Where to, from here?

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What’s the future of the car rental industry? With the sharing economy muscling its way into this space and many people taking a different view on car ownership and how to simply get from A to B, the car rental industry has a whole new set of challenges on its hands, as Kate Kennedy discovered.

The world is in a state of flux.

Industries that have remained stable and prosperous for the past century are now struggling to keep up with the rate of change, and in this information age, driven by technology, it’s not just the rise of app-based companies that are putting paid to the glory days of car rental companies. The changing way of doing business and marginal economic growth are challenging these companies to remain relevant.

That being said, some of the world’s big global brands are taking the hint and following the trends, as they seek new models, new revenue streams, and new ways of doing business.

In February, Hertz reported a bigger-than-expected fourth-quarter loss in the United States, amid efforts to “turn itself around by spending more on fleet, technology upgrades and marketing initiatives,” said a Reuters report.

“We will have elevated investments throughout the year as we implement several major technology conversions,” said Hertz CEO Kathryn Marinello. “By 2019, we should begin to evolve toward a more competitive earnings profile.”

To this end, Hertz has partnered with Apple to provide the tech giant with cars to test its automated driving technology through its Donlen fleet leasing and management division.

“If you look into the future of autonomous driving, which I do think is eight to 10 years out…no matter what, you have to be really great at managing a fleet and you have to have the assets that make you really great at managing a fleet,” said Marinello. “And the good news for us is, the better we are around doing that and the more time and money we spend to invest in that, not only do we create enormous goodness within our current business, but it really does position you for winning down in the future.”

Avis has done something similar with Alphabet’s Waymo self-driving car division.

“We’ll be doing interior cleaning, exterior cleaning, oil changes, managing defective parts for them, replacing parts and so forth, storage of the vehicles, protecting the vehicles, and a host of other things,” said Larry De Shon, Avis Budget Group’s CEO and Chief Operating Officer. “And as that partnership hopefully grows, we’re certainly open to discuss anything else from a fleet management perspective that they would like for us to do. And we’re also taking a look at other opportunities to provide fleet management as a service going forward.”

Working with automated vehicle companies won’t exactly save car rental companies, but it shows a renewed focus on preparing for the future. Car rental companies have decades of experience servicing and managing their fleets of cars, so these partnerships make sense at this early stage, when Apple and Google are experimenting with their technology.

THE UBER EFFECT

According to Forbes Magazine’s online portal, the rapid growth of ridesharing companies like Uber and Lyft has left rental car fleets bloated, which has put pressure on industry pricing. In the United States, Hertz’s average per-day revenue has declined consistently over the past few years, dropping by a total of 12% between Q2 2015 and Q1 2017.

For many people, ridesharing services have negated the dream of owning a car. Paying someone else to drive you around is more cost-effective than monthly repayments, insurance, service plans, licensing and fuel. And it’s definitely easier to hail a ride from your smartphone than it is to get finance for a purchase.

In some cases, it’s also easier and cheaper than hiring a car, especially if you’re just ‘running around’ for a day. If you think about being in a strange city – particularly if it’s a business trip – navigating to your destination can be stressful and sometimes time-consuming, all of which make the likes of Uber a tempting alternative. You get a driver who knows where she/he is going, will battle the traffic congestion, and drop you off at the front door.

Compared to traditional taxi services or car rental, Uber meets the instant gratification need – there doesn’t need to be any planning ahead or a confirmed itinerary.

But car rental companies in South Africa don’t appear to be concerned.

“Uber has its place in the ‘mix’, particularly in respect of customer demand for short-term, one-day rentals. We have seen some decline in areas like Gauteng, for example, where Uber is filling this demand,” says Wils Raubenheimer, CEO of Hertz Rent a Car and Firefly Car Rental in South Africa. “But it’s had a very limited impact on longer-term rentals from two days-plus.”

Yanna Dickens, General Manager, Operations – Coastal Division for Hertz and Firefly says that the group’s chauffeur drive and transfer service is growing and remains a popular alternative. With similar conveniences to Uber, this service offers a peace of mind and security that is, arguably, lacking with ridesharing. Hertz has the infrastructure to vet its drivers and ensure that its vehicles are roadworthy. Given Uber’s business model, these things just aren’t possible. But you do have to book the Hertz service in advance.

“Uber gives the car rental customer, and the public in general, a reliable alternative to traditional transport solutions,” says Martin Lydall, Chief Commercial Officer of Europcar in South Africa. “In car rental, Uber has the potential to compete, but currently the highly competitive car rental rates mean that Uber is only an economically viable alternative if the traveller is travelling for less than one day and is making only one or two relatively short transfers. Because of this, we see Uber as a synergistic addition to the market, offering an alternative to low margin one-day rentals.”

“Traditional car rental is an average length of rental of approximately four to five days, depending on the segment of customer,” says Rebone Motsatsi, Executive Commercial at Avis Rent a Car Southern Africa.

Taking that a step further, De Shon believes that in the United States rental customers who travel fewer than 50 miles (80km) per day, the ones who are more likely to give their business to Uber, are one in a million.

That may be the case, but Avis still adopted a “if you can’t beat them, join them” approach back in 2012, when it acquired leading car-sharing company Zipcar and broadened its offering.

Not only are these services proving popular due to their convenience, but the synergy with a continent such as Africa is obvious – as massive unemployment hurts even some of Africa’s biggest economies, so the likes of Uber and accommodation provider Airbnb are providing employment and entrepreneurial opportunities.

Further to that, the sharing economy has even greater appeal for today’s and tomorrow’s travellers – both leisure and business: the millennial traveller who seeks a bit more meaning from his or her travel and favours conservation and cost-consciousness over bells and whistles. Ride sharing plays a role in achieving these goals, by reducing traffic congestion and emissions, and eliminating or reducing the costs associated with owning a car.

“The sharing economy is no longer a concept, but a reality with rapidly accelerating adoption,” says Lydall. “Young people do not view ownership in the same way as previous generations did, and for very good reason. This is unlikely to change.”

PRICING

So, if Uber isn’t presenting a major challenge to the car rental industry, what is?

Well, there’s the ongoing issue of pricing for starters.

“Car rental in South Africa has always been – and continues to be – extremely competitive and price-driven,” says Raubenheimer.

Rising fleet and related costs have necessitated moderate rate increases. In line with the economy, many corporate customers have reduced their travel budgets and spend, while, generally, customers are looking for more inclusions in the rates.

“Similar to airlines, we’re moving towards a dynamic pricing model to sustain fleet availability at the right price, in specific regions where demand is higher,” says Hans Manke, General Manager, National Corporate Sales at Hertz and Firefly.

Targeting of rental vehicles by crime syndicates, credit card fraud and rental vehicle damages are just some of the other issues facing car rental operators.

And for Manke, new booking platforms, reduced fleet sizes and utilisation levels, shorter lead times and the role of IT in this segment present even more challenges.

Overcoming these issues has taken a bit of effort.

“Customer credit worthiness is a key focus,” says Raubenheimer. “We are becoming increasingly orientated and vigilant with regard to the rental customer acceptance process, by conducting thorough ITC and customer profile checks to ensure that no bad debts are in place, and we avoid non-payment.”

TECHNOLOGY

As with everything these days, technology plays a big role in car rental operations, if one looks at the likes of online booking platforms, smart phone apps, and even keyless car entry.

Avis in South Africa is in the process of rolling out a new digital rental agreement system, which speaks to a more efficient and paperless system with email functionality for customers’ convenience. Tablets have been installed at all major airport branches, with the remainder to be rolled out before the end of the year. The digital offering also allows for the completed rental agreement to be emailed to the customer.

“Our commitment to the environment is key to our business practice. The new digital rental agreement is another initiative that will ensure that we live up to our commitment of protecting our environment and managing our resources more sustainably,” says Rainer Gottschick, Chief Executive, Avis Rent a Car southern Africa.

Further to that, over the past year in the United States, Avis has launched a voice-powered car reservation capability with Amazon Alexa and announced Google Home integration with artificial intelligence capabilities. With new features on its Avis mobile app – a larger variety of vehicles, fuel and parking options, courtesy bus tracking, rental recipients, and a “find my car” feature – customers can manage their entire rental from their smartphone, choose the exact car they want, change or upgrade their vehicle while at or near the lot with a simple swipe, view their rental agreement, get real-time updates, and more.

Hertz plans to go paperless entirely in the very near future, with all documentation moving online. Both Hertz and Firefly have a Mobile Assist app (as a nominally priced, add-on option to the rental agreement) that went live last month. Primary services include roadside, medical and legal assistance. And the Vehicle Events app is streamlining the process involved in damage to rental vehicles.

“Hertz Vehicle Events has been installed on CUBOT (Android) handheld devices,” says Seymour Burt Taylor, Chief Operating Officer at Hertz Southern Africa.

In excess of 120 units are already in use at Hertz locations throughout South Africa and Namibia.

Vehicle Events is a multi-faceted app able to facilitate, record and monitor a host of other car rental-related procedures, but it’s proving particularly effective in the vehicle damage assessment process.

The app is web-based and enables Hertz staff access to the EOCLOUD programme. When loading the damage details onto the handheld device, the programme collates all the information gathered into quote format. This is presented to the client for approval. The repair cost is then captured on Hertz’s car rental management system and upon terminating the rental on this system, an invoice for damages is generated and presented to the client.

Hertz enjoys a fleet rate from OEM-approved panel and repair outlets, which is the charge passed on to the customer.

“This is not a profit-making initiative but rather a means to keep our assets in good shape,” says Taylor.

LOW-COST PROVIDERS

The Global Car Rental Market 2018-2022 report, released in January, found that one new area of focus for car rental companies is the provision of a low-cost service.

“Several popular car rental services have launched their own ‘value’ brands with moderate and affordable pricing to expand their customer base,” said an unnamed analyst from the research team.

In 2013, Hertz launched Firefly Car Rental, which was developed to replace Advantage Rent a Car. It’s already available at all Hertz locations within South Africa. Location branding is being updated to reflect the latest Hertz corporate identity, and locations will be dual-branded with Firefly.

“Firefly is internationally recognised as a ‘no-frills’, great value car rental brand and is affording us increased opportunities within the leisure segment, particularly in South Africa,” says Karen Schwartz, International Sales Manager for Hertz and Firefly.

Avis didn’t launch its own budget brand, but rather brought its own one in-house in 2015, announcing that it would now operate the Budget brand as well. This brand was previously operated in South Africa by Bidvest and resulted in the launch of Bidvest Car Rental.

CONCLUSION

Interesting times and much to ponder for the world’s big car rental operators, as they seek to remain relevant and create an offering that meets the needs of the modern-day traveller