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Car wars: The state of the rental industry

Why has car rental transformed into offering mobility solutions? Some key players explain

Once upon a time someone from British Airways proclaimed: “We are not in the airline business. We are in the business of moving people.”

Car rental companies are now making the same transition in mindset. They no longer only offer access to cars to hire at the airport; they’re talking about mobility solutions.

“People are increasingly looking for variety in their programmes and not just a way of fulfilling one function,” says Rob Ingram, director of business rental EMEA for Enterprise Holdings.

It’s a sentiment echoed by Europcar’s UK managing director Gary Smith who says: “The car business is broadening out. What we’re seeing in consumer behaviour is that car-sharing and on-street access is starting to erode car rental, and there’s also an increase in ride-hailing.”

The market for car rental is indeed changing and hire companies now offer a variety of solutions as standard to address their corporate clients’ needs.

Suppliers’ solutions
1 Car-sharing
Car-sharing, or carpooling, started life as a motor vehicle version of hiring a DVD. Renting was no longer just a financial alternative to owning – you paid for a period of use, not for access at any time. In car-sharing you pay only by use. The clock starts ticking when you access, electronically or remotely, a vehicle; it stops when you stop.

Car-sharing fulfils an important function. Both public sector organisations (hospitals, public authorities and universities) and private businesses have employees who must move from one site or point to another, and self-drive is often the most feasible option. Short, local trips require short-term access rather than the more comprehensive option of a rental car. “Many companies use it in place of a pool car,” says Ingram.

Chris Rusden is senior vice-president international at Hertz, which was a car-sharing pioneer when it launched Connect almost ten years ago. It has since been rebranded as 24/7. Rusden believes it is an important part of the ground transport product mix. “A huge number of people could be making short trips out of head office. A company that is out of the way might spend a lot of money on taxis or it might opt for a car-sharing solution where the mileage and time taken can be recorded, who did it and their department,” he says.

He points out that many people who buy car rental also manage fleet and that car-sharing is evolving into an option for requirements formerly fulfilled by fleet.

2 Taxi and ride-hailing services
Ride-hailing – a term used traditionally for the taxi sector – often now describes technology-based alternatives, such as Uber and Lyft. Both are increasingly becoming part of the managed travel programme. More travel departments are negotiating a taxi service for the whole organisation to replace a process of reimbursing expense claims for taxis. And traditional car rental companies are responding to this trend.

Europcar, for example, acquired Brunel, a chauffeur-drive company used by many London-based corporates, especially investment banks, law and advisory firms, and financial institutions. Customers can use an app to book a point-to-point taxi/ride-hailing service throughout the UK.

3 Car rental
Car-sharing and ride-hailing may be the new darlings in managed travel’s ground transport stable, but that doesn’t mean that car rental is standing still.

Traditional car rental companies are one option; a broker, such as Nexus Vehicle Rental, another. Nexus doesn’t own rental cars but it makes use of an extensive network of partnerships to offer corporate clients a wide range of vehicles. Dean Rose, head of national accounts and new business, explains that the organisation works with 220 suppliers which can offer 550,000 vehicles at more than 2,000 UK locations.

The buyer
1 Programme and policy
Whether fleet manager, travel manager or procurement manager, the person with responsibility for the programme must identify and communicate its requirements.

Many organisations offer travellers a choice – being driven (chauffeur-drive), traditional car rental or carpooling and fleet. Travel policies often include guidelines for when each option might be used.

Duty-of-care is a consideration. One large multinational corporate limits eligibility for airport car hire to those arriving on flights of less than 13 hours’ duration. Some companies restrict how many of its employees may travel together in the same vehicle.

Restrictions on eligibility because of age or driving history are common. Standard practices vary in different markets. Willis Towers Watson (see box, above), for example, ensures its people are chauffeur-driven in India, the Philippines and South Africa.

Buyers need to be aware that suppliers’ offers will be driven by the cost of delivering to the corporate’s travel requirements. What is the average duration? Are there a lot of one-way trips? Basic rules will apply. The higher the volume, the keener the rate.

2 The package
Requests for proposal are commonly short term. Europcar’s Smith says: “Contracts are generally for 12 months and include a quarterly review to look at driving and usage behaviour. We have conversations about whether the service is right for the customer.”

Contracts are usually awarded on the basis of price. Deborah Short, global travel manager at Willis Towers Watson, explains: “Car rental is far more cost-driven than hotels and air because there’s not a lot of service differential between the large global car rental companies. All generally have the same size of cars, at the same airports and offer the same service.”

The rental companies might argue to the contrary but they all operate on a virtually global basis and the different cultures and levels of business maturity mean that differences are likely to be greater among markets than from supplier to supplier.

UK organisations differ from their overseas counterparts in ground transport requirements in two significant ways: (i) insurance and (ii) collection and delivery.

The UK is the only market where a corporate can self-insure and 90-95 per cent of UK corporate business is thought to be COI (customer own insurance). UK corporates also have high demand for so-called delivery and collection, ie, taking a car to, or collecting a car from, the traveller’s home or office, rather than airport pick-up and drop-off which is common in other markets, such as the US.

UK corporates also need to address the same concerns as buyers in other markets: duty-of-care, data and technology, and the vehicles themselves.

But how global are some programmes? There may be a demand for ground transport solutions but some companies might want to manage it locally. For example, Sixt is very strong in its home market of Germany. Some companies might, therefore, find it beneficial to use it there for its breadth and depth while consolidating other countries under another supplier.

3 Buying ground transport
Rate is the most important factor in any RFP. Car rental companies will offer corporates a grid of different day rates to reflect the length of a rental (a day rate will be higher for a one- to three-day rental than it will be for one of a week’s duration); the vehicle class (economy, compact, intermediate, etc) and rental location.

Competitors’ day rates may look comparable but the extra fees can vary hugely. Hertz’s Rusden says: “There are certain areas where we can be discretionary. We will negotiate on an excess reduction or insurance, the ease of one-way rental, location-specific fees, certain discretionary packages – an airport may charge a 1 per cent fee and we might absorb it or pass it on – delivery and collection and the 24/7 car pool fleet.”

This is where corporates can negotiate savings or add traveller value. Just as with parking fees on hotel bills, corporates often find price flexibility in the extras:
(i) Insurance – If a company opts to use its own corporate insurance rather than be fully insured through the car rental company, the overall cost will be lower. You can also negotiate around liability in case of an accident; the level of the excess payable will affect the rate.
(ii) Collection and delivery – The fee for this practice, which is common in the UK, will be negotiable.
(iii) Car refuelling – This can be negotiable but do you need it? If this is a service for which there would not be much uptake, focus on negotiating in another area.
(iv) Airport fees – Rates among US cities can vary hugely because of airport fees. If a rental company is keen to get the business, it might be willing to absorb some of the cost of these fees rather than pass them on.
(v) Extra kit – Most rental cars in the US are equipped with an automatic toll payment system which will incur a charge. So, too, will GPS which many of us now expect to be standard. Hertz’s Rusden shared his thoughts on the future. “Hertz used to rent out mobile phones, but then everyone had their own,” he says. “The Hertz proposition will evolve to include GPS and international wifi. The days of renting mobile phones and GPS are passing.”
(vi) Traveller technology – The ability to get travellers through airports quickly can be a product differentiator. Rusden reminds us that Hertz’s app will tell you where the car is located, allow you to choose the specific car from those available in your booked class, extend the rental, add extras or arrange upgrades. He says: “We offer more functionality through the app to ease the journey. As we become more dependent on smartphones, more functionality will go into the phone itself.”

Some travel managers request specific types of cars. Diesel cars used to be popular because of their low running costs but, as the price of diesel fuel rises and they attract extra parking charges in parts of central London, demand has fallen.

The traveller
Assessing what travellers need
Most travellers just need the ability to rent a car via a suitable online booking tool. Nexus’s Rose maintains that the depth of supply the broker can access means that it will always be able to provide the specific vehicle that the traveller may require.

However, traveller needs are not just about whether the model is ‘green’ or an SUV, but what happens in the case of damage to the vehicle. Willis Towers Watson’s Short says her biggest challenge is “getting the user to understand the claim process in the event of an accident”.

Grey fleet
Mobility solutions abound but some companies still reimburse their travellers on a pence-per-mile basis when they use their own cars for business. Every supplier spoken to for this article warned of the dangers of employees using their own vehicles.

“Is driving to Manchester and back in a day safe?” asked Ingram. “Travel managers may not be aware of these claims as they’re going through HR, but think of the cost if some people use their cars for personal gain. You could get £160 for driving to Manchester but what kind of car are they showing up in to meet an external client?”

The employer might not know whether the cars are insured for business use and their safety and maintenance are difficult to monitor. Car rental companies’ competitors may be not be just other suppliers and other solutions, but a client’s own travellers.

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