The cost of renting a car in Canada rose nearly 32% in 2021. A handful of startups are stepping up to challenge an old business model — from Tesla’s curious car sharing to a new way for people to rent their own cars.
When the pandemic hit British Columbia in 2020, air passenger traffic through Vancouver International Airport fell by nearly three-quarters.
Across Canada, tourism is down more than 50 percent. In British Columbia, the country’s largest tourism sector has collapsed.
As a recent Statistics Canada report explained this week, “International and commercial travel has virtually stopped in Canada.”
Among the hardest hit: car rental companies.
Of the 22,000 workers employed by car rental companies in Canada in 2019, more than 3,000 were in British Columbia, thousands of employees lost their jobs as the market bottom collapsed — and as a result, prices fell, according to a recent analysis by the national statistics agency.
Two years later, delays in the global supply chain for semiconductor chips mean that many car rental companies are still struggling to replenish their fleets with new vehicles.
As a result, in 2021, car rental prices rose by nearly 32 percent across Canada even as the tourism industry began to recover.
The supply of cars is so limited that rental companies in the United States have moved from supplying the used car market to buying used cars to boost their fleets.
With car rental prices on the rise, a few startups are now challenging the established car rental industries in the same way that companies like Airbnb have changed the way many people travel.
Most importantly, those who have grown up to take on companies like Budget Car Rental and Enterprise Rent-A-Car are looking to make an impact in a transportation sector that produces nearly a quarter of all greenhouse gas emissions in Canada.
“Disruption in the auto market could create lasting changes,” says Statistics Canada.
Do you want to drive a Tesla?
When Zerocar launched in January 2021, COVID-19 was raging with what was, at the time, more cases across Canada than at any time during the pandemic.
As co-founder Raymond Reed said, “A fun time to start a company.”
By offering only white Tesla cars, the idea was to target a group of discerning customers.
But tourism, and 60 percent of the rental car business that comes with it, has continued to falter. That’s when Zerocar CEO, Jason Janney, said they saw an opportunity.
Locals have been avoiding public transportation, instead turning to car sharing programs like Evo to run errands or get around town.
So Gagné and Reid decided to adjust their prices.
“I think we were afraid of what would happen with the decline in tourism,” Ghani said.
A year after launching the Richmond office rental car program, the company then went on to serve local residents with a unique car-sharing program.
After its launch in January this year, customers can now book a Tesla with Zerocar by the hour instead of by the day. Currently, it is geographically limited: the car-sharing fleet is concentrated in Vancouver, with smaller areas located in neighborhoods such as Kitsilano, Fall Harbor, Yaletown, and other parts of downtown.
“We’re the first electric vehicle stake in Canada and I think North America as well. We’re definitely the first to focus on Tesla,” Gagné said.
Focusing on local customers has allowed the company to grow throughout the pandemic. With traditional car rental companies raising their prices due to car shortages, the CEO says Tesla has found a way to overcome a global shortage of chips.
This has allowed Zerocar to become increasingly competitive with major rental companies such as Hertz and Enterprise – offering daily rentals as low as $85 during the peak summer season.
Part of what gives companies like Zerocar an advantage, Gagné says, is towing a high-end electric vehicle.
In Vancouver, Hertz offers the Hyundai Kona and Volvo XC40 but has yet to integrate the 100,000 Tesla Model 3 and 65,000 Polestar electric vehicles it said it would buy over the past eight months.
This puts companies like Zerocar ahead of the curve.
Part of the company’s mandate, Gagné says, is to allay people’s anxiety about range and provide a window into what it will be like for a car owner to embrace the new technology in their daily lives.
“A lot of people want to test how the electric car works, how it charges, and how the road trip goes,” he said. “We certainly help sell a lot of vehicles by just leasing.”
“The industry is changing.”
In Vancouver alone, he says, meeting the county’s goal of converting all new car sales to zero-emissions models by 2035 will require at least 1,500 electric vehicles as part of car-sharing programs. The company is now in talks with other municipalities, such as Surrey, Burnaby and Whistler, to expand its fleet.
“We will continue to expand throughout different Vancouver and then go to other cities,” Gagné said.
Car share for travel
While some car-sharing companies, like Evo Car Share in Metro Vancouver and Victoria, focus on one-way trips across the city, others are looking to fill the sagging car rental industry with multi-day travel in mind.
That includes companies like Turo, which first launched in Canada in 2016 and now has more than 1.2 million vehicles registered in 350 cities across the country.
Instead of a fleet of cars, like the Evo or Zerocar, Turo acts as a sort of Airbnb for the car-sharing world, allowing members to rent out their personal cars or borrow peer-to-peer cars.
The environmental benefits can be significant. Studies show that most car owners leave their cars idle 95 percent of the time.
Turo is taking advantage of this downtime by offering vehicle owners an opportunity to rent out their own cars – in the process, they earn an average of $800 per month. In popular tourist destinations like Vancouver, the average monthly income for a car owner rises to $1,100, says Cedric Mathew, president of Turo Canada.
There are 23 million cars in Canada. “These cars are pretty much underutilized,” Matteo said. “They sit idle in a garage, in a driveway, costing their owners money — devaluing them. The idea is to really unleash that extra capacity…so there are fewer cars on the road. “
Like the Zerocar, the Turo launched in British Columbia during the pandemic, in June 2020. Unlike just Tesla, the Turo aims to have a large variety of vehicles, at cost ranging from $30 a day all the way to more than $200 a day Up – end models.
“Anything from a really affordable 2016 Honda Civic to, you know, a 2022 Tesla Model X,” Matteo said.
Anyone looking for a rental car can join the app for free and browse by vehicle type and location before settling on what they want.
To date, the most popular cities in British Columbia are Vancouver, North Vancouver, West Vancouver, Richmond, Surrey and Burnaby. But in many cases, Mathieu says, “hosts” are willing to drop off their car to a hotel or location convenient for the “guest.”
Turo charges a 30 percent fee, but nevertheless, the company provides insurance through the British Columbia Insurance Company. That way, if someone renting a car has an accident, the car is fully covered and the damage won’t require the landlord to pay a deductible or increase personal insurance premiums.
The company’s model focuses on travel, but that does not mean that it is only used by international and domestic visitors. Matthew says many locals rent vehicles to get out of town for a few days on short road trips or to local destinations like Whistler.
He says most people who use the service rent it for three to four days at a time.
But joining the app also gives members access to cities around the world that, for now, span across the US, Canada and the UK
All this means tremendous growth for the company at a time when the car rental industry is in decline. Since Turo began operating in British Columbia in 2020, nearly 1,600 vehicles have been registered across the province.
As of May 5, bookings in British Columbia were up more than 1,000 percent year over year. The province is also Canada’s most popular market for electric vehicles, and 400 electric vehicles registered with Turo have seen bookings surge 100 percent since last year.
Best vehicle model? The Tesla Model 3 might not be surprising in a county with the highest rate of EV sales in North America.
“Demand has increased significantly over the past few weeks and months,” Matteo said. “Finding a rental car is very expensive now if you are able to find one at all.”
From Matthew’s perspective, Turo paves the way for a future where individual cars are used by more people, so that once automated vehicles become a reality, cities will no longer suffer from traffic jams.
Will traditional car rental companies make their own hub?
Like any move to “disrupt” an established industry, jobs are at stake. And while hundreds of Canadian car rentals have had to close their doors since the start of the pandemic, major companies are betting on their electric future.
However, besides the pandemic, there are a number of challenges facing the car rental industry, according to Craig Hirota, vice president of government relations and member services at Associated Canadian Car Rental Operators.
Much of it, he says, will depend on whether or not the supply of vehicles will return to what it was before.
“Our industry has always differed in how plane seats or hotel rooms are booked/paid because, with rare exceptions, there have always been enough cars,” Hirota said.
He said car prices “have gone up dramatically” with the advent of new safety technology, hybrid or electric propulsion, and the wide range of electronics that go into the modern auto industry.
Hirota says the rise in car rental costs will likely continue based on the higher cost of buying and repairing a new generation of cars.
He points to an Avis Budget earnings call on May 3 where CEO Brian Choi explained how inflation increases costs for new vehicles, labor, real estate, parts and insurance.
Despite that, Choi said, car rentals are good value.
Where else can you get a $20,000 asset simply delivered to you for unsupervised use nationwide whenever you need it for less than the cost of renting a tuxedo?
“Every booking we’ve received is proof that our customers feel the same.”
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