Car rental firms earned windfall profits during the pandemic thanks to vehicle shortages, but earnings for this historically low-margin oligopoly have since returned to earth.

Three of the largest publicly traded rental groups — Avis Budget Group Inc., Hertz Global Holdings Inc. and Sixt SE — all swung back to losses in the seasonally weak first quarter, and their shares have performed poorly over the past year, with Hertz by far the weakest.

Demand has remained buoyant, but the costs of operating rental fleets have increased, prompting firms to turn to tech to boost efficiency and revenue, including by better detecting vehicle damage. These efforts can help increase transparency and smooth some of the biggest frictions of hiring a car, but customers should keep an eye on extra charges.

Although customers should be able to pay a bit less this summer, rising expenses are a bigger concern for rental companies. Higher wage and repair costs, interest expenses and vehicle depreciation are weighing on earnings after those companies were forced to pay top dollar for new cars during the pandemic.

Technology can help offset some of these financial pressures, including by allowing customers to skip the counter, choose a vehicle and exit the facility with a just few taps on their phones, with a digital rental agreement instead of a paper one.

The attractions for rental providers are obvious: As well as improved labor productivity, customers are more motivated to sign up for their loyalty programs.

For clients, skipping the queue removes a particularly cruel form of torture — delaying the start of your vacation or business trip just to submit a few basic pieces of information and have documents checked, while an agent attempts to upsell extras like insurance.

“If somebody's standing in front of a counter for a minute, it's going to feel like an hour, right? So we've really got to value the customer's time,” Hertz’s Chief Executive Officer Gil West told analysts in April. When Avis customers bypass the counter, they rate service satisfaction much higher, the company’s management told investors in February.

Thanks to technology, rental companies also have a much better idea about how cars are being driven. In the old days, an imprecise fuel gauge might show the tank is full even if the previous user had filled up miles from the rental parking lot (perhaps to avoid the high prices airport gas stations charge). Now, advanced telemetry systems measure fuel levels far more precisely.

This means companies can bill customers for any shortfall or refund them if the vehicle is returned with more gas than when it was borrowed. Nickel-and-diming their customers like this isn’t always popular, but it’s helping rental firms cut fuel bills.

The industry’s tech investments haven’t always turned out well. Hertz’s buggy systems led to hundreds of innocent customers getting arrested because vehicles were reported stolen when in fact they had been returned. In 2022, Hertz paid $168 million to settle those claims.

Electric vehicles have become another headache, particularly at Hertz, which announced an order for 100,000 Teslas after exiting bankruptcy in 2021. Contrary to hopes these models could be rented out at premium rates, consumer demand has been disappointing due to concerns about range and recharging; meanwhile resale values have plunged.

First-time users not accustomed to the rapid acceleration have also been getting into accidents, which are very costly to fix. Hertz is now busy trying to sell around 30,000 EVs; Sixt is doing the same.

It makes sense that rental companies are deploying digital systems to improve damage detection, and thereby recover more money from clients, while reducing the time during which the car can’t be rented.

Avis told analysts in April it’s piloting systems that film the vehicle from multiple angles on departure and when it’s returned; each percentage-point improvement in damage recoveries would provide a $4 million financial benefit to the group.

Sixt’s “Car Gates” capture up to 300 photos when vehicles are scanned at the facility as shown in this slide from a recent investor day. A spokesperson told me the equipment has so far been rolled out at 11 branches globally, including Atlanta, Fort Lauderdale, Florida, and Munich airports.

Sixt’s revenue growth from damage recoveries has lately far outpaced growth in rental fees, though the spokesperson said the contribution from Car Gates was “extremely limited.”

Sharing time-stamped photos with the customer should remove any doubt about who’s to blame, but if you’re hoping the lessor won’t notice a dinged mirror or scratched door, prepare to be disappointed.

Given the massive cost of fixing even minor vehicle damage, customers should make doubly sure they have appropriate insurance coverage. Drivers are often protected by their own car insurance policies or credit card providers, but it’s best to check. And think twice before purchasing a collision damage waiver (CDW) directly from the rental firm.

These waivers reduce or eliminate what the customer must pay following an accident. However, a recent Which? study found policies sold by car-hire companies in the UK often cost several times more than those offered by non-affiliated insurers and brokers.

(Rental firms generally don’t disclose how much they make from these policies, though Avis said in 2016 that collision and loss damage waivers contributed around 6% of revenue. Some U.S. states regulate the price which rental firms can charge for such policies.)

Technology investments can make rental companies more profitable and their customers happier — a rare win-win. But as with the airline industry, clients won’t thank operators if they end up being billed too much for extras.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times.