The economic downturn has had an interesting effect on the car rental business, says Colin Ellson, inspiring a number of innovative developments…
On occasions over the past two years, the car rental industry and its clients must have felt they were driving with the handbrake on. Times have been tough. On the one hand, suppliers have struggled to stock fleets with new vehicles as the manufacturers restricted production in a weak market; on the other, customers have had to review rental expenses as travel budgets were tightened.
If that were not enough to create a climate of uncertainty, oil prices have been on a rollercoaster ride, reaching $100 a barrel at the beginning of this year, with petrol prices in the UK predicted to hit £6 a gallon. And the train is increasingly seen as a viable rival to the car, offering business class services as it whistles past the execs stuck in snarl-ups on the motorway.
Inevitably, all these factors have influenced the thinking of both supplier and customer, with marked trends emerging on both sides. Says Neil Cunningham, general manager for Hertz in the UK: “The economic downturn was a trigger for change among companies when it came to rental habits. They are now using long-term hires to supplement seasonal fleet requirements, while they delay decisions about committing to purchases or lengthy leasing agreements.
“Another shift we have seen is the rising popularity of car clubs for corporate use. These schemes help companies reduce business travel expenditure by converting fixed fleet costs into variable costs; members drive on a pay-as-you-go basis.”
A change in customer attitudes has also been noted by Thrifty Car Rental. “With cash flow the lifeblood of business, SMEs [small and medium enterprises] have adopted flexible ways of working to improve their chances of survival,” says a company spokesperson. “A quarter have reduced their fleet size, one in five has opted for flexible car rental, and 17 per cent encourage staff to use public transport more often.”
Avis, too, reports a change in customer emphasis, its Business Travel Index revealing that 72 per cent of renters chose to hire compact and economy vehicles during the first half of 2010. The company also saw an increase in demand for fuel-efficient models, and is looking to increase the size of its diesel fleet by 15 per cent this year.
“In response to tough economic times, our priority is to ensure that businesses are investing in cost-effective and stress-free travel,” says Anthony Ainsworth, commercial director of Avis Car Hire UK. “With the recent VAT increases driving up the cost of rail fares, and consequently the cost of doing face-to-face business, 2011 is the year for companies to consider their business travel options.” Avis recorded double-digit growth in the business-to-business sector throughout last year, and forecasts further expansion in 2011.
Similarly, Sixt rent a car has expanded its network and increased the size of its fleet, claiming that the decision to cut out a lot of high-volume, low-margin business at the beginning of last year, concentrating on more local corporate, retail and airport business, has paid dividends. With rivals also claiming a positive response to various initiatives, the car rental industry could soon be back on the road to profitability – a theory supported by the latest statistics.
The Guild of Travel Management Companies (GTMC) quarterly transaction survey, for example, showed that car hire turned in a respectable 10 per cent increase in the third quarter of 2010, a trend mirrored in the findings of US-based financial services company Standard & Poor’s (S&P) ratings services. Says S&P credit analyst Betsy Snyder: “The car rental industry has seen improved demand of late as the economy heals, and both business and leisure travel have picked up again following a dearth during the recession.”
Nevertheless, travel management companies, responsible for steering their clients around the Spaghetti Junction of available car rental options, agree that the industry in general has advanced to the amber, rather than the green light stage. “The number of clients using car rental has increased, with growth in all markets” says Jacqui Cahill, senior manager, global supplier management for Carlson Wagon Travel (CWT). “But companies are having to take into account their exact requirements, looking at all costs, including those for car rental. There has been a migration to rail travel, and if fuel rises continue there could be a cap on vehicle hire. In addition, there might be a small rate increase this year and fees for no-shows.”
Nigel Clare, Eton Travel’s account manager, agrees. “Car hire has always been a behind-the scenes ancillary service, not an important cost element,” he says. “This is changing and companies are having to face up to the problem. Their need is to obtain 100 per cent visibility of costs and we recommend online solutions such as Cliqbook or Amadeus e-travel, which provide complete travel management systems.”
Back at the coalface, Mark Avery, head of business services at PricewaterhouseCoopers (PwC), sees the situation from the client perspective. He negotiated rates with suppliers a year ago for the 17,600 days of car hire the company bought in 2010, and while fleet availability was a problem, this has been largely sorted and there has been no cutback in rental use. “Our challenge now is duty of care,” says Avery. “We are at the point where we are asking whether staff doing a high mileage should be using their own cars. There is always a maintenance risk and we might insist on people adopting car rental instead. Rail, with improvements in speed and comfort, is another alternative for journeys of up to four hours.” PwC is also exploring green travel, an area increasingly being considered by responsible companies, particularly as the government has put carbon reduction high on its agenda.
While green is the colour of the moment, the introduction of electric cars has been slow, the evolutionary process held up by the problems of limited battery range and staggering development costs. Sixt has experimented with electric and hybrid – petrol/electric – vehicles, but has found the UK business culture is geared to petrol and diesel. Conversely, Hertz and Europcar have found significant demand. Hertz began offering electric vehicles for an hourly rate in New York last December, followed by an expansion to Washington DC and San Francisco.
As part of the Connect by Hertz car-sharing scheme, the company plans full-scale deployment of electric vehicles and plug-in hybrid vehicles in the US and other countries throughout 2011. Hertz has also partnered with Nissan to incorporate the maker’s all-electric LEAF into its fleet this year, rolling it out first in the US, then across Europe. In addition, Hertz has collaborated with CODA Automotive, planning to add the four-door, five passenger all-electric CODA Sedan to its portfolio in 2011, initially in California.
Europcar is also responding to a perceived charge by the green brigade. It has recently entered a partnership agreement with Peugeot Citroen to launch two new electric models this year, and plans to gradually install the infrastructure to recharge the vehicles’ batteries at its 2,500 hire locations around Europe.
According to a recent report by accountancy firm KPMG, electric cars are the future. In a poll of some 200 senior automotive industry execs worldwide, 80 per cent predicted the demand for such vehicles would rise over the next five years, while 90 per cent confirmed they would invest in hybrid systems, battery electric power or hydrogen fuel-cell technologies over the same period.
Having emerged from the recession leaner and meaner but relatively unscathed, both the car rental industry and its customers should be able to plug in to a brighter future. As Henry Ford might say if he were around today: you can hire any colour of car – provided it’s green.