European Car Rental, Gas Hikes Shift Buyers' Gears
<B>European Car Rental, Gas Hikes Shift Buyers' Gears</B>
By Amon Cohen
Europe's extensive rail network means that car rental is not as important to travelers as in the United States, which is just as well: Automobile rental rates have rocketed by up to 60 percent over the past year and 2001 also threatens to be ugly for the corporate travel buyer. Add to that fast-rising prices at the gas pump (from $0.95 per liter in the United Kingdom in September 1998 to $1.18 in September 2000, and from $0.75 to $0.95 over the past year in Germany) and the total cost of car rental has hurtled into the stratosphere. The price hikes have left travel managers taking whatever action they can to mitigate the dent in their budgets. Not least of these is not using the car at all.
Alan Coles, American Express head of supplier relations for Europe, said total spend by Amex clients is up 5 percent to 8 percent this year, but the number of transactions actually is down. British Telecom, probably the largest user of car hire in Europe, is paying 20 percent more this year but is putting through 20 percent fewer transactions. BT travel procurement manager Paul Cleveland went into the year 2000 facing a 30 percent increase from preferred supplier National Car Rental but managed to negotiate it down to 20 percent.
The root of the problem is that the residual values of the vehicles used by the rental companies has collapsed, so they are making far less money when selling them after six months to one year of usage.
"We found they were all suffering in the same way," said Cleveland, "so we got the figure down to 20 percent and spread it across our portfolio of rates."
What Cleveland meant by spreading is that not all of the increase went on the daily rate. There is a tradition in the United Kingdom of large corporate clients enjoying free delivery and collection of vehicles. BT now is paying for what Budget Rent A Car international sales and marketing director Roeland Moens described as the "extreme cost" of this service. The price BT pays of $13.10 for a vehicle delivery to the traveler's home, or $3.60 to their office, is a modest one but quickly adds up across the 200,000 rentals the company makes each year (it does minimal volumes in the rest of Europe).
Similarly, National previously waived its surcharge for filling up cars returned less than full, but BT now pays a premium price, although still not as great as is charged to ordinary customers. BT's 20 percent decline in rental business partly is attributable to the company putting a block on travel for three months earlier this year, but also because travel costs now come out of individual travelers' own budgets. BT's total budget in previous years grew 10 percent to 15 percent annually.
"People don't just get a car and drive off now," said Cleveland. "Their mindset has changed and we are looking much more at things like videoconferencing. Drivers are also considering rail."
The decline in rental business does leave Cleveland with a problem for next year. BT has failed to meet its volume commitments and therefore can expect a rough ride in its negotiations with National. Aligned to this is a continuing decline in residual values and the fallout from September's fuel depot blockades in the United Kingdom, which left rental cars stranded without gas on forecourts, during what should have been one of the busiest fortnights of the year. "I am 99 percent certain I will face another increase next year but I don't know how much," said Cleveland.
The United Kingdom is by no means the only problem country. Coles said France and Germany also have been badly affected. Both Thomas Faller, global travel manager for Asea Brown Boveri, and Moens confirmed that Germany has suffered the worst increases of all. According to Moens, rates have risen 35 percent to 60 percent in Germany. Meanwhile, Brigitte Ringdahl, corporate travel manager for the Ericsson Group, reported that the hike in Sweden has been around 10 percent.
Yet, if the buyers are hurting, the rental companies reported they are hurting even more. "We do manage to increase rates, but at a level well below the costs we are incurring," said Mark Horrocks, European sales director for Avis Europe. Moens agreed: "The cost of fleets has significantly increased, but competitive pressures have not allowed us to price the increases through."
In spite of BT's experience, Moens claimed resistance is strongest in the United Kingdom, a market in which none of the large car hire companies is reputed to have made a profit for several years. "We would have to increase our prices by at least 15 percent to 20 percent to catch up with costs in the U.K., but that is an unrealistic ambition," said Moens.
In spite of spiraling rates, Moens claimed car rental is still one of the most economical forms of business travel, especially if two or more people ride in the vehicle. However, given the rocketing cost of fuel, Moens believes some clients will trade down to smaller vehicles that consume less gas.
Budget likely will tailor its fleet accordingly. One area where rental companies have been able to recoup revenues is in making a surcharge for airport rental. In the United Kingdom, this has been standard practice for some time, with prices 12 percent to 15 percent higher than in ordinary locations but, said ABB's Faller, it now has become pretty ubiquitous across Europe.
Another emerging trend reported by both Horrocks and Moens is an increasing desire on the part of corporates to consolidate their car hire spend internationally. Horrocks does not view this as an opportunity for the client to leverage its spend, rather it is a chance to ensure top-quality service for all the client's businesses, whether it be management information for the travel manager or a high-speed vehicle collection process for the traveler.
However, where global deals help financially, said Horrocks, is when Avis can spread price increases across its markets rather than concentrating them in the country where costs have risen the fastest. Moens has noticed clients starting to ask for a single price across Europe, but said it is not possible to offer this since market conditions in each territory actually are diverging rather than converging.
"This is not a straightforward pan-European process," he said. "The price of a Ford Fiesta is very different in each country. The euro will bring some degree of consistency but we are still not there yet."
Looking ahead to next year, Alan Coles believes the negative impact of the September fuel crisis could filter through into pricing. Rental companies also will be mindful that they cannot push rates up too high for fear of losing their customers.
"Volumes are already down and the fuel crisis will have an impact," said Coles. "People are going to have a look at the total cost and wonder whether rail, taxi or air is a better option.