Auto Rental News

JAN-FEB 2014

Magazine for the professional car and truck rental industry.

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EDITOR'S CORNER SIX MARKET DEVELOPMENTS TO WATCH Here are six trends in car rental you may not be thinking about — but should be. T BY CHRIS BROWN 4 January/February 2014 The battleground is staged for the deep-value brands. Advantage gained a new round of feet funding, so it will be solvent in the near term. Nonetheless, Advantage will be exiting at least 30 near- or on-airport locations. Who is likely to go after those stores? Fox is an obvious guess. Sixt decided not to counterbid for Advantage at auction, but Sixt would have an opportunity to pick up a few of those Advantage stores. Meanwhile, Sixt's franchising effort is gaining steam. Hertz's deep-value initiative, Firefy, has grown rapidly to 19 domestic airports, though Hertz appears to be piggybacking Firefy on existing Hertz, Dollar and Thrifty on-airport locations. What about Payless? Could Avis make a push with its newly acquired discount brand? Expect a tighter labor market. The unemployment rate stood at 4.8% in 2008 before the crash. After climbing to 10%, it has steadily dropped. We're now within striking distance of 6.5%, the threshold at which Federal Reserve Chairman Ben Bernanke said would "start the conversation" for a raise in interest rates. Car rental companies may fnd more competition for workers at higher wages. Outsourcing of back-end service operations such as shuttle drivers, car washers and cleaning services is increasing. One such employment company, Employment Partners Inc., reports a 32% year-overyear growth in 2013 in car rental, and is looking to grow 45% to 55% in the segment in 2014. Mobile bookings are exploding. A 2013 study by JiWire found that 52% of respondents booked travel on a mobile device in the past 90 days. Mobile bookings on Expedia and Hotwire apps have grown 70% in just the last year. Overall, mobile traffc will outpace traffc from desktop computers by late 2014. The consequence is shorter booking windows — decreasing lucrative walk-up business and making hotel room, airline load and feet planning harder to forecast. Prepaid reservations are gaining traction. The infrastructure is fnally being put in place to facilitate prepaid reservations. Avis was the frst out of the gate; Budget is now doing modest prepaid business and Hertz has jumped aboard. Advantage's bankruptcy flings show that it had $13.9 million in prepaid AUTO R ENTAL N EWS reservations in the previous 45 days. Look for another discount brand to begin offering prepaid reservations in January. CarRentals.com is now accepting credit card prepayment for a 10% discount. Affliate systems and the major car rental software system providers have the IT infrastructure in place. As a result, independent and franchise operations are making a go of it and are reporting success. Look for new competition in the used car market. Like Paul Revere, we've been trumpeting the coming wave of used car supply for years. ("The off-leases are coming! The off-leases are coming!") Fleet lease returns were the frst to hit the wholesale market, starting last year. In 2014, expect greater numbers of off-lease units, but the consumer kind. What's the problem for rental consignors? Those consumer leases have much lower miles — creating competition in the auction lanes with year-old and 18-month-old rental units. What's more, there are a lot more compact and midsize models in the marketplace than before the Recession, creating used car competition for popular rental segments. And with the average loan term for an auto purchase now 65 months — the longest ever, according to Experian — used car payments won't be much less than those for new cars. Rental cars will run lower miles. At the end of 2013, some were questioning if OEMs had lost the commitment to control the number of cars they sell to rental accounts. Fleet sellers, feet leasing companies and rental companies were getting calls from manufacturers on yearend deals with money on the hood. If manufacturers have wiggle room to cut deals for rental, additional feet availability would make it possible to turn cars more often. It may be smart to do so — if you're holding cars until 40,000 miles, you will be competing with those low-mile consumer leases coming into the used car market. In 2013, Manheim Consulting reported average miles on rental risk units to be the lowest since 2008. The trend lower will continue. In 2014, pay close attention to adjusting depreciation to refect the changing market. Car rental companies, after years of good returns on their used inventory with minimal effort, will have to manage their feets very carefully again.

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