditional car rental companies’ longstanding relationships with manufacturers and local dealers.

As demand returned into 2021 — along with interest in domestic travel — the industry struggled to replenish inventories due to ongoing production issues caused by supply chain disruptions and stiff competition for new and used vehicles.

Still, context is important. While the carsharing market is growing, it has not yet reached scale. The current number of vehicles in the entire car-sharing service fleet is still low at around 161,000 vehicles. However, the customer base is substantial with more than 1.3 million active users.

New role for dealerships to support carshare owners

Meanwhile, another disruptive dynamic is unfolding. There is increasing evidence that the emerging community of car-sharing owners is being recognized as a clear market opportunity for running service departments at dealerships.

Unlike traditional car rental companies, most car sharing operators lack the resources and infrastructure to keep their vehicles in perfect condition throughout their life cycle. Innovative dealerships are building relationships with mini-fleet owners whose vehicles require more maintenance and repairs than traditional car owners.

By building these relationships, dealerships not only create new profitable revenue streams, but also create new pipelines to meet their own inventory needs as cars and trucks retire from carsharing service.

Wild Card: A return to rational rental fees

Certainly the classic car rental industry will not go into the night quietly. Companies in this segment are already adjusting their pricing strategies to ensure they remain a dynamic player, especially for business travelers. From an operational perspective, landlords are also making strides in collaborating with available human resources to improve customer service and ensure the right inventory is in place to meet evolving demand.

That means the carsharing genius is out of the bottle. Although the market is seeing a slight decline in carsharing inventory (on services like Turo), there doesn’t appear to be a drop in end-user demand. As more and more consumers become aware of the concept of car-sharing – particularly among holidaymakers – it seems clear that car-sharing operators are firmly entrenched in the mix of transport options at destination.

DavidParis (pictured left) is Director of Market Intelligence at JD Power Valuation Services.

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