Auto Focus

Why the Optimism in Car Rental?

Attendees of the 2015 Auto Rental Summit conveyed a uniformly positive outlook. In the face of the many industry threats these days, what’s up?

We convened our fourth annual Auto Rental Summit this week in South Florida. Any time you can assemble close to 300 people who move a lot of cars, it’s a good time to assess the market.

We discussed car rental from the nitty-gritty to the big picture. Attendees radiated a palpable optimism, though in light of the headwinds discussed in the meetings, seminars and coffee breaks, I had to wonder whether that optimism was misplaced.

In the lending seminar, the elephant in the room was interest rates, which have been so low for so long that they have been expected to creep up for some time — but haven’t. An election season would generally temper a hike, though a strong jobs report last month is propelling the Fed closer to raising rates. Of course, a rate hike would raise the cost of money on fleet borrowing. And this wouldn’t be welcome in the face of rising fleet costs.

In his keynote address, Tom Webb, chief economist of Manheim, addressed fleet costs in regards to the used car market. For months, we’ve been stacking the sandbags to brace for the hurricane of increased wholesale supply. Luckily, however, the Manheim Index, a leading indicator of wholesale pricing, has risen for five straight months. According to Webb, we haven’t yet seen the tipping point where supply dramatically affects residual values. That should change. Mere raindrops now, those off-lease returns are expected to turn into a bigger storm in 2016.

Manheim’s data shows mileage on risk cars has retreated from recent all-time peaks, due in large part to the needed turnover of one company’s aged fleet, and those vehicles are still working their way through wholesale channels. Webb expects mileage to ameliorate somewhat, but remain high. However, holding risk units might not be the best strategy, as 45,000-mile units are now competing with those retail off-lease units. We’re looking at record lease penetration moving forward.

New vehicle sales will top 17 million this year and may reach an all-time high. Demand is strong, but the average age of cars has crept up to 11 years. With average miles traveled lagging behind employment gains, it begs the question, are new vehicle sales matching real demand? If not, we can look to history for the effect on residual values.

Rates haven’t been pretty, though after months of erosion at least our most recent rate review shows gains year over year. Market watchers still ask, shouldn’t rates be even better, because the airlines have enjoyed capacity increases? Good question.

And yet, in light of all this, the optimism is real. Frontline Performance Group shared results from a survey of franchised and independent car rental operators. The questions revolved around “What keeps you up at night?” and were designed to understand whether car rental operators feel they are meeting their business challenges. The answer, as evidenced in the survey responses, was a confident “yes.”
 
I asked audience members how they viewed their businesses in 2015 — are they expecting business to decline, stay the same, or grow? No hands went up indicating business will decline or stay the same; they all went up for growth. In the midst of growing employment costs, these car rental companies are hiring, not laying off.

What’s the unifying factor? Attendees said demand is strong. People are renting cars. This is the key. For all the issues with rising costs, a flowing reservations pipeline keeps business engines humming.

Brazil represents an extreme example. The country’s economic situation is dire — in less than a year, Brazil’s currency has lost 70% of its value against the dollar. And yet, this year we welcomed the largest contingent (23) yet from Brazil than in any previous year for our car rental-related shows. Because of currency devaluation, registration for this event cost them a lot more than last year, but they came.
In spite of Brazil’s economic crisis, people are renting a lot of cars. Brazil’s largest provider, Localiza, saw rates dip in the third quarter, though volume remained practically stable year over year.

(As an interesting aside, ABLA, the Brazilian car rental association, started a subgroup of operators under 35. At first I thought they were talking about fleet size, not age. Any market that can sustain a young operator’s group speaks to that market’s energy.)

In the U.S., industry vendors say they’re fielding an increasing number of calls from new potential operators. Whether they convert to solvent operators at some point is another matter, but this, too, shows market energy.

The other component to this optimism is the fact that operators have more options than ever to mitigate those rising costs, as evidenced by the vendors on the show floor. There’s a revolution in remarketing that’s using technology and big data to sell cars quicker online and “upstream,” while transportation companies have honed the logistics of getting de-fleeted vehicles into better sales markets more cheaply and quicker than ever before.

Start-ups are coming out with systems that automate the check-in process, while independent rental management systems are now more robust than legacy systems used by large car rental companies.
In a presentation by Facebook, a first for our shows, we learned about Facebook’s tools for small business that can target new and returning customers based on a myriad of preferences. This is big data for small companies, and it doesn’t cost a lot.

When you think about fleet costs, they always rise in good times. During the Recession, fleet costs were lower than ever. Let’s just be happy for the good times.

Tom Webb relayed an interesting statistic: In the midst of conflicting confidence meters on the economy, the chance of losing your job involuntarily today is at a historic low. As an indicator of consumer confidence to do stuff, spend money and rent cars, I’ll take it.

Comments

  1. Henna Jhon [ November 21, 2015 @ 08:13AM ]

    Great article and thanks for sharing. There are many rental car services in world. If you are going to Sri Lanka you must go with http://www.carwaylanka.com best service with good rates.

  2. iem [ November 26, 2015 @ 05:47AM ]

    ;odwd;jl;s

  3. Finding Limo [ December 9, 2015 @ 10:38PM ]

    The post is very informative. It is a pleasure reading it.
    http://www.findinglimo.com/

  4. Marc [ December 29, 2015 @ 11:16AM ]

    Good to know that Brazil has a car rental association (ABLA). Car rental associations around the world should start developing networks with each other. Welcome to Southern African Vehicle Rental and Leasing Association (www.savrala.co.za). Marc (President)

  5. carrentail [ April 20, 2016 @ 04:47AM ]

    Nice Job...thank's to sharing blog...http://www.udaipurtaxi.co.in/

Comment On This Story

Name:  
Email:  
Comment: (Max. 10000 characters)  
Please leave blank:
* Please note that every comment is moderated.

Author Bio

Chris Brown

Executive Editor

Chris is the executive editor of Business Fleet Magazine and Auto Rental News. He covers all aspects of the fleet world.

Newsletter: Sign up to receive latest news, articles, and much more.

Read the latest

Auto Focus Blog: A blog covering fleets, auto rental and the business of cars

Why Do We Visit Capitol Hill?

Members of the American Car Rental Association met with U.S. senators, representatives, and their aides last week. Here’s why bringing the message to this forum matters.

The Customer Isn’t Always Right

Not caving to a customer with a blatant agenda may have consequences, especially for a small rental company that relies on stellar Yelp ratings to advertise. But business integrity must prevail.

The Truth Behind Compact Van Depreciation

Why are large van values holding up better than their compact counterparts, and will it last?

Job Finder: Access Top Talent. Fill Key Positions.