ICRS Experience Day 3: All About Fleet

For the third day of the ICRS Experience, the virtual 2020 version of the International Car Rental Show, the seminars were all about fleet: How to rethink your fleet plan, consider new platforms to put your fleet vehicles on the road, and clean them.

The day’s first seminar convened fleet experts from sales (Mike Muehlenfeld of Walser Fleet), operations (Juan Rivera of Sixt), and remarketing (consultant Joe Lyons) perspectives. One main takeaway was that fleet allocation will be tight for the next few quarters. 

Muehlenfeld said his 150 to 200 customers are running from 30% to 40% utilization right now, even after reducing their fleet sizes 50% year over year. Yet many are telling him business is bouncing back better than expected and they need cars. 

“That's been the big challenge because a lot of the manufacturers are really trying to supplement the retail lots before fleet,” he said. “Most of the manufacturers aren't making cars available until after the first year, but we are seeing a very big trend of people submitting orders starting for January.”

Muehlenfeld said Volkswagen, General Motors, Chrysler and to a certain extent Toyota have some supply in the fourth quarter, but the majority will come in the new year, he said. 

Lyons suggested that car rental companies work their dealer relationships to source cars, even if it means swapping out older inventory for new. “When it gets to be towards the end of the month, the dealer may need to sell 10 or 15 more cars to meet their objective, even if it means taking a loss on those cars,” he said. 

“I think the one- to two-year-old car with low miles is going to be in demand until Q1 and maybe into the spring, because I still think we're going to be short cars,” he added. 

With tight allocation, fleet managers may have to hold onto units longer, which might mean another maintenance cycle. Lyons recommended to not wait until the last minute to make those repairs, and to consider some reconditioning to return greater value at resale. 

With the fleet sell off, rental companies shed their higher priced units to recoup a greater return. This has skewed their fleet mixes to imbalances of certain types of cars. “Everybody's trying to get their fleet mixed back to what it was traditionally, but that's a work in progress,” Rivera said. “I see that fixing itself in Q2 or Q3 as the allocations come back to fleet.”

Operationally, Rivera has seen the shift from international inbound to the road-trip renter, which has led to more miles on the cars. He said Sixt is seeing shorter booking windows, with the majority within three days. “They’re taking these last-minute trips, but that's also lowered the no-show rate,” he said. 

Florida, the country’s largest market by state, has opened up, which has driven volume. At the same time car rental companies have done a good job of de-fleeting to take advantage of the hot used car market. “Everybody seems to be in a good spot from a fleet level perspective,” Rivera said. “There's discipline in the market right now.”

In terms of fleet buying for 2021, Rivera is taking a conservative approach. While a “second coronavirus wave” may happen, “I think we're to a point where we're not going to shut down the country, we're just going to keep moving forward,” he said, adding that he won’t fleet up to last year’s size. “I think Q1 we have a good idea (of overall fleet size). The second quarter is still a discussion, but the cars will be there (for Sixt to buy.)”

The commercial vehicle sector could be the hottest right now with the explosion of e-commerce deliveries during the pandemic. However, cargo vans are extremely hard to come by, Lyons said. 

Muehlenfeld is selling cars now for January through June of next year. “I would say it's going to be about 60% of normal (in that timeframe),” he said. “We are seeing it bounce back, though it may not be until the end of next year before we really see the normal cycle.”

Muehlenfeld added that the manufacturers were already curtailing rental fleet sales before COVID-19. Repurchase programs “are becoming a thing of the past, like a dinosaur,” he said, though it’d be smart to take advantage of them — for those that can — to pull them through risky times. 

In the second panel seminar, “Understanding New Platforms to Grow Utilization,” representatives from app-based third-party networks (Ludwig Schoenack of Kyte, Richard Lowden of Move Mee, and Brian Allan of Hyrecar) explained how car rental companies are supplying fleet and the growth of these systems during the pandemic and beyond. Brett Lippel of Midway took the operator’s perspective.

While each platform is distinct, what ties the Kyte, Hyrecar, and Move Mee platforms together is that they rely on rental companies and other fleet owners to supply their networks. 

At Midway, Lippel uses Hyrecar to rent a dedicated fleet to gig economy drivers. “Using these partners as a marketing arm, so to speak, helps us spread out our marketing cost,” Lippel said. “I think that more and more customers are obviously online and are looking for different ways to run a car. The pandemic has been quite challenging for all of us in the rental car business. We value those partnerships (with these platforms) to help us grow the business.”

Lowden started Move Mee before the pandemic, but saw business take off as car rental partners asked for a contactless handover of the vehicle. “They didn't want to have that human interaction; they certainly didn't want to queue up in front of the traditional airport rental desk, they wanted literally to go straight to the car. So we saw the demand shift very, very quickly.”

Hyrecar, the oldest of the platforms at three years, has seen its business shift from renting to ride-hailing drivers to those driving for food and package delivery services such as Uber Eats and Postmates. As such, Allan has seen a decrease in miles driven, as many drivers are also part time. 

Lowden’s initial focus was the traditional leisure rental market — the customer that wanted to bypass the counter and go straight to the car. But since the pandemic, Move Mee has found new customer types in Europe that want a contactless experience. Today, Move Mee has contracts with local governments in Sweden, with residential businesses, and with apartment complexes in the U.K. 

Kyte delivers cars in local markets to affluent, young renters who have chosen not to buy or lease a car. Kyte has a subscription offering on a month-to-month contract that is popular, Schoenack said. The other growing rental type is business users. 

“For businesses large and small, the value proposition really hits home to get the car delivered to your door,” he said. “If you're a decision maker, you want your employees to be out the door, instead of waiting around at a car rental desk.” 

These platform providers stressed that customers are willing to pay more for a delivered car and a contactless experience. While that is crucial for these models to work, at the same time, they lower the operational costs for the fleet owner. 

Lippel said that his cars on the Hyrecar platform are out for much longer rents — 75% of his vehicles have been out for over 60 days — and the decreased touch points represent cost savings. He said that many of the gig-economy drivers on the Hyrecar actually buy the cars from Midway, which is licensed to sell used cars retail.

Lowden said that having the renter doing the onboarding themselves through the app, including the qualification process, inspecting, and returning the vehicle, lowers operational costs.

Schoenack, Allan, and Lowden said that profitability works best when their suppliers buy fleet specifically for their platforms as opposed to moving cars in and out of daily rental. 

In the Kyte model, Schoenack said to not focus on revenue per unit, but look more closely at profit per unit, which is a function of cost. Kyte does not maintain a brick-and-mortar storefront, rather it stores cars in a well-situated but low-rent parking lot. If and when the fleet supplier can grow the fleet but maintain or lower storefront costs, then even greater profits can be realized. 

Finally, Dr. Pratik Patel, president and founder of RideKleen, explained how COVID-19 has changed renter’s views of vehicle hygiene. This increased awareness of hygiene is destined to stick around, necessitating a long-term solution to keeping vehicles hygienically clean.