Why is the car rental industry freaking out about carsharing?!

Carsharing is a fact the car rental industry has to face. But there is no reason to freak out about this trend that correlates beautifully with the philosophy of young minds and the economy in which we live today. Carsharing won’t kill the car rental sector, just as TV didn’t kill the radio.

Among the more renowned carsharing brands are Zipcar, GoGet, StattAuto and so on. Similar to this, other concepts are popping up – like Upshiftcars.

According to Navigant Research, the revenue from global carsharing services is expected to reach US$6.5 billion in 2024. In 2015, this sector was worth US$1.1 billion. (source)

Any number like this would ignite a spark in entrepreneurs’ eyes. Since 2000, when Zipcar was founded, the carsharing industry has come a long way.

As of the beginning of 2014, car share programs were offered on five continents, in over 30 countries, and in hundreds of cities,” said the Navigant report. (source)

Even rental companies like Hertz Corp., Enterprise Rent-A-Car, and Avis Budget Group stepped in;

In 2005, Enterprise Car Share offered hourly car rental for the first time. Today, they offer carsharing in 35 U.S. States, Canada and the UK. (source)

In 2008, Hertz Corp. launched a carsharing service called Hertz 24/7 (at the beginning, it was called Connect by Hertz), which is a membership-based rental program that allows you to rent cars by the hour.

In 2013, Avis Budget Group tackled the opportunity by acquiring Zipcar. The same year Zipcar reported revenues of $296 million. In the third quarter of 2014, Avis Budget Group generated more revenue than ever before – US$2.5 billion, which is a six percent increase year-over-year. (source)

In the latest annual report they stated: “Zipcar represents a substantial growth opportunity for us as we believe that there are numerous geographic markets outside the United States, particularly in Europe and the Asia Pacific region, where Zipcar’s proven carsharing model can be utilized to meet substantial, currently unmet transportation needs.” (source)

How does a carsharing customer think?

To say the least, carsharing is a big opportunity, which can only be beneficial to rental companies, if they know how to harvest it. Because of the young people who value different things from their parents, the perception of a car – and the importance of car ownership – is changing.

More and more people decide to avoid owned-car expenses and go the easier way. For many of them, public transportation and carsharing are the ways to go. But that doesn’t mean that car rentals have something to worry about.

A consumer that doesn’t give a flip about owning a car is more likely to wander the world carless and search for transportation when she reaches the desired destination. Who says they won’t opt for a car rental? By checking forums and user-generated websites, people see carsharing in realistic light – with its benefits and downsides;

The occasional messiness, unexpected surcharges because of a late drop-off or unseen car damage irritates them, especially if they feel it wasn’t their fault. Also, many of them don’t see carsharing as a super low-cost option. Many of them don’t choose the yearly membership. If charged per hour, daily carsharing can cost up to 100 US dollars. In that case, car rental is immensely cheaper.

Millennials are in general more experience-focused than material-things-oriented. (source) But don’t be fooled. The utilitarian mindset of younger people is not strictly hedonistic. Yes, thew will prioritize traveling over owning a house or a car but that doesn’t mean that they are hedonistic about their life choices. They go both ways of the utilitarian spectrum. Even though the experience should have some level of pleasure, this same experience should have some value-for-life also.  

In my opinion, those businesses that are able to combine the delight of experience and a real intrinsic value of service will prosper the most among younger consumers. Uber, Airbnb and Zipcar are doing just that.

What the carsharing trend is teaching us

Those that fear that car sharing will win over car rentals because it’s “cheaper” and handier are ignoring the fact that these two business models are “different by design,” as elegantly stated Cat Johnson. (source)

The important fact that is common to both of them is that the percentage of ownership-obsessed people is decreasing, which is only a plus for the car rental industry (regardless, the majority of the big five rental companies already hopped on the carsharing bandwagon).

Also, let’s keep in mind that most of the statistics that try to present the trend of possession-indifference focus on big cities like London or New York where majority of the residents are young and career-focused. But don’t be fooled. Eventually, many of them will leave the city, get married and find their serenity outside the capitals. And then, they will need a car. But they will forever carry the experience of hopping from one car to another – focusing only on convenience and best-value-for-their-money.

And this insight reveals the lesson that the carsharing phenomenon is trying to teach us; Be there, be convenient, and don’t blow up your prices because there is no point. Also, some of the pain-points of car rental industry – the bad practice examples of some, will not be tolerated anymore. Presenting a customer with an untidy car or trying to confuse them into an extra they don’t need will end badly. And some day, people won’t say, “It’s just the way it is” anymore.

These same young people that enjoy carsharing today have one more specific difference from Generation X and Babyboomers. They are not loyal to brands. They are loyal to their desires and utilitarian needs.

So, the question is not, if car rental companies should tackle both business models – carsharing and classic car rentals – or should they fear the trend of carsharing, but how they can provide their customers with a service that they will find valuable.

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