For perhaps the first time ever, car rental has shot above air and accommodation to become travel buyers’ number one problem category. After decades of minimal change, and rates depressed by fierce competition, the situation has altered drastically in recent months.
“It’s a pain point,” says Institute of Travel Management head of programme Kerry Douglas. “Practically every call we have, car hire is raised by one of our buyers. ‘The perfect storm’ is how one referred to it.”
The storm in question has been generated by strong demand colliding with chronic constriction of vehicle supply. Of the former, “Demand for B2B car rental is at or above where we were in 2019,” says David McNeill, EMEA assistant vice president for global corporate sales at Enterprise Holdings.
McNeill attributes much of this success to some business people avoiding public transport during coronavirus, or, even if they are willing to board an aircraft, convenient flights being unavailable.
A typical example is Dutch material handling and logistics automation company Vanderlande. According to senior global travel manager Esther van der Aa, Vanderlande is booking far fewer flights than pre-pandemic, yet car hire volumes have remained steady, including one employee who drove all the way to Prague. The average number of rental days is also increasing.
On the supply side, the critical issue is the slowdown in new vehicle production owing to a global shortage of semi-conductors. “The shortage may last until the end of 2023,” says Sabah Kahoul, Paris-based general manager of travel management consultancy Business Travel Purchase. “Some car rental suppliers are having to buy used cars because of the lack of vehicles.”
According to McNeill, the impact on rental fleet availability varies significantly by supplier. He claims Enterprise buys more than 90 per cent of its 1.85 million vehicles outright, instead of through manufacturer buyback schemes. “The advantage is we decide when we dispose of the vehicles,” McNeill says. “We’re able to hold on to the fleet for longer than we would traditionally have been able to do so.”
For buyers the inevitable consequence of reduced supply and other inflationary pressures common to all businesses is higher rental rates. “It is an extremely solid pricing environment,” says Nicolay Nedrelid, founder of car rental consultancy Nedrelid Corporate Advisory. “Average price is way above what it was.”
Kahoul says suppliers are pushing in many cases for double-digit rate increases. Even with skilful negotiation, she warns buyers are likely to end up paying at least five per cent more.
Nor is the problem confined to new agreements. Kahoul reports suppliers, citing unsustainable vehicle and other cost increases, are pushing to renegotiate existing contracted rates.
Buyers also face critical availability challenges. ITM members are complaining of travellers being unable to book cars or, even more egregiously, having existing bookings cancelled, sometimes only the night before a rental is scheduled to start.
“There’s no give in the system because of lack of supply,” says Douglas, adding that flexibility is diminishing too: suppliers are becoming more reticent about allowing one-way rentals and are even imposing minimum rentals of three or four days in certain locations.
Speaking generally about the travails of the corporate rental market, McNeill says: “We’re in a bit of a perfect storm right now but I don’t expect the current situation to last for ever.”
Others are less sure. Nedrelid believes higher rates could be here for good. “In the past, the market was characterised by price wars and indiscriminate capacity management,” he says. “This is a generational opportunity to shift expectations of how much it should cost to rent a car.”
An arguably overdue price correction may be the least of buyers’ worries, however. Kahoul has received reports of some rental suppliers no longer being willing to service corporate clients because leisure is more profitable for them. She worries “the market has developed in a way that I wonder whether corporate business is going to be prioritised by car rental companies. There is a theory business travel will never get back to where it was and growth in car rental will be more leisure-oriented, in which case it will be less important to retain business customers. If you increase pricing, it goes straight to the bottom line, whereas if you add volume through signing more corporate clients, there are a lot of costs.”
McNeill says the opposite holds true at Enterprise. “We have absolutely prioritised business-contracted customers over leisure and tourism,” he says. “Tempting as it might be, because in the leisure sector some rates have been driven quite high, it’s very short-term thinking. We will always prioritise putting out cars to our corporate customers, so we’ve reduced enormously the availability into the leisure space.”
Whatever tribulations may or may not lie ahead, McNeill, Kahoul and van der Aa offer numerous suggestions for buyers to address their immediate car rental difficulties:
Nail down availability
For many buyers an even higher priority in negotiations than price will be gaining cast-iron commitments from suppliers regarding provision of vehicles. Van der Aa says service level agreements will need closer attention than ever for this reason.
Consider long-term contracts
Van der Aa recently secured a three-year contract after anticipating rates would rise steeply. It may even make sense to negotiate agreements for up to five years, says Kahoul.
Sign additional preferred partners
“Procurement strategy is changing. The advice is to partner with multiple car rental companies to mitigate the risk of shortages,” says Kahoul. This may involve securing more than a single secondary partner. Any resulting discounts, even relatively small ones, could prove highly welcome: ITM reports members having to pay rates up to four times higher with non-preferred suppliers.
Engage with your account manager to explore more efficient usage
“There’s an awful lot of information we can pull out of management reports, such as average mileage and time of day,” says McNeill. “People often say they need a car at 6am on a Monday. Do they really, or is this just a habit they’ve got into?” A reassessment may show a shorter rental will be fine.
Look beyond the basic rate
It’s often add-ons that catch out the unwary, such as refuelling costs, delivery and collection charges, mileage fee and airport and city charges. “You really need to pay attention because ancillaries can be very expensive,” says van der Aa.
Look at other vehicle management options
McNeill says there are more options for car usage than in the past. Examples include keeping a pool of rental cars on the company premises or subscribing to car clubs for short-term urban rentals.