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10 QUESTIONS ON... Daily rental

Date: 04 May 2010

In this instalment of BusinessCar's '10 questions' series that looks at various areas of the fleet industry, daily rental experts discuss the role of their sector as part of the vehicle provision mix. Rachel Burgess reports

1. What are the main reasons that fleets hire?

There are a number of reasons why fleets choose to hire, ranging from a business travel trip requirement to replacement vehicles while other vehicles are off the road for servicing, breakdown or accident repair.

Hertz sales and marketing director Mark Tristram-Walmsley says companies are using long-term rental to supplement seasonal fleet requirements and, especially in the current climate, while they delay decisions about committing to a purchase or long-term lease.

"Fleets are using long-term hires while new staff complete their probation period with a new employer," he adds.

Europcar marketing director Catriona Lougher says there are three key benefits: flexibility, cost and duty of care.

"Vehicle hire gives businesses access to the right vehicle, for the right job, in the right location - just for the time it's needed. There's no maintenance costs, no concerns over tax, MOT or making sure the car is adequately insured. It's a pay-as-you-go solution that helps businesses limit their exposure to long-term financial agreements while supporting compliance with corporate manslaughter legislation," she says.

"For fleets, vehicle hire can provide vital back-up to a main company car fleet, but it also neatly addresses the duty of care concerns of the grey fleet. Whether a car's off the road, transport is needed for non-company car drivers or cash-for-car takers, vehicle hire gets staff from A to B in the right vehicle for the job."

Enterprise Rent-A-Car director of business rental Rob Ingram says that companies can better manage and control mileage reimbursement of employees who would otherwise use their own cars with rental.

"Cost is also a key consideration when it comes to choice of road, rail or air," says Lougher. "Road travel is still also a more viable and convenient option for business travellers. Compared to trains, for example, car hire offers great flexibility and cost savings.

"One-way rentals, vehicles to suit the journey/number of people travelling, car pooling, and longer term hire to support seasonal contracts all give businesses flexibility to respond to actual rather than predicted demand."

2. How is that changing?

Rental demand is increasing month-on-month according to Tristam-Walmsley. "This is for a number of reasons, including seasonal requirements, delaying decision on purchasing and to provide new hires with vehicles. Companies are also using car rental firms to avoid potential exposure around grey fleets."

Lougher has also seen more demand: "While there has been an increased focus on reducing travel, in our experience face-to-face meetings are still essential and preferred. Also, compared with many other corporate travel costs such as flights and hotel accomodation, car hire is seen as a practical, cost-effective solution for business travel and is therefore less likely to be politically sensitive at a time when businesses are looking to make staff cuts."

Tristam-Walmsley adds that companies are also turning to car clubs for corporate use. "Car clubs help firms reduce business travel costs by converting fixed fleet costs into variable costs: members drive on a pay-as-you-go basis, there are reasonable annual membership fees, and hourly driving rates include insurance, fuel, maintenance, cleaning and roadside assistance as well as congestion charges in London."

3. What's going to happen to rental rates in 2010?

"The highly competitive nature of the vehicle hire market has kept pricing artificially low for a long time," says Lougher. "However, costs to providers have in fact risen enormously in the past couple of years and we are working with customers to help mitigate the rate increases. Rates are always set on the client's profile and mix of business and whether there is any behavioural change."

Ingram does not expect any dramatic increases in rental rate but says "short-term rental continues to fight commoditisation, which has kept daily rates extremely low for a long time".

"It's likely that the industry will see some realignment of rates through the year to factor in the increases in running costs," he says.

4. What changes have there been in the way daily rental firms get access to vehicles?

There is little change in this area according to the companies BusinessCar spoke to. Enterprise Rent-A-Car says it continues to risk purchase most of its vehicles, which "provides the flexibility and scalability to allow us to grow our fleet year-on-year".

Europcar says it has a flexible fleet-sourcing strategy and guaranteed funding lines "which enable us to purchase and bring forward fleet at short notice as demand dictates".

Lougher adds: "Our forecasting tools enable us to predict demand by region, which also supports our fleet-sourcing strategy."

5. Can fleets book cars by CO2 emissions?

Yes. Rental companies are well-versed in the benefits of lower CO2 emissions and are introducing programmes to demonstrate this to customers. Avis has developed a low-emissions car group, the Avis Eco range, which has a sub-120g/km Volkswagen Golf on offer. Marketing manager Darren Peacock says Avis is investing more in the product and replacing the original VW Golf with Bluemotion models, lowering the category to sub-110g/km.

Hertz has introduced The Green Collection, which is make and model reservable. All models have a CO2 output of less than or equal to 140g/km, with more than half of models at 120g/km or less. Meanwhile, Europcar's Lougher says it was the first car hire firm to give customers information on average CO2 emissions for each car group as part of its online fleet guide, "meaning customers can quickly make an assessment of the impact of their hire on the environment as well as the fuel efficiency of the vehicle". Its lowest emission car group has an average 130g/km CO2.

6. Are you looking at medium term rental as a growth area?

Europcar says it "sees enormous opportunities for mid to longer term hires simply because of the flexibility it can offer those businesses reluctant to tie into longer term agreements".

"It's ideal for those affected by seasonal demand, new starters or temporary contracts," adds Lougher.

Enterprise also considers medium-term rental a growth area with its Flex-E-Rent product offering medium- to long-term rental "with the scope to return the vehicles at any time without penalty". To aid customers, LCVs can be liveried and racked according to customers' specifications, says Ingram.

Avis Flew, a short-term lease product for rentals of 28 days or more, has been developed by Avis, which has also identified a market for medium-term rental.

7. How is the type of vehicle fleets want to hire changing?

Cost and environmental considerations remain high on the agenda for most companies. As a result, companies are seeing a move towards vehicles with smaller engines that produce less CO2 and are most cost-effective, says Ingram.

Lougher echoes this: "In line with reduced budgets and the introduction of environmental targets for many businesses, we have seen demand for smaller/lower cost car groups with low CO2 emissions rise significantly over the past year or two.

"While in the past a vehicle may have been selected for its comfort, appearance and luxury feel, the focus in the current market is much more firmly on efficiency, necessity and reduced cost."

8. How are you using technology to improve your rental offering?

Ingram says Enterprise's Automated Rental Management System already enables customers to manage every aspect of their rental needs online, although it "continues to look at new ways to improve service through technology".

For example, it is exploring the potential for smartphone applications, giving customers the ability to rent vehicle remotely.

Lougher says e-business now touches every aspect of the vehicle hire process to make it "smoother, quicker and more efficient".

"Just as importantly, it also gives fleet managers greater control over bookings, costs incurred and valuable information to help support duty of care responsibilities.

She added: "Forget paper, we are in an age now when every aspect of the process can and should be managed online. If a hire company isn't exploiting these technologies it isn't being efficient in its own business and is therefore unlikely to be able to offer customers worthwhile cost-savings."

9. Are you utilising handheld device applications, such as iPhone apps, to further your offering?

Hertz will introduce applications for both iPhone and Blackberry smartphones over the next 12 months, says Tristram-Walmsley. The free applications enable Hertz customers to access the Hertz mobile site to make reservations, search and find nearby Hertz locations, save favourite locations and receive special promotions. Hertz #1 Club and #1 Club Gold members will have the option of saving their member number to further simplify the booking process. The applications have been developed so that users can book a reservation using a member number as well as the favourite and nearby location functions

Europcar launched a mobile phone reservation last year, which allows online booking from any web-enabled mobile phone. Customers can make or change a reservation, book extras such as satnav and child seats and find the nearest hire location from their mobile phone, explains Lougher.

An integrated search engine makes it easy to find a convenient car hire location, and for iPhone users, it automatically selects the nearest branch to the customer's current location. Once booked, the confirmation is sent immediately by free text and email.

10. What's the next big thing in the rental market?

Two words: electric vehicles. All the rental firms are jumping on the electric bandwagon, recognising it as the possible future for cars.

Lougher says Europcar believes electric cars are "the next big thing". As Renault's principal short-term rental partner in Europe, it is set to offer customers the new Renault Zero Emissions range from 2011.

Meanwhile, Hertz recently announced a commitment with Nissan to bring zero-emission mobility to car rental by early next year, by introducing the Nissan Leaf to its fleet. Tristam-Walmsley says the car "ushers in a new era of eco-mobility in line with rising demand across Europe".

Electric vehicles are beginning to gain traction for clients of a certain profile, adds Ingram: "For our part, we are engaged with Transport for London as part of the Plugged-in Places programme to establish an infrastructure of charging points in London and continue to explore the feasibility of electric vehicles on fleet."

Hertz's car club Connect by Hertz is another area of growth for the rental company - and sector: "It is very popular as it offers an economic, convenience, stylish and environmentally friendly alternative to car ownership and is an innovative transport solution for companies," says Tristam-Walmsley.