Holiday car hire: sharing economy unprofitable for peer-to-peer groups

Holiday makers looking to rent a car in the US are in for a sticker shock. That is assuming they can find a vehicle at all. Horror stories abound. Many car lots are empty. In Hawaii, some tourists have even been leasing U-haul vans.

The problem? The likes of Hertz Global and Avis Budget sold off hundreds of thousands of vehicles during the pandemic when demand collapsed and they were making big losses. Now, they are struggling to replenish fleets as travel rebounds. The chip shortage has forced carmakers to reduce production. The spread of Omicron has added to demand, with travellers opting to drive rather than fly.

The average daily car rental rate is up about 30 per cent compared with a year ago. It is 42 per cent higher compared with their pre-pandemic levels, according to travel company Kayak.

For car rental companies, these are the good times. At Avis Budget, revenue for the first nine months of 2021 climbed by more than two-thirds. Net income topped $900m, compared with a nearly $600m loss in the prior year period. Avis Budget shares are up fivefold over the past 12 months.

Even Hertz, which only emerged from bankruptcy in June, managed to rake in over $600m in net profits in its last quarter.

The shortage of rental cars should create an opening for peer-to-peer car sharing companies. The biggest of these, Turo, filed to go public this week. This comes after rival Getaround reportedly held talks about floating via a merger with a special purpose acquisition company, or Spac.

Founded in 2010, San Francisco-based Turo offers an Airbnb-like platform that allows people to rent out personal vehicles at any price they choose. Turo takes a commission of up to a 40 per cent from each booking.

Turo’s main selling point is convenience. Users can look for cars for rent nearby and even ask owners to deliver them. Its appeal has grown during the pandemic. Sales more than tripled in the first nine months of 2021 to $330.5m.

Losses also widened. That is telling. If car sharing companies like Turo, which has been around for over a decade, cannot make money now, one wonders whether they ever will. The balance of advantage remains with Hertz and Avis — and with their larger fleets of vehicles — as the pandemic weakens its grip.

The Lex team is interested in hearing more from readers. Why are car share companies struggling to make a profit? Please tell us what you think in the comments section below.

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