Having the discipline to not lower rates is very hard, one operator says. If you don’t have strong accounting of true total cost of ownership, then you’ll make the wrong decision which is to go after market share, which can result in eventual losses.
Graphic: Bobit Business Media
The car rental market in 2024 ended a four-year trend of steep revenue gains since the COVID pandemic of 2020, resulting in a flatlined market with slightly lower overall industry revenue.
Rental rates either held steady or declined slightly for most companies while the industry saw a slight over-fleeting of rental cars and higher vehicle depreciation costs. The revenue per month (RPU) was $1,387 for 2024, down slightly from $1,412 (RPU) in 2023.
In this Part 3 of the Operator Outlook series from the 2025 Auto Rental News Fact Book, the interviewees answered the following questions:
- What is your rental rate environment/pressures, when considering inflation/the economy, business and leisure travel demand, and competitor rates?
- Compared to Q4 23, how would you describe your revenue performance and customer levels? How do they compare to the last three years?
Higher Costs, Competition Pressure Rental Rates
The overall rental rate environment has remained generally healthy but has not kept pace with increased costs, Kolodziej said. “There is less tolerance to build days through low rates, and more focus on revenue per unit. It appears that many competitors are operating from a similar frame of reference.”
Hemmert saw a downward pressure on rates in 2024. “It boils down to supply and demand. There are too many cars and too few customers, which is normal for car rental. You have five aggressive (major) companies going after each other in complex local markets. Because of hyper-competitiveness in our industry, we always lag inflationary pressures. The competitive pressure is greater than the inflationary pressure. No one wants to give up market share. Everyone is trying to hold their ground.”
Hemmert emphasized that a rental operation will face difficulty trying to recover from poor revenue per day numbers. “Car rental is one of the most efficient industries imaginable. Profit margins are small because of the competitive nature of the industry. You must provide a high customer service level. All these counters at airports are looked upon as commodities. Brand differentiation is not major factor for leisure travelers who look at price.”
York Car Rental has seen strong volume at its Denver, San Diego, and Houston outlets. In 2024, it saw many two-four days rentals from leisure, government, and military customers.
“We definitely are not getting more than seven-day rentals,” Fathi said. “One-to-seven-day rentals have been strong and much better than last year. We could successfully close our Q3, because we don’t have a large fleet and sold out quickly. Those with more fleet vehicles are struggling.”
York uses a rate management automation system that balances inventory, markets, and rates. After a certain percentage of usage for vehicles, it increases the price. Some days rates are lower.
“We hold rates steady, but if the rates are going low, we push more toward our neighborhood, insurance, and dealership rental markets. Those are steady. After many years of being in this business, with economic ups and downs, we don’t just rely on airport business, which is about 75%.”
Dill decries that the lower $1 per day rates that disappeared right after the pandemic are returning. “We hoped the industry wouldn’t go back to those low rates.
“You can’t make money when you are renting a car for less than the cost of a pizza,” Dill said. “When you try to advertise rates that low, you are only setting the customer’s expectations incorrectly because you must get additional sales for that rental to make any sense. So, you are selling more aggressively.”
Dill predicts some of the lowball-priced operations and brands will not survive. “Having the discipline to not lower rates is very hard. If you don’t have strong accounting of true total cost of ownership, then you’ll make the wrong decision which is to go after market share. You’ll churn your vehicles as much as possible and have terrible customer service scores, setting the wrong expectation for the customer.” Single digit rates often come with hefty add-on fees and insurance costs, he added.
One of the drivers of downward pressure on rental pricing is flattening customer volume and rental market operations with more fleet vehicles than last year and rental industry demand, Wallschlaeger said.
“We have seen rental pricing remain elevated over pre-pandemic levels but lower than 2023.
“There was considerably less fleet in the industry in 2023 and with increased fleet acquisition costs, inflation and this lack of supply there were much higher rental rate values. Pricing has dropped in 2024 but is still higher than pre-pandemic.”
Competitors seem to be willing to drop price to prop up usage, at the risk of lowering overall market rental rate values, Wallschlaeger said. “We are holding price to maintain a higher revenue per day/revenue per unit. Most successful operators know that share of market is not what pays the bills.”
However, business and leisure travel demand has remained steady in 2024, and Midwestern Wheels has gained a higher percentage of leisure customers in its client mix, Wallschlaeger said.
“Exiting the pandemic, the market had a car shortage, increased demand resulting in higher prices. Now, supply is greater in the market and demand continues to be robust. Pricing is higher than during the pandemic, but it is coming down. Our competitors have more fleet than last year. In the past we were absorbing customer demand they couldn’t fulfill. Our market volume is flattening out and decreasing.”
Profit, Revenue Performance Heading Up
Midway Car Rental has reported the best revenue and profit picture since 2021 in its 52-year history, Kolodziej said. “We focused on service, technology, and marketing to get our name out there. We created new services at LAX, such as a true counter bypass program, prioritizing service and brand reputation via social media and internet reviews. We focused on creating meaningful partnerships with our accounts. A big focus of ours is to earn customer loyalty and retention. All these efforts have contributed to 500% post-pandemic growth.”
At Fox/Europcar, rates are showing growth but still lagging inflation, Hemmert said. More people are traveling, but rental companies overall are at either 2019 revenue levels or below.
“People are finding alternatives like Uber and Lyft which have an unbelievable impact on the rental car industry. Fees and taxes are aggressive and have pushed up the price of a car rental.” He added that hotels that once provided free parking for guests are now charging to park, which drives more people to use taxis and rideshare.
“At some point, rental car companies will have to address Uber and Lyft competitively. That segment is growing, car rental is not.”
Often, the price for a day or night’s parking exceeds the cost of the rental rate, Hemmert said. “$40 a day at a Westin near LAX to park is more than the base rate of some rental cars. The additional taxes, fees, and insurance are now 40%-50% of renting a car.
Fathi reported 80%-90% improvement in company revenues compared to 2023.
“One of the things that helped us was hurricanes, which drove more business to the Midwest region.
“2021 and 2022 were strong when we had the best year of our car rental and wholesale vehicle businesses. Customers were coming back from lockdowns, there was an inventory shortage, and people were waiting months for an ordered new car, so they had to rent a car. It was an excellent year. This year, Q3 and Q4 have been/are excellent.”
Wallschlaeger said Q4 2023 was a stronger quarter than historically. Q4 2024 is shaping up to be a mixed bag. “Q4 2023 was about a 5% decrease from 2022 after the revenge, post pandemic, leisure travel from the 2022 holiday season,” he said. “Q4 performance the past three years has been exceptionally strong showing us that people are still prioritizing spending money on travel.”
John Dill, director of operations for Next Car/Priceless Car Rental, said operating costs of rental vehicles and financing have increased while demand normalized during the past year.
Photo: Next Car/Priceless Car Rental
Dill summed up the state of revenue as the post-COVID “heyday” of inflated rental rates and demand giving way to the more normalized “COVID is gone” period of regular traditional business seasons.
“There are fewer customers in certain markets, but the real change we’re seeing is they are keeping a vehicle longer but spending less money on the transaction. They are renting a compact now instead of a full-size vehicle like before. The average length of rental just after COVID was much higher than before but is now also declining, Dill said.
The operating costs of rental vehicles and financing have increased while demand normalized during the past year, Dill said.
“The industry is figuring out how to be as efficient or more efficient with the business we do have. In the used market, we are feeling the effects of those vehicles not being leased in 2020 and 2021. Then we had supply chain problems and chip shortages. There are many cars that were not built.”
Dill cited “two depressions” in the car purchasing market: The depression of millions of vehicles never built and the depression of those off-lease vehicles not in the market.
“That means the used value of vehicles will remain high. The good news is those values will remain high for a longer period. If you need a car, you must pay up for it, but you get to have more equity in that vehicle where you didn’t have that option before.”
“The cheaper vehicles of 2019 are not coming back and the return they were getting in honeymoon period is not coming back either. Until you have a tipping point of all operators in the market understanding that there will still be a shortage of available used cars,” Dill said. “OEMs are offering more incentives because they are not moving cars fast enough. That will cause even more uncertainty in the market. Fleet buyers won’t have the confidence they used to in making purchasing and selling decisions because we are still in a period of flux.”