It’s a stark message, and one that is not palatable for firms that rely heavily on plentiful supplies of cheap hire cars, but the daily rental industry has reached a point where it has nowhere else to go.
A combination of manufacturers pulling back on volumes and charging more for cars, the increased cost of staff, raw materials, fuel and the industry’s own obsessive nature to offer more for less, means the price you now pay for rental is at its lowest.
According to John Leigh, senior vice-president of National Car Rental and chairman of the British Vehicle Rental and Leasing Association (BVRLA), while the current situation cannot go on, firms will still get a good deal.
He said: ‘British corporate car rental is the most developed in the world – it’s by far the most customer orientated.
‘But the cost of the raw materials of daily rental has gone up. There was a time when the cost base was lower than it should have been, and it cannot be sustained.’
The principal change is that the car manufacturers are not selling cars as cheaply to rental firms, and in some cases have pulled out of the market entirely.
In previous years, oversupply meant carmakers could virtually give cars away to rental firms in order to avoid being saddled with fields of unwanted, unused cars.
In doing so, they were also impacting heavily on their residuals and creating a false picture of how many cars they were selling, and crucially, how much money they were making.
But with many manufacturers struggling financially, they are looking to take on only profitable business, rather than just volume. And this means rental firms, needing cheap, short-life cars, are the first to be hit.
It is a huge market for their vehicles, but the carmakers’ relationship with the rental industry is a tempestuous affair. Neil McCrossan, vice- president of commercial development at National, believes manufacturers have to change the way they operate.
He said: ‘Manufacturers generally do deals with the rental industry when it suits them. Our business model is based on big volume deals, but recently they have squeezed the number of cars. ‘The manufacturers have their own problems with controlling volumes and production and will not be doing the same high- volume, low-price deals they did in the past. The cycle of boom and bust will go away. Cars are going to cost more for the rental industry – it’s as simple as that.
‘Manufacturers need to take a longer-term approach, appreciating what we have to do. Instead of suddenly changing their approach to rental firms, they need to give us a longer view, to allow us to plan.
‘The industry is finding it is becoming increasingly hard to support the price rental is offered at in the market. Rental companies deliver very high levels of service for a very low level of return.’ The internet has created a false impression of how much rental actually costs. The industry has been one of the leaders at utilising it to improve customer service, efficiency of business, paying and process. Now most rental firms have made all the internet-related savings they can.
McCrossan said: ‘It’s gone too far. We’ve made cost and efficiency savings through introducing the internet throughout the process, and now there’s nowhere left to go. The price of renting cars is going to have to go up.’
The minimum wage is another example of the increasing cost of business. Rental firms, in order to offer the kind of deals they are expected to, have to pay a lot of frontline staff a low wage. The effect of the rising minimum wage (From £4.10 in October 2001 to £5.05 now) has added millions to the rental industry’s wage bills.
Leigh and McCrossan believe the industry has also got to get better at recording and dealing with damage. They believe the hire car culture has to adapt so drivers start to treat cars with more respect, as if they were their own.
This extends to the amount of time rental firms spend chasing up the various charges and penalties rental drivers incur. Many drivers feel that jumping in a rental car gives them carte blanche to ignore bus lanes, parking restrictions, the London congestion charge and even speed cameras.
McCrossan is incredulous: ‘We have their names. We know exactly who has been driving that car at that time, and yet drivers still rack up these penalties.’
Unfortunately, this means more cost for the rental firms, because the penalties have to be processed, paid, chased up, invoiced and any disputes settled. Every penalty adds more to the basic rental price.
Another key area that is adding cost to rental is too many different processes for damage management, too many different ways of claiming and assessment.
As McCrossan said: ‘The BVRLA has done great work on standardizing wear and tear levels, and they have been a big benefit. We need the same situation with accident damage repair.’
So where can the industry go, and how much is it going to cost its customers? Leigh and McCrossan would not be drawn on how much more a fleet manager might pay for hire cars in the future, but it’s an industry-wide issue.
McCrossan believes that technology will again be the deciding factor in keeping prices down. Telematics, making journeys more efficient through better route planning, and using the cars in better ways such as in car clubs, McCrossan believes, will grow in popularity in the next five years.
Then there’s good old-fashioned usage. If rental firms can have their assets out on the road constantly rather than sat in compounds waiting for a customer, that asset becomes more economically useful. Get the public using the cars more at weekends, and the cost to corporate customers during the week should come down.
Ultimately it seems it will cost you more to hire cars in the future, whatever measures are taken by manufacturers, rental firms and customers. The big question, unanswered and worryingly unpredictable is ‘by how much?’
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