It's impossible not to respect and admire the resilience and creativity of the UK daily rental industry that has survived three years that would have sunk many other industries.
First of all, the Government's New Cars Order 2000 led car makers to axe list prices, leading to precipitous depreciation and inflated holding costs, particularly for fast cycle rental fleets.
Then the foot and mouth epidemic saw the countryside become out of bounds to both domestic and in-bound tourists. And just when everything was starting to return to normality, September 11, 2001 rocked the world, and international travellers in particular, causing major dents in demand for daily rental services.
Some of the world's largest hire operators could not roll with these punches, with Budget Car & Van Rental significantly reducing its European operations, while ANC in the United States started Chapter 11 bankruptcy proceedings.
Yet fundamentally the concept of hiring an asset worth more than £10,000 for just £25 per day remains an attractive proposition and one for which demand is high. This demand is changing, however, as yet more external factors arrive to challenge the rental sector. For example, the traditional fleet market for replacement cars is experiencing fewer and shorter rentals as car reliability improves and manufacturers accelerate the delivery times of parts to workshops to minimise their clients' vehicle downtime.
Moreover, corporate belt tightening has seen travel budgets scrutinised with ever stronger magnifying glasses, forcing travelling executives to justify their business trips like never before.
And, of course, the collapse of certain apparently blue chip enterprises such as Marconi and Enron has robbed the domestic and international markets of major rental buyers.
'Year-on-year rental demand is down, there are fewer cars on rent and rental periods are shorter, all of which impacts on rental demand,' said John Leigh, senior vice-president of National Car Rental.
'So in-bound business and local markets have become very important to us because they represent complementary business.'
Against this tide, National has achieved an increase in its revenue per day figures as a result of price rises negotiated last year, and has also had success in establishing menu pricing so that corporate renters pay extra for services that add value but which also have a cost to provide, such as collection and delivery.
The issue is whether the new power brokers in the corporate rental sector – the relatively newly established hire divisions of contract hire companies – reflect these charges in their own price lists.
Leigh welcomes their arrival in the market as potential generators of new business, but calls for an orderly approach.
'If the leasing company owns the customer then it may be in better shape to own its rental business than us deal directly with the client, but I would like to see the leasing industry work on the same menu pricing as we have, passing on delivery and collection charges,' he said.
This focus on cost and operational efficiency, so that revenue generation goes hand-in-hand with sustainable profit, was given extra impetus by the September 11 terrorist attacks in the US, so it seems all the more remarkable that National has found the time and resource to invest and expand, rather than retrench.
Yet the company has not only opened more UK locations, but has also started the development of a new brand with its product 3to6 autos, a mid-term rental service for either three or six months designed for employers which need cars for short-term contract work.
The high availability of diesel product within the 3to6 autos fleet, and the flexibility of insurance arrangements so that fleets can drive the cars on their own insurance, indicate the clear corporate focus of 3to6, which is no surprise given the strength of National Car Rental as the UK's largest corporate rental company.
The development of the new brand is also significant for the industry as insiders anticipate rental companies developing twin strategies like the airlines, with a corporate and a budget operation, such as KLM and Buzz or British Airways and its erstwhile sibling Go.
The challenge for rental companies, however, is to develop two brands but use the same fleet. How, after all, can a company charge two customers different rates for hiring identical cars from the same compound just because one is a premium brand client and the other a budget client?
It's a conundrum that National is solving by targeting its Alamo brand not as a budget offering but as a retail or leisure service, and the company sees significant opportunity for developing the two brands in tandem now that the parent company ANC has confirmed that it will not sell Alamo.
'Now we have the reassurance that Alamo is not being sold off, we are seeing how we can develop the Alamo brand,' said Leigh. 'Up to now it's been an in-bound hire operator for tourists coming to the UK, but if you go back a few years Alamo had a high recognition in the UK market place as a value player, and we do have value in the brand.
'We actually have three brands (including Guy Salmon, the chauffeur drive service), but one fleet, one head office and one IT system. It's how we sell and market them that makes the variations.'
One third of the company's locations already carry both National and Alamo branding, but their target audiences remain distinct, characterised at airports where they operate separate desks so that National's business customers do not have to queue behind Jumbo Jet fulls of holiday makers.
National remains focused on the corporate sector and companies with 'command and control' travel policies that enforce employee compliance with centrally negotiated contracts. Yet it also appreciates that corporate devolution is seeing local decision-making replace traditional centralised command and control strategies.
'If drivers start making car rental choice independently of the corporate decision-maker, we will have to be become better at dealing with end-users,' said Neil McCrossan, National's vice president, sales and marketing. 'Our challenge is to make sure that we are the ones providing them with the right choice and flexibility.
'National also has to offer more choice in areas such as limited or unlimited mileage, and access routes by web or phone that have the same feel for the customer wherever they touch us.'
Increasingly this also applies to surrogate corporate renters, who hire cars on a leisure basis through employer-negotiated affinity schemes. For companies like National, the daily hire rate of affinity schemes may be lower than high street rack rental prices, but such business does represent incremental gains with no marketing costs.
And as the company moves to hire cars to private individuals, it appreciates the need to be situated closer to them and to develop a more localised culture to attract them. This network development will see National grow from122 rental locations at the start of this year to 138 by the end.
The company has long held to the value of owning its locations, but has started to experiment with franchises and agencies (where National owns the fleet and supplies the IT, but the agent owns the property and employs the staff) to accelerate its expansion.
'About 180 locations would be ideal, although already our locations tend to be quite large, with some running 400-500 cars,' said McCrossan.
Against this expansive outlook, however, are more grey clouds on the horizon for rental companies. Congestion charging, for example, will create a logistical headache for rental branches within London's charging zone, and has the potential to produce blizzards of paper as the authorities chase drivers who fail to pay the daily £5 charge when entering London.
National already has two full-time staff occupied with resolving parking and speeding fines issues, but their work could be deluged if renters fail to pay congestion charges. The company is looking at gas-powered cars that would qualify for charging discounts, but the scale at which it operates means a significant fleet switch to gas would introduce risks in other areas.
After three tough years, there's still little chance of an easy future for rental companies.
Login to comment
Comments
No comments have been made yet.