Resilient Car Rental Market Amid Uneven Summer Travel Demand, Here Is All You Need To Know

Worldwide car rental market is growing slowly in the first half of 2025, reflecting the activities of travel and tourism. Even as there is stable demand growth in a few areas, other parts are experiencing an uneven recovery because of macroeconomic uncertainty and evolving travel habits.

In the U.S., inbound travel demand is off by as much as 10% and travelers in the U.S. are taking road trips at home rather than international vacations. This change in customer attitude has impacted the demand for car rentals, and in doing so, a new market has been created which is robust and adaptable. Demand was at different levels in different parts of the world during Q2 2025 and the situation impacted the global car rental market.

Despite this negative picture, the rental car market is still an important part of the greater tourism system, offering tourists the possibility to enjoy more mobility and comfort during their trips. CarTrawler’s Q2 research highlights how car rental is evolving, as new opportunities take shape from the rise of electric vehicles (EVs) and the rapid adoption of digital payments.

Impact of Domestic Travel on US Car Rental Demand

With international travel slowing down, Americans are looking for domestic travel options, and road trips in particular. This change is reconfiguring demand for car rentals in the U.S. Although there’s been a decline in inbound travel, domestic road trips are still fueling the car rental market. A preference for road trips has helped keep car rental volumes relatively flat despite the softening of international arrivals.

Car rental prices in the US have also decreased, with the cost of a five-day rental in July 2025 down 8% from 12 months ago. This fare reduction is a continuation of the strategy used by the car rental firms to keep up with the demands of the travel industry. The decline could also be a result of American travelers’ hiking up domestic travel over foreign travel, where car rentals are a budget standalone expense for visiting local attractions.

Demand for a traditional rental car has softened slightly, but the road trip trend has helped underpin the car rental market in the U.S., which is relatively stable. It shows the flexibility of the car hire sector, which remains an important enabler of travel within the country.

Europe Car Rental Market Growth Led by Sun Destinations

A common characteristic of many travelers during the last year of horrible weather reports, was booking summer holidays at the 1st sight of a Winter sun beam.

The pan-European market, unlike in the United States, is showing more steady growth in demand for car rentals, especially in countries visited by sun-seeking tourists. European travelers have returned to sun destination including Spain, Italy and Greece, which has ramped up demand in tourism-based car rentals.

The growing phenomenon of sun tourism is driving a constant demand for rental cars, mainly in the south of Europe. Although the car rental market is benefiting from both heightened demand for travel to these sunny destinations (of which, in Europe, average rental price is up 1% year-on-year) and travelers’ preference to have the freedom to explore the area surrounding their base. Once you have your own set of wheels, you have the freedom to visit more remote sites, discover hidden treasures and make the most of your travels.

This sustained rise in the European rental car market underscores a major trend in tourism: travelers increasingly value flexibility and ease. Car rentals offer important support to those seeking new experiences beyond those of typical tourist venues, and lead to various forms of tourism development for the region and local economy.

Continued Need for EV Rentals

There’s more, one of the prominent trends in the world car rental market, it’s not an improved demand for electric vehicles (EVs). North America and Europe are both witnessing increased demand for EV rentals as consumers increasingly turn to greener modes of travel. The rise of the EV in car rentals is also in line with the larger move toward sustainable travel, a phenomenon that is growing ever more relevant to today’s travelers.

In North America, EVs account for 5% of all car rental, with a modest increase from Q1 2025. This increase being due to the increasing consciousness about environmental sustainability and the usage of clean energy vehicles. Tesla still owns the EV rental market, with 59% of all EV and hybrid rentals in North America, but the picture of the playerbase in Europe, including manufacturers like Toyota, Kia, and Polestar, is a bit more diverse now:

The increase of EVs through rental car companies could be an ideal niche market for the tourism industry in green destinations. As travelers increasingly are choosing to be eco-friendly travelers and seek green travel solutions, car rental companies who provide EVs are more prepared to meet that demand — and to generate ancillary revenue options and tap into a new customer base that cares about sustainability.

Payment Innovations and Consumer Behaviour

The other driving force in the car rental space will be the alternative payment methods, with an increase in the usage of offerings like Apple Pay, Google Pay, and Buy Now, Pay Later (BNPL) platforms. Europe Digital wallet usage is increasing and already 4.5% of all car rental in the Q2 2025 transactions being done through Apple Pay >Mobile wallets Transactions. This is indicative of a sea change in the way people want to travel, and a growing opportunity for consumers to have more payment flexibility and convenience, especially when it comes to travel in the post-pandemic world.

The rise of BNPL apps, like Klarna, is also helping reshape the rental car industry. These payment methods allow travelers to reserve rentals without paying upfront, providing an easier way for cost-conscious travelers to rent a car.

Everyone in the travel sector should take note of these payment trends. Travel monopolies able to cater to this new consumerism, by providing travelers with flexible digital payment options, may have the upperhand in capturing the increasing audience that are increasingly placing a premium on convenience and immediacy in their travel bookings.

What’s Next for the Car Rental Market and the Tourism Industry

With the ongoing unpredictability in global travel, the car rental sector shines with a glimmer of hope. In fact, domestic travel trends, electric vehicle adoption and changing payment preferences are driving new growth as the overall economy struggles. With travellers increasingly on the lookout for ease, personalisation and mobility, car rental remains a mainstay of the tourism ecosystem.

Car rental providers that adopt this paradigm shift will find themselves in a good position to cater to the increased need for mobility in the post-corona world. From green cars to electronic payment systems – the car hire industry is taking shape to match the priorities of a new wave of consumers. For an industry that is beginning to recover from the downturn in travel, these adaptations will be key in making sure the car rental market continues to flourish, offering invaluable services that enhance the travel experience.

Conclusion: A Dynamic, Robust Sector

In conclusion, although the car rental sector continues to be an important part of the overall tourism market and provides an important flexible service to the customer. And as trends in consumer behaviour change, so too must the car hire companies, which must adapt and respond in the coming years by taking advantage of trends like sustainability, digital payments and domestic travel to stay relevant. The convergence of these factors presents some very exciting growth prospects and highlights how this service will remain pivotal to the wider tourism industry.