Worldwide Business Information and Market Reports

www.the-list.co.uk and www.worldmarketresearch.com

Telephone +44 1404 891528 Fax +44 1404 891717 Email reportfinder @ tiscali.co.uk

Just want contact details for one of the companies in this report? Please don't ring us - try www.companieshouse.gov.uk, www.thomweb.co.uk or www.askalix.com

Join the ReportFinder mailing list and be told of new reports

Email:

MP71008

MAPS CAR AND VAN HIRE JULY 1998

Overview

Table of Contents

Executive Summary

Back to Renting Index and Shopping Cart

Back To REPORTFINDER home page and Search Engine

TABLE OF CONTENTS

Not yet available from the publisher - due soon

Back to Top

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

The vehicle rental and leasing market in the UK was estimated to be worth around £12.5bn in 1997. Between 85 percent and 90 percent of this was accounted for by the long term (primarily leasing) sector, with the remainder represented by the short term (primarily rental) market.

As in many other service industries, the level of activity in the industry depends on the level of economic activity generally. Therefore, it is not surprising to find that the industry has undergone something of a resurgence in recent years. This is particularly the case with short term rental, where there is a high correlation between car rental levels and GDP. Short term rental is also heavily dependent on the level of overseas visitors to the UK and (by implication) the level of global economic activity. In terms of long term leasing, the primary impact of economic activity is its effect on new vehicle demand, especially for company cars. Tax treatment and accounting practices also affect long term vehicle leasing, particularly by altering the balance of advantage between leasing and outright purchase.

The UK short term rental market is dominated by a small number of major international companies, including National Car Rental (previously EuroDollar), Avis Europe and Hertz, which tend to operate through a combination of wholly-owned and franchised operations. The remainder of the market consists of a plethora of small companies which serve primarily local markets.

The short term rental sector has two main customer groupings - business and leisure. These are roughly equal in importance to the industry, with business customers accounting for 53 percent of revenue and leisure customers the balance. As the key requirements of corporate customers are a competitive product, speed, quality of service and geographic coverage, it is not surprising to find that the majors dominate the business market. Indeed, many have long term agreements with major UK companies to supply vehicles under contracted rental programmes.

The leisure market in the UK is considerably more fragmented and includes customers who pre-book a car prior to departure for a holiday and those who decide to rent a car at their leisure destination. In the pre-booked market large companies benefit from their airport locations. Airport locations are estimated to make up around a fifth of all car rental bookings in the UK with the large costs of concessions making entry by small local rental operations impossible. These companies are forced to compete in other locations such as railway stations, city and suburban centres, hotels and resorts where the barriers to entry are much smaller.

There is increasing evidence to suggest that the short term rental industry is becoming more concentrated. The entry of a number of significant new players, particularly Republic Industries of the US, has resulted in the emergence of a new approach to car rental. This involves the integration of car rental and used car sales, giving a ready market for the company’s retired fleet. However, because the second-hand car market is highly fragmented with a large number of low quality retailers, there is concern that the brand image of major car rental companies may be damaged by the association with second-hand vehicle sales.

Industry consolidation provides significant advantages through economies of scale. Advanced information technology enables major rental firms to manage fleets more efficiently; this is particularly important in relation to vehicle rental for leisure purposes which is, by nature, seasonal. The majors also offer qualities (such as an extensive network) which are important to other businesses in the travel industry. This has led to partnerships between the major car rental firms and a number of airlines.

Despite the industry’s need to consolidate, the major rental companies do not consider the absorption of small firms a profitable route to take. The principal reason for this is that their are few synergy gains to be made (eg at airports, only one counter per rental company is allowed). Moreover, growth by acquisition would result in the inheritance of old vehicle fleets.

Original research commissioned by Market Assessment in 1998 investigating the purchase decisions behind short term vehicle rental in the UK found that vehicle rental was particularly an option for those under 35. The most popular reasons to hire a car or van were moving house, on arrival at a holiday destination and as a replacement vehicle when a car was being repaired.

The long term vehicle rental market is by far the more complex of the two sectors. Whereas, short term rental basically involves a standard day-by-day agreement, long term vehicle rental can include one or a combination of several different types of arrangements. The most popular form of agreement is contract hire which involves the leasing company remaining responsible for the associated costs of the vehicle (excluding the cost of fuel), and recovering these through a service charge to the client. Other arrangements include: finance leasing, which can be further divided into open-end leases, balloon leases and closed-end leases, and contract purchases. Fleet management, although not strictly a lease agreement, is also included as a long term rental arrangement, as it is becoming an increasingly important part of the industry.

Unlike the short term sector, the long term market is highly concentrated with a small number of large companies, backed by capital from banking and finance groups, controlling a significant proportion of the market. By far the largest source of customers is the corporate sector, which comprises approximately 80 percent of all long term rental business. Of the remaining market, the public sector makes up around 15 percent and private individuals 5 percent. Although the private sector is the smallest it has grown sharply in recent years, following the increasing trend towards self-employment.

Changes in the tax system can have a significant effect on the long term rental market. Changes in business and corporation tax may affect vehicle users’ decisions on purchasing as opposed to renting or leasing, while income tax changes relating to the taxation of company car benefits are an important concern of the business car rental market.

Originally the provision of a company car was a tax-efficient way of rewarding staff and, in the era of incomes policies, was a method of improving employee packages without exceeding restrictions on pay increases. Since the early 1990s various governments have acted to reduce the income tax advantages of the company car. Environmentalists have also pressurised governments to increase tax on company cars. However, the latest budget (1998) merely increased the tax on fuel benefits rather than the provision of the vehicle.

Contract hire and, to a lesser degree, leasing are likely to remain attractive options to the fleet user. The important risk for a lessee is the residual value. However, provided there are no major unforeseen increases in used vehicle prices, the risk to the lessee of entering into a finance lease is low. The same is true for contract hire lessors, who are experienced at making residual value calculations and have far more reliable statistics available to them than used to be the case.

The long term rental market is benefiting from the general trend of business to outsource non-core activities. The outright purchase of vehicle fleets, while still popular, requires major capital investment which may be better spent on core business areas.

As with the short term rental industry, there is some considerable pressure on leasing companies to seek to differentiate their product, not only in terms of quality of service, but also in the services they offer. Tailor-made leasing packages are an increasingly important way of achieving this, as are fuel and service cards.

In the long term the prospects for both sectors remain promising. While the economy is expected to experience a slow-down by late 1998 or early 1999, the economic outlook is generally positive. In the short term market, the gradual withdrawal of vehicle manufacturers from the industry (which they initially entered as a method of utilising surplus production), should introduce a more commercial attitude and enable rate increases to be more easily achieved. The sector should also benefit from increasing numbers of overseas visitors.

In the long term rental market, the trend for outsourcing of car fleets should continue. The sector should also be supported by strong corporate earnings. However, it remains exposed to changes in both personal and corporate taxation which may make company cars much less attractive as a benefit-in-kind.

Text © 1998 MAPS

Back to Top

Back To REPORTFINDER HOME PAGE

Ariadne - working together with our customers to enhance productivity and increase knowledge

© 1999 www.the-list.co.uk Ariadne

Last updated by Duncan Nottage 9th February 1999