Musings on car rental market in 2018

Jan 31, 2018

With 2018 still in the starting blocks, here are some musings on the car rental market in 2018, particularly in Europe, and what I expect will shape the sector this year.

  • Market – driven by positive macroeconomics and continued growth in the travel and tourism sector overall, including for air traffic, the European car rental market in 2018 can be realistically expected to see growth in the 2-3% range. The leisure segment is likely to be the main growth driver with leisure-oriented markets such as those in the Mediterranean basin (Spain, Greece and France + Portugal) likely to see the strongest growth rates. I see volume as the main growth driver with a plus/ minus neutral pricing environment versus 2017.
  • Product & service offering – 2018 should be the year when the car rental industry fully embraces and integrates technology into its service proposition and product offering. One of the griefs frequently raised regarding the sector is the oft-considered cumbersome process involved in renting a car, particularly compared to more recent mobility peers who have built their business model around modern technology, e.g. smartphones. Start-up and niche operators such as Silvercar in the US and Virtuo in Europe have shown the way recently and major operators will have to rise to the challenge and adapt to changing consumer expectations to stay relevant in the mind of consumers, including providing an attractive, intuitive and user-friendly experience.
  • Corporate development – further consolidation in the European car rental market should be expected. While the strategic rationale for a transaction involving two of the big 5 operators in Europe remains intact in my opinion, the most likely scenario is a continued roll-up of independent operators, either by the majors and/ or through independent operators merging. The trend of going from franchised to corporate operations can also be expected to continue. I see highest potential for corporate development/ M&A activity in the Spanish, Italian, French and Northern European markets.
  • Mobility at large – mobility will remain a hot topic throughout 2018 with autonomous vehicles and transport/ mobility as a service being buzzwords. Recently, when looking at the future mobility paradigm, the car rental sector has been considered almost an outcast with a redundant and outdated business model, poorly positioned for the future. There was a (minor) shift in attitude in the latter half of 2017 and I believe that throughout 2018 it will become clearer that car rental has a future and how it can play a role. In this regard it is important to distinguish between industry and sector drivers and performance by individual companies, i.e. it is not necessarily the leaders today who will be market leaders tomorrow.
  • Operators – Sixt can be expected to build on its strong revenue momentum both at home and abroad, notably giving credence to its US ambitions. We believe that they can realistically approach, and/ or potentially reach, 5th place in the US car rental market in 2018 while continuing to take share in Europe.

Entering 2018 the car rental industry has tailwind from both a favorable macroeconomic environment and strong growth in travel and tourism. While in recent years the sentiment surrounding the sector has been negative, I see this as largely a consequence of internal issues impacting performance at high-profile operators rather than reflecting industry weakness. Whereas mid- to long-term there is a significant amount of uncertainty with regards to what the future of mobility looks like, I do not necessarily see the sector as under more threat than other mobility related sectors and segments, assuming participants are able to leverage their strengths and adapt to a changing environment. In the meantime, short-term industry dynamics are positive, which suggest a positive outlook for 2018.

Nicolay Nedrelid is Founder & Corporate advisor at Nedrelid Corporate Advisory, an independent advisory and consulting boutique focused on the car rental industry based in Geneva, Switzerland. Feel free to reach out by e-mail or by phone on +41 79 782 4996 for a discussion.

Disclaimer: This is not investment advice and should neither be perceived nor considered as such.

Musings on car rental market in 2018

Jan 31, 2018

With 2018 still in the starting blocks, here are some musings on the car rental market in 2018, particularly in Europe, and what I expect will shape the sector this year.

  • Market – driven by positive macroeconomics and continued growth in the travel and tourism sector overall, including for air traffic, the European car rental market in 2018 can be realistically expected to see growth in the 2-3% range. The leisure segment is likely to be the main growth driver with leisure-oriented markets such as those in the Mediterranean basin (Spain, Greece and France + Portugal) likely to see the strongest growth rates. I see volume as the main growth driver with a plus/ minus neutral pricing environment versus 2017.
  • Product & service offering – 2018 should be the year when the car rental industry fully embraces and integrates technology into its service proposition and product offering. One of the griefs frequently raised regarding the sector is the oft-considered cumbersome process involved in renting a car, particularly compared to more recent mobility peers who have built their business model around modern technology, e.g. smartphones. Start-up and niche operators such as Silvercar in the US and Virtuo in Europe have shown the way recently and major operators will have to rise to the challenge and adapt to changing consumer expectations to stay relevant in the mind of consumers, including providing an attractive, intuitive and user-friendly experience.
  • Corporate development – further consolidation in the European car rental market should be expected. While the strategic rationale for a transaction involving two of the big 5 operators in Europe remains intact in my opinion, the most likely scenario is a continued roll-up of independent operators, either by the majors and/ or through independent operators merging. The trend of going from franchised to corporate operations can also be expected to continue. I see highest potential for corporate development/ M&A activity in the Spanish, Italian, French and Northern European markets.
  • Mobility at large – mobility will remain a hot topic throughout 2018 with autonomous vehicles and transport/ mobility as a service being buzzwords. Recently, when looking at the future mobility paradigm, the car rental sector has been considered almost an outcast with a redundant and outdated business model, poorly positioned for the future. There was a (minor) shift in attitude in the latter half of 2017 and I believe that throughout 2018 it will become clearer that car rental has a future and how it can play a role. In this regard it is important to distinguish between industry and sector drivers and performance by individual companies, i.e. it is not necessarily the leaders today who will be market leaders tomorrow.
  • Operators – Sixt can be expected to build on its strong revenue momentum both at home and abroad, notably giving credence to its US ambitions. We believe that they can realistically approach, and/ or potentially reach, 5th place in the US car rental market in 2018 while continuing to take share in Europe.

Entering 2018 the car rental industry has tailwind from both a favorable macroeconomic environment and strong growth in travel and tourism. While in recent years the sentiment surrounding the sector has been negative, I see this as largely a consequence of internal issues impacting performance at high-profile operators rather than reflecting industry weakness. Whereas mid- to long-term there is a significant amount of uncertainty with regards to what the future of mobility looks like, I do not necessarily see the sector as under more threat than other mobility related sectors and segments, assuming participants are able to leverage their strengths and adapt to a changing environment. In the meantime, short-term industry dynamics are positive, which suggest a positive outlook for 2018.

Nicolay Nedrelid is Founder & Corporate advisor at Nedrelid Corporate Advisory, an independent advisory and consulting boutique focused on the car rental industry based in Geneva, Switzerland. Feel free to reach out by e-mail or by phone on +41 79 782 4996 for a discussion.

Disclaimer: This is not investment advice and should neither be perceived nor considered as such.

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