The African car rental industry is a viable growth industry, particularly in the long-term corporate sector. But for consumers, that means choosing carefully. Peter Frost explains.
Across the continent, driven by the continuing commodities boom, car hire has gone from strength to strength. Stiff competition means excellent pricing, at least in South Africa, and consumers can get great deals. For car hire businesses, it’s a cut-throat world – the larger centres are experiencing growth, but increasing costs are keeping profits down. In South Africa, the car hire industry is flourishing, with improvements across the board in terms of quality, standards and, crucially for consumers, price.
“2011 was an OK year, especially in South Africa, despite the global downturn,” said Paul Pauwen, General Manager of the Southern African Vehicle Rental and Leasing Association (SAVRALA). “Some of the figures are skewed by the Census, which needed huge numbers of cars, but overall it’s generally positive. We saw a small increase in both fleet and rental days (14,5 million).”
Perhaps, predictably, outside of Nigeria and South Africa, the biggest upturn was in Zimbabwe. Post US-dollarisation, business can at last work on a level playing field. Julian Hill, General Manager at Avis Botswana, and previously the man in charge in Zimbabwe, sees great opportunity there.
“Zimbabwe has seen massive growth in the past couple of years, coming off a very low base, of course. Things are looking significantly better, although still well down on past highs. Overall customer confidence, although not at a high, is returning to the market,” he says. Hill’s experience north of the border highlights the ‘high stakes-high return’ ethos of doing business in Africa.
“As a whole, the continent has seen completely contrasting growths depending on the country. We’ve seen massive growths in some of the emerging countries, but the cost of operating car rental, especially the upfront purchase price, differs significantly from country to country.”
Avis’s company ethos in Botswana is indicative of a growing trend in African cooperative trading, with its emphasis on local business growth, rather than the more traditional ‘strip-and-split’ profiteering of the old days. Avis’s intention to invest in the local economy and develop local skills is reaping rewards. All their vehicles are registered in Botswana and are disposed in the local market. Training of staff is vital, too, says Hill, and a significant amount is spent on every staff member.
Most challenging in parts of Africa, including Botswana and Zimbabwe, is the introduction of ‘grey’ products imported directly from the East, which have had a negative impact on traditional car rental, especially the resale of the fleet at the end of its rental life. The grey rentals issue highlights a greater concern in the formal industry. As SAVRALA’s Pauwen points out, “there is no barrier into the market for anybody with a car and an idea to start a company.” Quality is a big issue. Indeed, increased demand means a flurry of under-resourced operators coming to the market, with consequent issues for consumers, including poor back-up, inferior vehicles and broken promises on service and insurance.
The key, says Pauwen, is to choose a company that is registered with the appropriate regulatory body. In South Africa, SAVRALA represents nearly 90% of players in the industry, and checks fleet quality, referees disputes and sets standards of excellence. Consumer journalist Wendy Knowler agrees.
“There is now a lot of second-tier hire-car companies out there, trying to compete on price and cutting corners on servicing and upkeep. It’s a false economy for consumers. What good is a couple of rand or dollars off a daily rate, if you’re stuck at the side of the road in a strange part of the world with no help?”
From the car hire company’s perspective it is a challenging environment. Prices are excellent – for customers – but profits are tough to come by. Not only is South Africa highly competitive, but, as SAVRALA notes in its annual report, accidents in 2011 rose by an alarming 30% on 2010 figures. A combination of poor roads and deteriorating local driver skills is to blame, but the outcome is the same – increased costs of repairs, which cannot necessarily be passed on to the customer. The highly competitive environment means companies are always looking for something special. Finding a niche is extremely important.
“We are effectively over-traded here in South Africa,” says Pauwen, “especially at airports. Companies need to come up with clever ideas, as well as maintaining rock-solid fundamentals, if they are to succeed.”
Susan Marshall, Marketing Manager of Hertz Southern Africa concurs. “Prices have remained stagnant for the past 10 years and very little differentiates one car rental company from another – all would mention service or a slight difference in products.”
Or, as Leslie Matthews, CEO of Tempest Car Hire puts it: “Let’s be totally honest here – no matter what any competitor says about an edge over the competition – it’s very short-lived, as it’s such a competitive environment that we all match each other’s products.”
But there are differences. The fundamentals are as important as the bells and whistles. As roads deteriorate and driving becomes ever more challenging, safety is critical. Even at entry level, airbags and other passive and active safety is now all but mandatory.
Dawn-Nathan Jones, CEO of Europcar agrees. “With the global downturn, customers are opting to rent lower-group vehicles, but they’re not willing to compromise on safety. Happily, thanks to technology, safety standards have escalated in recent years, and car manufactures have increased the basic safety features in the lower category and entry-level vehicles.”
It’s a big leap. The days of cars without airbags is now a thing of the past. Far and away the most popular cars to hire are the Group B hatches. Traditionally, it’s been a segment dominated by Volkswagen and Toyota, but the Koreans have muscled in. “We’ve noted that Korean products such as Kia and Hyundai are giving the traditional models a real run for their money,” say Matthews. “They’re as reliable and now, crucially, as good to drive and as safe.”
Another evolving change in the industry that benefits customers is the online explosion, and the consequent synergy that exists between partners that wouldn’t ordinarily have come together.
“Online business makes up about 40% of our total business,” says Matthews, whose company’s branding seems to be pushing the vibey, young, trendy online generation. “Certainly, online business is thriving and it enables us to cast our net worldwide and for customers to make the best choices.”
Riding on the back of the online wave is the move towards greater partnerships. Again, Matthews: “It’s a significant shift: car rental companies’ partnerships with airlines – particularly low-cost airlines.” The beauty is that overheads can be shared and prices can come down – everybody wins.
And fusion of services goes beyond simply flying and driving. Running with ideas picked up overseas in environments where there are multiple public transport availabilities, some car hire companies are introducing complex travel solutions. Avis is leading the way with its Total Transport Solution, which includes a Point-2-Point option, namely Chauffeur Drive, Van Rental, and Coach Charter, all payable through one account. It’s part of Avis’s mobility and accessibility drive and it is working – the company again won the Sunday Times Top Brand Award last year, as well as the Business Destinations Award Car Rental Africa 2011. Wayne Duvenage, CEO of Avis puts the success down largely to keeping their eye on the ball.
“Our Customer Satisfaction Index (CSI) is the only one of its kind in the industry, with over 3500 interviews conducted with customers every month (since 2003), to gauge and improve on service excellence. It’s crucial to know what our customers want and think,” he says.
Others are not standing still. Europcar was right on the money when it introduced its baggage insurance and protective window films on its premium fleet. But what really resonated was offering cycling customers the option of renting portable bicycle racks. Tempest’s decision to accept debit cards puts it at an advantage, and Hertz’s 55+ special for older customers was extremely well received.
Arguably the biggest growth sector of the industry is the long-term corporate and private hire market. Separate from leasing, it offers companies and individuals a no-fuss solution to their transport problems. Tempest’s Matthews sees big gains.
“We see people renting vehicles for long-term periods, instead of leasing or purchasing. This is an incredibly flexible arrangement for consumers and one that is set to really gain traction in the market,” he says.
SAVRALA’s Pauwen also sees the potential. “It’s all about tax really. Call it what you will, but if it makes sense to rent long-term from a tax point of view, then it’s going to happen. I see it as the big move in South African car hire in 2012.”
At ground level, ordinary customers have increased choice, better vehicles and are getting excellent rates. But there are issues. In her role as a consumer watchdog, Knowler is often approached by consumers unhappy with car hire service. In most cases she says, it is an unregistered company at fault. SAVRALA’s Pauwen agrees.
“At the association, something like 80% of complaints are about so-called fly-by-night companies. We had the case of a hired Kombi recently. It had 250 000 kilometres on the clock, the gearbox failed shortly after leaving the lot, and the company expected the driver to pay for the repair. That’s unacceptable, and reflects badly on the industry as a whole.”
Across the board, the largest companies – Avis, Hertz, Tempest, Europcar and Budget – de-fleet their vehicles at between nine and 11 months, with less than 40 000 kilometres on the clock. The industry leaders are all closely associated with larger motor companies such as the Imperial Group and Barloworld, so access to the latest models (and the feeding through of used cars into the second-hand market) is good.
If there is a complaint against a SAVRALA member, the association contacts the company and asks to ‘sort it out’, as Pauwen puts it. If this is not done to the satisfaction of the client, SAVRALA reviews the case and, if it believes there is a good case to answer, can suggest an attorney as well as a course of action.
The most common car hire complaints are the voiding of insurance and non-detection of damage at drop ‘n go facilities. As Knowler points out, few people realise that simply by driving on a dirt road in South Africa, insurance is voided.
“It’s a difficult situation, given our road network. If you’re touring the country, sometimes it’s impossible not to take to the dirt. Road works, detours, or just good old-fashioned exploration. There are options, so make sure you discuss in detail what you are covered for.”
The other issue is drop ‘n go. For ease, most car hire companies allow people to drop off their car at the airport or showroom and head to the exit gate without being present while the vehicle is checked for damage. Once the client has walked away from the car, effectively they can be charged for any damage found, even if it is incurred at a later stage.
“It’s in your best interest to check the car with the official,” says Knowler. “And do it thoroughly. I have had cases of people being called back hours later to re-sign the release form, saying damage was found after the inspection.”
Car hire in Africa is on the up, despite challenges on the horizon (e-tolling will push South African prices up and AARTO, the points-docking system on licences, set for 1 April, will impact on the industry). The wider issue of access and pricing beyond the borders of South Africa will be addressed with deeper penetration by the large operators, as long as the curse of grey imports is confronted head-on. Most crucial to the future of the industry is the need for greater regulation of the players. Bit-part operations offering sub-standard vehicles and inferior back-up service will do more damage to the industry than uninformed government policy or rising fuel costs. Address that, and the continent’s wider move to get itself mobile and moving forward looks increasingly positive. The future is rolling.