Car Hire woes

It seems that for the beleaguered car hire industry there still isn't a glimmer of hope on the horizon. With the once mighty Avis/Budget only just having missed being delisted from the NY stock exchange, the company is struggling under a ever growing mountain of debt and costs coupled with falling revenue.

A similar story is reflected in the car broker model, with the likes of holiday autos and car trawler both market leaders in this space being reliant on supply both from the large fleet owners and from the smaller local independents. An example of the impact the downturn and the credit crunch is having on the car hire industry is a statement I received informing me of the following.

This year car rental companies will have significantly less fleet available in many European markets in the peak periods:

The reasons:

  1. The car rental companies are not getting the credit needed to renew their fleet and if they do get the credit, it is at an uneconomical interest rate level.
  2. The car rental companies buy their fleet a) at risk - they are responsible for selling the car b) on a buy back basis – the manufacturer who sold the vehicle buys it back from the car rental company.
  3. Manufacturers have restricted Buy Back contracts by making them unaffordable to the car rental companies. These companies now have to buy their cars “at risk”, placing the onus of selling the car on the car rental company. In the past the second hand market provided a healthy source of income to the car rental companies. Not anymore. The market is flooded with cars nobody wants to buy.
  4. The car rental companies do not get the finance to renew the fleet and is unable to rid itself of its old cars. An article in The Financial Times of 11th April stated that in the UK some new cars are now cheaper than used cars.
  5. Due to the credit crunch all holiday operators are seeing a drop in demand and summer bookings look depressed. People have restrained their expenditure as they are concerned about their jobs. In turn, car rental companies are concerned about paying too much to refinance the cars and getting stuck with full car parks if demand does not pick up.
  6. Palma de Mallorca’s normal fleet of 50,000 cars will be reduced to 30,000. Every March, the new fleet is transported to the island and every October it is transported back to Spain mainland. This will not happen in 2009. The registration of rental cars in the island has dropped by 80%. The acquisition of new cars is down. The suppliers are keeping their cars for longer. This will create customer care issues as customers have been spoilt for years with 6 month old cars.

The same will be replicated in many other areas.

  1. Worst affected areas by the fleet shortage in the Summer peak:- UK: airports and Central London- CH: Zurich and Basel- SP: Malaga, Alicante, Barcelona, Ibiza, Mallorca will be firstly affected. Valencia and Murcia will follow with the rest of the mainland immediately after- IT: Sardinia, Catania, Olbia, Cagliari, Palermo, Rome Fiumicino, Naples, Bari and Pisa- FR: Geneva (French side), Nice and Corsica
  2. In view of the limited fleet, car rental companies have pushed for heavy increases however the low demand, due to the credit crunch, is keeping the market depressed. Prices will increase considerably in the peaks (Easter, Bank holidays etc) as demand outstrips supply. However there will be heavy discounting in the long and painful low season periods. In July and August – the fleet is going to be very tight and late bookers are going to be disappointed as the cars are not going to be available.