Category: Research

What is the future of the car rental industry?

There are two major technological disruptions that will transform the car-rental industry over the next decade: fully-electric vehicles and self-driving (autonomous) technology.

These two technology advancements will cause prices to drop precipitously, supply will increase and there will be even more convenience for customers.

Electric cars

Electric cars are dramatically less-expensive to operate than cars powered by a gasoline-fed internal combustion engine. It’s estimated that by 2025, the cost to own a fully-electric vehicle will be the same as a gasoline-powered vehicle, and it will continue to drop.

This is important because the cost to operate an all-electric vehicle is significantly less, perhaps even 80% less than the cost of operating a traditional car.

While the cost of electricity for an all-electric vehicle is 30% – 50% less than the cost of gasoline, that’s just the tip of the iceberg.

The true savings for electric vehicles is the overall cost of operations, maintenance and depreciation. Today’s gasoline-powered cars have as many as 10,000 moving parts. Electric vehicles have 20.

Tesla even claims their cars are built to run a million miles.

When electric vehicles only require 20% of the maintenance costs, and they can last a million miles instead of only a hundred thousand, the economics of running a rental fleet are completely transformed.

Autonomous Driving Technology

Self-driving car technology will have an equally large impact as electric-powered vehicles. Autonomous driving will transform the customer experience and eliminate the traditional retail costs of operating a rental-car fleet.

If you aren’t familiar with autonomous driving, there are five levels of driving automation, with level 5 being completely automated:

  1. The driving mode-specific execution by a driver assistance system of either steering or acceleration/deceleration using information about the driving environment and with the expectation that the human driver perform all remaining aspects of the dynamic driving task
  2. The driving mode-specific execution by one or more driver assistance systems of both steering and acceleration/deceleration using information about the driving environment and with the expectation that the human driver perform all remaining aspects of the dynamic driving task
  3. The driving mode-specific performance by an automated driving system of all aspects of the dynamic driving task with the expectation that the human driver will respond appropriately to a request to intervene
  4. The driving mode-specific performance by an automated driving system of all aspects of the dynamic driving task, even if a human driver does not respond appropriately to a request to intervene
  5. The full-time performance by an automated driving system of all aspects of the dynamic driving task under all roadway and environmental conditions that can be managed by a human driver

Industry experts forecast that Level 4 and 5 autonomy will reach mass market in cars around 2026. By 2035, 21 million vehicles will be sold with Level 4+ technology. (88 million vehicles are sold annually today.)

How do self-driving cars change the rental industry?

One of the largest costs of operating a car-rental fleet today is the cost of the real estate. This is the location where your rental fleet is housed and where customers go to pick up their rental cars.

However, the rise of self-driving cars will eliminate the need for rental companies to lease premium real estate. Why is that? Self-driving cars will deliver themselves to the customer’s location. Customers will no longer have to travel to a car-rental shop; they’ll simply be able to request a car meet them at their home, office, car-repair shop, or airport.

That means no more rental offices, sales counters and need for premium real estate. Rental cars will be able to be housed in low-cost areas outside of dense urban centers. These facilities will no longer be customer facing, and they’ll become purely fleet maintenance and management locations.

Cost Decreases

What happens when the cost of car maintenance decreases 80% and the need for expensive real estate is eliminated? The costs to operate a rental fleet drop dramatically. As a result, the cost for end users to rent a car will also drop. Expect a standard rental car to be priced at $20-$25/day.

Additionally, renters will no longer bear the responsibility for paying for gas fill ups or expensive rental insurance. (When renters don’t drive the car, they won’t bear liability.)

Operators Grow

Because the costs and barriers to entry for owning and operating a rental fleet will decrease, we’ll also see an explosion in the number of rental-car companies. This won’t just be Uber and Lyft; nor will it be exclusively manufacturers like BMW or GM; owning a rental-car company will become the easiest way to generate passive income.

Just like owning a rental home or vacation property today is a relatively straight-forward path for creating additional revenue for yourself, rental-car fleets will operate in much of the same manner.

Expect to see rental-car companies catering to short in-town trips, long road trips for families, furniture deliveries, long-haul equipment transportation and much more. (Even for in-town driving, some renters will prefer transportation dedicated to them that is always available over services like Uber that require wait times for pick up.)

What’s Still Needed?

While the future is clear; the in-between details are murky. There are still details that need to be fleshed out to enable a driverless future for the rental-car industry.

  • API Access. How will rental-fleet operators track and manage their vehicles when vehicles are not consistently inspected by a person? Every car will need open APIs to let rental-fleet operators integrate vehicle telematics and diagnostics with their fleet management tools.
  • Last-yard management. If a renter requests a vehicle at an apartment or shopping center, how will the vehicle find the renter within that area? Will there be designated pick up locations? Beacons that direct the car and the renter? Additionally, will renters be able to take control of vehicles for tasks such as backing up a car to a garage?

The Electric Future

The future for car-rental industry looks incredibly promising for both consumers and entrepreneurs. With the costs of owning and operating decreasing dramatically over the next decade, we’ll see more options and better value for end-customers. The rental-car industry isn’t going to disappear, but it will be very different by 2030.

 

The best new and used trucks to buy

In our last blog post, we analyzed the true cost to own a new or used car. In this post, we’re going to switch to pickup trucks and compare the costs to own four of the most popular pickup trucks.

Just as with the most popular sedans, the cost advantages of owning a used truck over a new truck are not as obvious as one might think.

Models analyzed

For this study, we examined pricing data from 50,000 trucks listed for sale. The models included in our study are:

  • Chevrolet Silverado 1500
  • Ford F150
  • RAM 1500
  • Toyota Tundra

Measuring the value and cost of owning a truck

To measure the true cost of ownership, we take several costs into account:

  • Depreciation
  • Maintenance and Repair Work
  • Taxes

For this post, we analyzed two different model years to calculate these amounts:

  • 2017 models (new)
  • 2013 models (used)

First-Year Depreciation

Let’s start by examining the first-year depreciation for these models.

  • 2017: $4,040 (10.15%)
  • 2013: $2,039.88 (7.93%)

The depreciation in the first year of owning a new truck is $4,000, while with a 2013 model, you’re only experiencing $2,000 in depreciation. Right off the bat, We’re saving 50% – nearly $2,000 – just from owning a used truck.

As the chart below shows, first-year depreciation on RAM and Toyota model is significantly low. Especially, for the 2013 Toyota Tundras, where first-year depreciation is only $1,000.

Five-Year Depreciation

Next, let’s examine the depreciation experienced when owning a vehicle for five years.

  • 2017: $15,387(39%)
  • 2013: $10,670 (40.75%)

Here, we see that the additional depreciation cost of buying a new truck is $4,717. However, one thing that is interesting is that the overall percentage of depreciation is higher in 2013 models versus new trucks. (Used trucks continue to lose the same percentage of value as new trucks.) Perhaps, this is due to maintenance or taxes.

Again, we see that new RAM and Toyota trucks hold their value the best. However, what is interesting is that 2013 Chevrolet Silverados hold their value the best among used trucks. A new Silverado depreciates more than any other vehicle, but after a few years, a used Silverado’s depreciation actually levels out, making it the cheapest used truck to own in terms of depreciation.

Total Five-Year Cost to Own

Next, let’s examine the total cost to own a truck over five years. This calculation includes all of the major costs an owner would experience over the course of owning a vehicle for five years – depreciation, maintenance and repairs.

  • 2017: $20,289
  • 2013: $18,011

When we add in costs for maintenance and repairs, we see the savings gap narrow, and we’re only saving $2,277 over five years. While that is a good chunk of change, on a monthly basis, it results in savings of only $37 per month.

When looking at specific models, it’s quite interesting to note that only the Chevrolet Silverado has a significant cost savings in buying a used vehicle. RAM 1500, Ford F150 and Toyota Tundra all offer similar cost structures over 5 years, regardless of buying a new or used truck.

What are the best trucks to buy?

Based on this data and analysis, there are clearly several leaders in the new and used truck categories.

Best new trucks:

  1. RAM 1500 – with the lowest cost of total ownership, the RAM 1500 tops our list of best value among new trucks.
  2. Toyota Tundra – just trailing the RAM 1500, the Tundra is also a very efficient truck to buy. It ranks at the top of our list in both new and used truck categories.

Best used truck:

Chevrolet Silverado 1500. While the Silverado ranks as the worst new truck to buy, by the time a five-year old Silverado has made it into your hands, it has the lowest total cost of ownership of any truck, primarily due to its very low depreciation rate.

 

 

The true cost of owning a new car vs a used car

Is it more cost-effective to buy a new car or a used car? Whether you’re buying a personal car or investing in a fleet of vehicles for your business, it’s important to understand the true costs of owning a car.

To better understand the true costs of owning new and used cars, we examined publicly-available pricing data on more than 100,000 cars for sale. We also analyzed costs for taxes, maintenance and repair.

The results were astonishing. We expected it would be clear that owning a used car is significantly less expensive than owning a new car. However, that often isn’t true.

Why buy a new car?

There are many reasons to buy a new car:

  • Minimal maintenance time required
  • Less risk of unexpected repair costs and time
  • More flexible loan rates and terms (up to 84 months)

The drawback of purchasing a new car? Everyone has heard “that a new car loses 20% of its value when you drive it off the lot.”

While that may be partially true, our research shows that it doesn’t tell the entire story.

The value of purchasing a used car.

If a new car has so many things going for it, why consider a used car? It’s simple: value.

It’s assumed that purchasing a used car is significantly less expensive than buying a new car. A five-year old car will typically sell for half the price of a new car. That’s a good deal, right?

But, what are the disadvantages of a used car? You also need to consider that a used car will require more maintenance and repair, costing both time and money.

Used cars also have a history. This can include wrecks and repairs that could cause future headaches.

Finally, a used car is exactly that – used. It doesn’t have the latest technology, it doesn’t ride as nicely, and it isn’t as fun to drive.

Measuring the value of the car

To properly measure the cost of owning a car, we need to think about a car as an asset.

The cost of owning the car isn’t necessarily the price you pay: it’s the difference in what you buy it for against what you sell it for. This is depreciation.

Additionally, other variable costs include taxes, maintenance and repairs.

Cars Analyzed

As part of our analysis on data from 100,000 car listings, we examined the most popular cars in the United States. The models analyzed include:

  • Ford Focus
  • Ford Fusion
  • Honda Accord
  • Honda Civic
  • Hyundai Elantra
  • Hyundai Sonata
  • Nissan Altima
  • Nissan Sentra
  • Toyota Camry
  • Toyota Corolla

The Analysis

We analyzed several scenarios to compare the costs of new and used cars. Primarily, we analyzed 2017 models (new cars) and 2013 models (used cars) for:

  • First-year depreciation
  • 5-year depreciation and cost of ownership

To compute depreciation, we analyzed the average costs of each vehicle based on its age. (For example, the depreciation on a 3-year old vehicle is the difference in price of a 2017 model and a 2014 model.) 

Results

First-Year Depreciation

  • 2017 new car: $4,181
  • 2013 used car: $1,675

Analysis: This is a major difference. Buying a used 2013 model saves $2,506, on average, in depreciation during the first year of ownership.

5-year Depreciation

How does depreciation change if you own your car for five years?

  • 2017 new car: $9,542
  • 2013 used car: $5,351

Analysis: If you own a car for 5 years, purchasing a four-year old 2013 model would save you more than $4,000 in depreciation!

 

5-Year Costs: Depreciation, Taxes, Repair and Maintenance

To calculate the cost of owning each vehicle for 5 years, we include additional costs such as taxes, maintenance and repairs.

For taxes, we used Georgia’s 7% ad valorem tax. (Taxes will differ by state.)

  • 2017 new car total cost: $15,050
  • 2013 used car total cost: $12,191

 

Analysis: Wait, what happened here? Now, we only have a savings of $2,859 when purchasing a 2013 used car versus a 2017 new car. How is this less than the difference in 5-year depreciation?

It’s simple: maintenance and repairs. Over five years, used cars require $1,800 more in repairs than new cars.

The end result: When controlling for depreciation, taxes, repairs and maintenance, owning a used car will typically save you $2,800 over 5 years. That’s approximately $47 per month. Is the savings worth it? That’s completely up to you. For individual consumers, the savings can often be significant. But, for business owners, the risk of having a car break down or end up in the shop can be more costly than the $47 monthly cost of owning a new car.

Which car should you buy?

Are there specific models that differ in costs? We found surprising results where owning a new car is virtually the same as a used car. Let’s examine the total 5-year costs for owning new and used cars with the most popular models on the market.

What are the most cost-effective new cars to buy? The Hyundai Elantra, Toyota Camry and Toyota Corolla all have very similar costs, regardless of buying a new or used car. These vehicles hold their values well and require minimal repairs. If you’re considering buying one of these cars, you’ll only save about $15 per month in buying a used car. Buy a new Elantra, Camry or Corolla!

The most cost-effective used car? A 4-year old Nissan Sentra will only cost $10,540 over 5 years ($175 per month). The Nissan Sentra is the most cost-effective used car to own.

What are the worst new cars to buy? Of the most popular cars, a new Ford Focus or Honda Accord are the vehicles that will cost the most to own, at approximately $18,600 over five years.

Learnings

Often times, buying a used car is not as cost-effective as once considered. While depreciation on a new car is costly compared to a used car, the maintenance and repairs on a used car are significant and offset much of the depreciation savings.

  • If you’re buying a new car, buy a Toyota. They hold their value the best and will cost the least of new cars to operate.
  • Buying used? Buy a Nissan Sentra.
  • If you’re buying a new car, you have to hold your car for several years. It is still true that the first year of a car experiences the most depreciation ($4,181, on average).
  • Buying a used car will generally save you $47 per month, with the trade-off of having to spend more time on repairs/maintenance.

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