The Car Rental Industry in the USA After COVID-19

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Table of Contents

Introduction
Aims and Objectives
Literature Review
Methodology
Conclusion
Reference List

Introduction

The pandemic of the COVID-19 continues to have substantial influence on human life, primarily, on the spheres of it that are related to financial issues and the sector of service. Car rent apparently is among the components of the latter that have experienced the most substantial depression, notably, due to the dramatic decrease in the mobility as well as paying capacity of the population. The purpose of the paper, therefore, is to identify the degree to which the pandemic affected this area.

The latter is expected to allow for both a broader perspective on the particular sphere and an anticipation of the further tendencies in the global economy through the given example. The research questions are what threats the pandemic bears for the industry and what new opportunities, if any, it can provide. It is worth noting that, notwithstanding the popularity of car rental services, the investigation on the issue is scarce, which actually determines the novelty of the paper.

Aims and Objectives

To critically examine the influence of the COVID-19 pandemic on the car rental industry in the USA on the example of three biggest companies that operate in this sphere.
To identify both threats and opportunities for car rental businesses that result from the pandemic-related change in the economy.
To analyze the ways in which companies are trying to overcome the crisis.

Literature Review

Established Car Rentals Market Positions

The car rental market is evolving essentially in parallel with the development of an urban lifestyle. It, in turn, has become more prevalent throughout the 21st century (More & Rakshit, 2020). In fact, the life in a modern city is possible to present graphically as an increasingly complex system of transport links that need constant adjustment to the ever-growing pressure (Vetrivel, 2020). Before the pandemic, it had adapted successfully for decades, responding with broader roads, innovative vehicles, new materials, and other to the constant additions to the population and, consequently, traffic intensity.

Although car rent as a phenomenon is a relatively recent invention, it gained substantial popularity rapidly due to the never-ending intensification of movement. Another reason apparently is development of tourism, which, in turn, results from the persisting globalization (Trunina et al., 2020; Zhang & Chiu, 2020). Nevertheless, it would be incorrect to associate this area solely with the entertainment sector; it is a business that has a confident segment of users in the particular market environment (Gierczak-Korzeniowska, 2020). The specialties of the latter are flexibility and high rivalry, due to which the firms never cease to improve the availability of their services to remain competitive. In particular, digital technologies have simplified the renting process considerably (Nasr et al., 2020). Overall, the sphere under review is worth mentioning in the list of the most promising areas of the pre-pandemic epoch.

The Economic Impact of the Pandemic

The outbreak of COVID-19 caused a considerable restructuration of life across the world, including the United States. The most apparent consequences are a sharp decline in contacts between persons during the lockdown period, reformatting businesses into online and reductions in many areas of the usual urban life (Buck et al., 2020). Economic experts predict further drops in financial stability, which can retard returning to the normal phase of the economic flow (International Monetary Fund, 2021). These tendencies are especially strong in the spheres that do not receive any support from the government.

The area under review is among the latter, due to which it is currently in a crisis. Notably, although the Coronavirus Aid set aside two trillion dollars to support businesses, rental car companies received nothing (Naughton, 2020). Probably, their activity was seen not only as unprofitable for immediate support, but also as unnecessary in terms of permanent public demand. It is worth noting, however, that the crisis is not exclusively of financial origin.

Specific changes in the life of society entailed inevitable economic transformations, jeopardizing the travel and tourism sector. The researchers note that the difficulty of observing economic shocks during the pandemic is associated with the inability to assess the shock inflicted on the system at a time (Sharma and Nicolau, 2020). The reason is that economic transformations have a ramified and gradually developing nature. Therefore, in order to be able to assess the real economic prospects of a particular company, traditional studies examine its market potential (Olivieira et al., 2017). Similar work is done in this study; specifically, it compares the data on the current market statuses of three companies: Hertz, Avis, and Enterprise.

In general, the car rental market suffered crushing losses throughout the pandemic. In the process of economic shocks, financial volatility increased, that is, stock market flexibility associated with its unpredictable changes and corresponding fluctuations (Yang and Jing, 2021). The ratings also dropped, which indicates a general decline in the profitability and solvency of the companies (‘Covid-19 impact’, 2020). In addition, this marks the instability of their positions in the market and the decline of their market value.

Financial Loss Mitigation Strategies

It would be relevant to note that the crisis was not the immediate response to the pandemic. Initially, the rental market struggled with the economic pressure by raising prices (Blanco, 2021; Sturgis, 2020). The Hertz company, in particular, faced strong criticism from customers for inadequately inflating the cost of their machines. Subsequently, realizing the disadvantage of such a strategy, Hertz began to lay off their employees and distribute rental cars. That did not help; in May 2020, the company could not stand the economic instability and declared itself bankrupt (Ferris, 2020). The researchers, however, note that the bankruptcy was announced somewhat prematurely, as the business distributed several million dollars among its executives (Eisenstein, 2021). Thus, even the largest companies in the given economic area were under the threat of extinction.

One of the ways for car rental businesses to maintain their position in the market is to minimize the expenditures, for instance by reducing the amount of workers. In fact, a large number of employees of such companies lost their jobs during the pandemic, which made it possible to level the financial situation temporarily (‘Complete Clean Pledge’, 2021). In particular, the National Car Service Association, which is a compendium of all companies known in this business, laid off at least a third of its staff.

An essential point to consider is the understatement of the fleet, that is, the cars used for lease by the company. In total, all car rental businesses in the United States have sold more than 770,000 cars, which is more than a third of all cars used in this area (Silver, 2021, para. 3). This strategy has proven to be particularly effective for Avis, which is the oldest company on the market, known as Saunders back in 1906. Lynch & Torbati (2021) point out the record high quotes for Avis shares in May 2021. This indicates the high efficiency of such a move for the company as an official representative of the financial market.

Currently, the main problem that is complicating the comfortable use of the rental service is the lack of cars. It is possible to link to the increased mistrust and fears about the use of public transport. Due to the need to give the client confidence in the antiviral safety of the car, additional time and resources are invested in processing the vehicle before transferring it to another user (Dubin, 2021). Maintaining cleanliness standards is a condition and proof of customer care as approved by Enterprise representatives (‘Complete clean pledge’, 2021). Avis claims to train its employees in such a way that the client is provided with the cleanest and safest car possible. Along with the dramatically reduced amount of available vehicles, this can lead to unwanted outcomes such as excessive waiting times, for which Hertz actually was often criticized (Martin, 2021). Given that companies also are bound to inflate prices to compensate for additional losses, car rent risks becoming an unnecessary luxury, which bears a serious threat for the industry.

Other Threats for Car Rental Business

An alternative way to survive lies in seeking to attract more customers when the competitors do. Certain companies try to enable this by underestimating rental costs, sometimes even by half (Elliott, 2020). There is a possibility, however, that the demand for car rent will increase depending on the season (Chothani & Tamminaina, 2021). For instance, in the summer, prices may show an upward trend as the interest in local tourism rises in the country (Glusac, 2021). In addition, car rental businesses expect to take a share of customers from air companies, the use of which may seem unreasonable and excessively costly in the context of local tourism (Thams et al., 2020). There is a chance not solely for continuing performance, therefore, but hypothetically for development as well.

Nevertheless, it would be incorrect to consider the prospects broad. The decline in the overall paying capacity of the population created new rivals of car rental companies (Fram, 2021; ‘What markets show’, 2021). Specifically, the businesses that opt for car-sharing strategies pose a serious threat to the industry of renting, offering a more financially profitable way of traveling (Nhamo et al., 2020). In addition, despite the fact that companies strive to ensure the maximum safety of their machines, part of the public remains uncertain about the antiviral measures and consequently prefer not to use shared vehicles.

Methodology

The data are collected from topic-specific sources, both primary and secondary, among which are business reports, scholarly articles, news outlets, and other. The analysis utilizes qualitative as well as quantitative methods to enable a maximally broad perspective on the issue. Specifically, the former allow for describing the pandemic-related tendencies in the car rental industry in the United States, while the latter provide statistical data, hence better demonstrativeness.

Conclusion

The facts and observations that the works considered show the dramatic decline in the effectiveness of the performance of American car rental businesses. Overall, the situation in the market would be the most reasonable to characterize as extremely unstable, as the industry apparently has experienced significant economic losses. However, in the process of investigation, strategies were offered to overcome the crisis and provide improved customer service.

Reference List

‘Baby, you can’t drive my car: The pandemic has upended America’s rental-car market’ (2021) The Economist .

Blanco, S. (2021) High rental car prices expected to last until 2022, at least.

Buck, R. et al. (eds) (2020) Perspectives on retail and consumer goods. McKinsey & Company

Chothani, A., and Tamminaina, P. (2021) ‘Car rental industry’s credit risk: a bouncy ride during the pandemic’, S&P Global Market Intelligence.

‘Complete clean pledge’ (2021).

‘Covid-19 impact on the US car rental industry’ (2020).

Dubin, A. (2021) ‘Is it safe to rent a car? Here’s what medical and cleaning experts have to say’, Insider.

Eisenstein, P. (2021) ‘Just months after bankruptcy, Hertz says it will buy 100,000 Teslas for new electric fleet’, NBC News.

Elliott, C. (2020) ‘Car rentals after the pandemic: This is what you need to know’, Forbes.

Ferris, R. (2020) ‘Why Hertz landed in bankruptcy court when its rivals didn’t’, CNBC .

Fram, M. (2021) ‘An auto rental shortage sparked a boom in peer-to-peer car-sharing. Entrepreneurs are hopping on the trend’ CNBC.

Gierczak-Korzeniowska, B. (2020) ‘Tourist and business models in the mobility of customers using car rental services’, Geography and Tourism, 8(2), pp. 29-39. Web.

Glusac, E. (2021) ‘How to deal with the rental car crunch’, The New York Times.

The International Monetary Fund (2021) ‘Transcript of October 2021 global financial stability press briefing’.

Lynch, D. J., and Torbati, Y. (2021) ‘How the COVID pandemic led to a rental car crisis just as Americans are ready to bust loose’, The Seattle Times.

Martin, H. (2021) ‘Why renting a car will be a pain until at least 2022’, Los Angeles Times.

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Naughton, N. (2020) ‘Rental-car industry gets crushed by coronavirus’, The Wall Street Journal.

Nasr, O. A., Miladi, M. N., and Ahmed, M. H. (2020) ‘Car rental and tracking web-based system using GPS’, International Journal of Information System and Computer Science, 63-70.

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Oliviera, B. B., Carravilla, M. A., and Olivieira, J. F. (2017) ‘Fleet and revenue management in car rental companies: A literature review and an integrated conceptual framework’, Omega, 71, pp. 11-26.

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Silver, S. (2021) ‘The great rental car shortage of summer 2021 is coming’The National Interest.

Sturgis, S. (2021) ‘Rental car prices skyrocket as the pandemic causes supply shortages’, The Philadelphia Inquirer.

Thams, A., et al. (2020) ‘An initial assessment of economic impacts and operational challenges for the tourism & hospitality industry due to COVID-19’, IUBH Discussion Papers – Tourismus & Hospitality, 2, pp. 3-16.

Trunina, I. M., et al. (2020) ‘Globalization impact on the world travel market development’ SHS Web of Conferences 73, 01029. Web.

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Yang, L., and Jing, Y. G. (2021) ‘Optimal ordering strategy for car rental enterprises with shared renting capacity’, ICMSS 2021: 2021 the 5th International Conference on Management Engineering, Software Engineering and Service Sciences, pp. 80-84.

Zhang, W., and Chiu, Yi-B. (2020) ‘Globalization, country risks, and trade in tourism services: Evidence from China’, Sustainability, 12, pp. 5868-5894.

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