Fleet News

Daily rental charges likely to increase

Fleets relying on daily car hire should expect fewer vehicles available to rent and higher prices as the vehicle rental industry tackles a fall in residual values and a decline in corporate bookings.

John Leigh, managing director of Europcar UK Group explained: “Whilst we have seen an uplift in direct consumer rentals this summer, we are experiencing a softening demand from both corporate and fleet sectors,” he said.

“Rising vehicle holding costs are being influenced by the state of the used car market, which together with exchange rate fluctuations are a challenge for the industry.”

He assured customers that the company will work “to mitigate the cost increases which ultimately will flow through”.

Avis Europe has seen its share price tumble by 80% from 41p to 11.5p in just a year.

Sixt shares have almost halved in value over the past 12 months, while shares in Hertz Global Holdings, which operates a worldwide fleet of 475,000 cars, fell from $25.25 a year ago to just $9.3 last week.

It is the battle against falling residuals that is causing most concern.

Last week Avis Europe announced its interim results for the first half of 2008.

It blamed its performance on increased costs and a poor used car markets in the UK and Spain.

“The key risks to meeting the full year target are a further fall in residual values and, more generally, a material worsening of the economic environment,” said chief executive Pascal Bazin.

An Avis Europe spokesman confirmed that residuals are a particular problem in the UK.

In Spain, where used values have also collapsed, the company has the option of shifting cars across the border to France where values are stronger.

However, that option does not exist for UK vehicles.

Therefore, Avis Europe has said it is not only defleeting its cars quicker, but is also reducing the number of new cars it is putting into its fleet.

Availability will not be affected said a spokesman due to the “sophisticated” rental management systems that Avis runs.

“The used car market is struggling both at auctions and at dealerships, which is the usual disposal route for rental companies,” confirmed John Lewis director general of the rental and leasing industry representative body, the BVRLA.

“This may give rental companies an incentive to run their fleets for longer in a bid to reduce the supply of nearly new cars in the used market.

"Of course this tactic will only work if manufacturers resist the temptation to pre-register lots of their cars in a bid to maintain market share.”

There has also been an issue with carmakers reducing the number of cars they are putting into short-term rental.

“Car rental is low-margin for carmakers, so they are pulling back slightly,” said an Avis spokesman.

“But fleet costs have gone up over the past three years.”

Avis is now planning to change tack with carmakers in an attempt to reduce its costs when negotiations begin in November for the intake of new stock in 2009.

“The issue has been the cost of sourcing cars rather than availability,” said a spokesman.

According to its second quarter results for 2008, Hertz said its adjusted pre-tax income was $154.7 million, a decrease of 1.6%, and income before taxes and minority interest was $93 million, a 34% decrease compared to the same period last year.

Mark Frissora, the company's chairman and chief executive officer, said: "Our results were affected by inflation in key areas including fuel, vehicle damage and concession fees.”

As a result, according to the Financial Times, Hertz shares are down two-thirds since last autumn.

Despite the tough outlook, the industry remains upbeat: “Rental companies with the right business model are weathering the storm,” Rob Ingram, director of business development at Enterprise Rent-A-Car said.

“Rental rates are still relatively low, considering the increased costs faced by rental firms across the board.

"This is a real challenge for the industry.

“We’re putting a lot of emphasis on remarketing and we’re sure our competitors are doing likewise.

"We’re also working closely with manufacturers.

“We have always bought our vehicles directly rather than taking them on short buyback leases, so Enterprise isn’t as badly affected as some.

"It also means we can source the vehicles our customers want, rather than relying on what is available at the time.”

Mr Leigh added: “Weakening residual values are both a serious concern for us and the manufacturers.

"It goes without saying, relationships between the rental industry and manufacturers have never been more important.

"The facts are the manufacturers obtain excellent exposure for their new models from the rental industry, but they have now become far more disciplined about who they do business with."

Giving customer what they want is also proving tricky.

The once ubiquitous ‘free upgrade’ appears to have had its day.

The cost of fuel and environmental concerns have sparked a rapid about turn from renters who now want small, economical cars.

“More retail customers are asking about emissions, while environmental concerns now form a part of most fleet rental policies,” confirmed Mr Ingram.

“Fleets are becoming a lot more conscious of their carbon footprint for rentals generally.

"Many are putting very strict policies in place.”

However, as Mr Lewis points out, it is a fickle market.

“Some business users still prefer to rent a mid-to-upper size vehicle.

"It is also important to remember that the terms set down by credit card companies insist that users who have made a reservation with their card have to be offered an upgrade if a vehicle is not available in their chosen class.”

Chris Payne, a spokesman for Dollar Thrifty told the Guardian: “People used to be very happy when they were upgraded.

"All of a sudden people are getting very vocal about not wanting a larger car.”




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