The idea of renting vehicles for business trips gained in popularity when the recession first bit in 2008 and 2009. Yes, pound for pound, it works out more expensive than leasing an equivalent car or van over an extended period, but uncertainty was such at the time that companies didn’t know how, when and whether they would have to cut back, so committing to a lease contract for three years or more wasn’t a viable option for many – particularly if they were facing hefty contract termination charges in the wake of staff redundancies.
Consequently, the non-committal aspect of rental made it an attractive alternative, as Andy Hartley, commercial director at leasing giant Lex Autolease, explains: “Companies didn’t want to make the commitment. There was a definite requirement for vehicles but people couldn’t say whether they’d absolutely want one for three or four years. In that case they went for rental or extended their existing contract-hire agreements.”
Paul Marchment, fleet consultant at Arval, believes that, in addition to the economy, there were other factors at play that have affected the increase in rental over the past few years.
“When rental became more popular, we were experiencing long manufacturer lead times,” he says. “Certain components were unavailable after the Japanese tsunami and we were looking at lead times of six to 12 months for some vehicles.
“Companies were tending to put staff in mini-lease [a scheme designed for businesses renting a vehicle for more than 28 days] and long-term rentals to bridge that gap and that impacted us as well. The difficulty is in understanding how much that impacted us as well as the economy.”
Hartley says the recession did not do the business rental industry as many favours as you might think, though. Despite the spike as a result of the backlash to leasing, a lot of companies imposed regular travel bans on their employees, causing them to resort to teleconferencing and phone calls instead of face-to-face meetings – a move that has had a lasting affect.
“The flipside to [the increase in rental] is that with short-term hire, people can terminate their contracts immediately with no penalty,” he says.
“At that time, lots of businesses were saying ‘there will be no travel one week a month’ and that put an immediate, overnight stop on short-term type expenditure.
“We saw that last year particularly. That second part began more and more, as people were beginning to get used to teleconferencing and online conferencing as opposed to going out.
“In the first half of this year we’ve seen [the market] pick up but it hasn’t gone back up to pre-’08 levels.”
All of the rental experts that BusinessCar spoke to acknowledged that long-term business rental schemes have become more popular, which begs the question – where does leasing start and rental finish?
Hertz’s general manager for off airport, Neil Cunningham, says his firm can have vehicles out for as long as a year and a half: “I don’t think anything we’re doing is getting to the two- or three-year rental mark. Leasing typically starts at two years for cars and a three years for vans, but it is shifting into the middle ground more. For a flexible rental programme, we might expect to go up to 18 months, but they could return it after 18 days if they want to.”
Others acknowledge that long-term schemes are popular but claim there is more of a definitive cut-off in terms of what constitutes long-term rental.
Hitachi Capital’s new head of rental services, Kathleen Whittam, tells BusinessCar: “It’s very clear-cut. You have to bear in mind that, with rental, you really are looking at changing over a vehicle within a certain mileage.
“Someone will typically rent a vehicle for six to nine months. Then, after that, they will go into longer-term leasing contracts.”
Rob Ingram, director of business rental at Enterprise, agrees that rentals are usually capped at around the nine-month mark, but says that businesses requirements and the reason for renting rather than leasing has changed.
“There was a shift in what long-term rental was used for, definitely. It used to just be pre-contract [filling the lead times for new cars when a new employee joins the company].
“A fleet will normally have a core group of lease vehicles then a group of long-term rentals lasting for maybe three, six or nine months. It comes down to flexibility. If they want to downsize by 10% tomorrow then they can just do it with no penalties.”
Arval’s Marchment disagrees, though, and claims the distinction between the two forms of vehicle supply is becoming increasingly hazy. So much so, that the company has recently introduced measures to bridge the shortening gap.
“There is a bit of a blurred line for short-term rental and mini-lease,” he says. “We also have an 84-day rental that straddles the two, which was introduced earlier this year.
“With project work, project managers might require vehicles for six or eight months while they’re working on a project, but then they’re not working on it after that and that’s when mini-lease makes sense.”
Rental companies are now changing their practices to keep up with what business customers are haranguing them for, too. Costs and availability are constantly under scrutiny, but according to those in the know, the smart moves are in improving service and efficiencies, as these are the elements that make the difference.
Hertz’s Cunningham says business customers are expecting ever faster turnaround of vehicles and better levels of service: “For cars, competition is increasing – there’s more demand to deliver vehicles in shorter periods of time. Corporates are becoming more demanding than ever about the service they’re getting. As many people are looking at the customer service aspect now as they are at the price because they want to avoid the hidden costs associated with poorer service.”
Enterprise’s Ingram surmises that, on a rental company’s part, getting straightforward admin tasks right first time bring its own cost benefits, and is really what companies are looking for.
“Everybody seems to be busier in the jobs they do. Areas like invoice accuracy are so critical,” he says. “Back offices don’t necessarily have the people and the resources to correct these things nowadays. Things like that – getting them right first time – seem to be bigger cost savings than you’d expect.
“There is a cost element attached to being really efficient. People used to view that as just ease of use, now it’s viewed as a cost implication.”
What’s new in the market
Leasing companies are getting smarter about the rental services they offer clients, and two of the big players have recently launched new ventures in the field.
Arval’s consultancy team has developed a rental calculator, which is designed to work out the “break-even point” between employees using their own vehicles for business trips and the cost of renting a vehicle for the same purpose.
Paul Marchment, the fleet consultant behind the calculator, tells BusinessCar: “Two years ago we developed a grey fleet calculator. At the time we were trying to tackle the grey fleet issue and it was quite a comprehensive model. It looked at different driver profiles, short distance high mileage, long distance high mileage etc, and we tried to put the driver into four categories based on profiles to work out where you’d be better off putting them.
“The problem with it was that it was quite a complex model and we felt we were limiting the audience with it. So I designed a ‘light’ version just incorporating grey fleet and rental. This tool will help you find the break-even point and lose some of the issues you might have.
“We have built in some standard corporate rental rates with the model. I’m happy for this to be distributed because I think it’s got a wider audience than the fleet manager.”
He continues: “The model encourages the user to put the trip data in, say how they’re reimbursing the driver for the trip, add the current fuel price and then compare that to the cost of a rental.
“It deliberately hasn’t built in all the admin costs of making grey fleet checks and monitoring grey fleet exposure. That will vary from company to company. It flags up a reminder that these are things you need to check before allowing an employee to drive their own car on a business journey.
“Anybody can use it. One thing I would say is that if you’re a large corporate customer then the rates we’ve used are generic. If specific customers look at it with their rental rates, we’d then alter that and distribute it to them.”
The calculator is available on the Arval website.
Fleet on Demand
Hitachi Capital has also adopted a new rental system from Fleet on Demand, a company launched last year specialising in fleet management and rental software. The system, which became operational last month, is said to “speed up the rental process” by allowing users to book vehicles online, around the clock and from 200 independent rental companies. It also allows fleet operators to download reports detailing what vehicles staff have borrowed, when, for what purpose and details the costs.
The firm’s equally new head of rentals, Kathleen Whittam, tells BusinessCar: “[Hitachi] has grown through acquisitions and recently took on a portfolio of clients in the SME market from the [now defunct] Lombard business. A number of customers want a one-stop shop for everything they need from vehicles, so we’re trying to minimise downtime for the customer as much as possible.
“Overall [the system] will help us from a rental perspective, but it will also help our clients. They can book what they want when they want. You can see what the costs and efficiencies are, fuelling, P11D, CO2, etc.
“The [rental] companies we use have newish vehicles, which helps with fuel and CO2, but also with duty of care. That’s so important now. Rental will only ever grow in demand for all of these reasons.”
