Cost Increases Indicate Coming Rise In European Car Rental Prices

The cost of corporate car rental looks set to rise in Europe after a lengthy period of flat pricing sustained by intense competition. That competition remains as fierce as ever but the wider dynamics of the car market have changed. Manufacturers have both restricted their supply to rental companies and ceased buying back vehicles at special prices, as trade in nearly new vehicles is damaging the sales of new ones. In the United Kingdom, sales of new cars fell 13 percent last year.

Other factors are coming into play in creating inflationary pressures. In Germany, for instance, the supply of rental vehicles is failing to keep pace with growing demand as the country emerges from its economic downturn.

The specter of a price rise has loomed at a time of busy development in European car rental. Volkswagen has completed the ?3 billion sale of Europcar to private investor Eurazeo, while Avis has announced a series of service pledges, such as supplying a guaranteed make and model of vehicle to drivers.

Meanwhile, ETABid, the U.K. company that provides online request-for-proposals tools for travel buyers, has launched a car rental version.

The arrival of the tool may attract extra interest if car rental costs start rising and therefore move nearer to the center of buyers' radar screens. "All car rental companies have been saying we should expect rises in the corporate rate because of changes in their costs," said Jacquie Cahill, EMEA car product manager for Carlson Wagonlit Travel. "We are definitely seeing some trying in their negotiations with customers to put prices up."

However, whether the rental companies will succeed is another matter, according to Cahill, who believes that the ferocious war for marketshare could once again get the better of them. "If one company moves its rate down, the others will have to follow," she said. "Overall, I think we will see a slight increase in prices but where and how much is hard to say." As an example, she pointed to Germany, where rising demand could be offset by a particularly fierce battle for marketshare as National Car Rental tries to grow in a market traditionally dominated by locally based Sixt.

National senior vice president for Europe John Leigh confirmed that obtaining vehicles for rental fleets at discounted prices is proving a problem across the region. "The days of rental companies getting the cars they want are gone," he said. "Manufacturers are being far more disciplined about the number of vehicles coming into our industry."

However, Leigh added that instead of raising prices across the board, customers would find the level of increase is determined by how profitable the business is for the rental car company. A rental of just one or two days, for instance, does not produce a high yield, especially if it includes vehicle delivery or collection from the renter's home or office. Rental companies do charge for delivery and collection, but often waive the charges as part of their bid to win new business. Leigh said such waivers will become increasingly rare.

Cahill agreed this is likely. "Rental companies will scrutinize their auxiliary services to see if they can get more revenue from them," she said.

ETABid claimed one of the benefits of using its tool is that buyers will be able to compare more accurately the total cost of each supplier's quote, including extras like delivery and collection. "It will give buyers greater transparency," said ETABid managing director Karen McGee. "Often, all they look at is the headline price but they need to base their judgment on a lot more than that because the total ancillary charges could be even higher."

ETABid allows buyers to build an RFP from an online library of questions, add management information about spending patterns and then distribute it electronically to potential suppliers. In return, vendors must respond within the templates given to them. For the new car rental version, suppliers are required to submit their prices according to industry-standard Association of Car Rental Industry Systems Standards codes. These specify vehicles based on such criteria as size of car, number of doors and availability of air conditioning. Suppliers are invited to submit a price for each of these codes and also, if they wish, to vary them by rental location. They also can be required to quote specific prices for such extras as insurance, delivery and collection charges, plus extra mileage.

Nicola Spence, commercial manager for the medical device company Smith & Nephew, the first client to use the car rental version of ETABid, said it has helped her to make comparisons. "However, what I like even more is the ability it gives me to conduct the bid collaboratively with other stakeholders in the company," she said. "We believe in giving stakeholders buy-in to the procurement process at Smith & Nephew. I am able to involve them every step of the way from designing the RFP to evaluating the supplier responses."