6th May 2019

Are traditional contract hire leases being phased out by short-term vehicle rental solutions?

A significant proportion of headlines and thought leadership commentary in leading fleet publications in recent weeks certainly paint a similar picture – that of the demise of traditional contract hire leases which, for the past couple of decades or so, have typically seen company car drivers keep the same vehicle for three or four years.

Factors currently influencing businesses to rent short-term

In a FleetPoint interview just after the start of the new financial year, Goodwood Corporate Mobility attributed the trend towards short-term car and van rental solutions to the lack of government clarity over BIK beyond 2020/21, the effects of WLTP at least initially, and fleet managers’ growing awareness of more flexible mobility products out there1.

Millennial employees’ preference for regularly changing vehicles and organisations’ dwindling appetite for de-hire damage charges, servicing and other commitments, along with the changing landscape of volume bonuses from manufacturers and funders and a lack of business confidence, are also cited as influences.

While Dataforce statistics12 point to a 9.3% shrinkage in true fleet as of March 2019, the lowest figure for five years, the short-term rental sector bucked the trend and grew by 13.6%, purportedly linked to Brexit uncertainty.

Following revealing a 30% year-on-year rise in short-term bookings, Ogilvie Fleet extolled the benefits of the 1link ecommerce platform11 that connects a wide number of organisations large and small across the automotive and related sectors, enabling agility in the daily, mini-lease and other short-term vehicle rental markets.

Organisations needing a specific type of vehicle merely for one or a small number of particular tasks such as one-off jobs or trips are also served better than even by the short-term rental market16.

When it comes to LCVs, BVRLA figures identify that 20.10% of the UK’s 840,480-strong small to medium van fleet is operated via short-term rental.

Is the reported trend actually new?

Vehicle rental in its basic form can reportedly be traced back more than a hundred years6 and contract hire in its most familiar guise of 3-to-5-year leases has prevailed for a few decades, but its subtle erosion and substitution by short-term rental appears to have begun over fifteen years ago, even if it’s only in more recent times that the trend has significantly accelerated in correlation with growing demands for flexible mobility.

In 2003, Fleet News published commentary by Arval, who have since become one of Europe’s leading contract hire funders, asserting that the growth in short-term vehicle rental requirements was a direct result of changing employment markets. The UK’s 36% rise in short-term job contracts and temporary roles between 1992 and 2001 to over 1.6m positions had played a part in mandating less restrictive and shorter-term solutions in order to satisfy the EU’s Agency Workers Directive.

Arval also cited certain sectors’ notoriety for high staff turnover as a contributor behind organisations seeking short-term vehicle rental to negate early termination penalties, while other major leasing companies such as Hitachi and LeasePlan reported growth in pool car numbers.

In spring 2010, Equalease4 reported to BusinessCar magazine that predominantly small-medium enterprises (SMEs) had begun to accelerate the adoption of short-term rental and leasing services. Changing market conditions, an uncertain future and a crisis in confidence were once again cited. Although the world’s economic outlook is now quite different and more positive, albeit with Brexit causing uncertainty in some corners, Equalease’s identification of the desire for high flexibility is even truer today.

That same year, brokers including Concept Vehicle Leasing launched short-term and even daily rental solutions5, pledging to deliver cars within two working hours and vans within four. In 2011, Europcar, now a major pioneer of mobility services, explained that the weakness of the pound in relation to imported cars from countries such as France and Germany, model availability, plus customers’ desires for greater flexibility over delivery and return times had translated into an increase in daily and short-term vehicle rental prices.

Are there disadvantages to short-term vehicle rental?

Traditionally, one significant deterrent associated with renting a car or van for a short length of time was that the monthly cost for a lease of between three and six months, for example, typically attracted monthly rental payments 25% higher than the same vehicle over a three-year deal.

Around the time of publishing its quarterly Company Car Trends report10 in Q1 2015, GE Capital commented to BusinessCar that although fleets desiring the flexibility to hand a vehicle back at any time is an understandable attitude, “it makes little sense from a financial point of view… and using it as an ongoing method of fleet provision is very expensive. That flexibility comes at a high price.”

Another disadvantage to short-term rental, particularly in relation to light commercial vehicles, is that drivers will be required to move their tools, equipment, stock or other objects to a new van each time another vehicle arrives for a brief duration, which is not only burdensome but can lead to items being lost. Additionally, sign-writing a short-term vehicle with an organisation’s branding and contact details is usually not permitted.

Traditional ‘black box’ telematics hardware systems aren’t suitable for short-term rental vehicles, so fleet managers wishing to incorporate such technology into their operations and enjoy benefits from reduced vehicle wear and tear to safer driver behaviour are increasingly identifying the advantage of smartphone app-based solutions such as Appy Fleet.

Also, although a minor factor, an extra administrative burden13 is created when rental companies utilise manufacturer buy-back arrangements to keep their short-term fleets looking fresh, requiring updates to HR records, fuel cards and the Motor Insurance Database (MID).

Private motorists are also increasingly thinking short-term

It’s not just businesses, public sector organisations, charities and other entities that are turning to short-term rental. SMMT figures over the past half a dozen years or so have consistently identified the growth of personal contract hire (PCH). A survey of over 2,000 adults by Turo UK (like an AirBnb platform for cars) found that 40% don’t perceive owning a car as important in their lives, expressing a preference for short-term or even monthly solutions2, with the firm’s Xavier Collins describing the UK as a “post-ownership society.”

Personal contract hire isn’t a perfect solution, presenting its own disadvantages at times, though. According to Meridian Vehicle Solutions, leasing brokers are facing customer dissatisfaction in having to wait potentially as long as four months for new vehicle availability. Private motorists are typically less easily able to arrange alternative means of transport while waiting for lease vehicles to be delivered, resulting in a number being forced to turn to short-term rentals of 3-to-6 months to cover such delays3.

Looking globally, Alamo Mexico’s general manager Jose Luis Fregoso recently described how their customers now require competitively-priced cars on demand as a way of moving from A to B, and May 2019 will see the firm launch a pilot in Cancun with a shared mobility fleet of fifty Nissan cars made available through a very short-term rental network15.

French car-sharing platform Vulog will be providing many of the underlying systems for Alamo Mexico’s project, and their technology is also being harnessed by PSA Group in Washington D.C, with 600 Chevrolet vehicles leased from General Motors being operated as a short-term rental fleet.

Australia differs in that it has, in the words of Willem Kennedy, general manager of operations at ORIX, “very much a suburban population, and car-share that focusses purely on inner city, high density won’t work for everyone.” ORIX, the country’s largest short-term rental provider, continues to experience growing demand across both passenger and light commercial vehicles alike17.

Are subscription services also encroaching on traditional contract hire?

Following in the path of car-as-a-service ‘subscription’ models from OEMs, such as Carpe by Jaguar Land Rover and Care by Volvo, plus standalone offerings including Drover, Enterprise Rent-a-Car14 has announced that it will shortly trial its own subscription service in three states in the U.S.

Subscription packages essentially bundle the car, insurance, road tax, breakdown and recovery, maintenance and often also connected services into one package. This is unarguably convenient but typically relatively expensive not just compared to traditional leasing but also many short-term vehicle rental solutions. Enterprise is the first major rental operator to enter the subscription space and says that subscribers will be able to swap cars as many as four times per month across the spectrum of brands and segments available.

Volkswagen has also just released a subscription service in conjunction with Drover, enabling customers to secure cars in 48 hours with the entire process carried out online. No deposit or ‘initial rental’ is involved, which remains a prerequisite with contract hire and leasing models, and users can upgrade or downgrade VW models monthly. The marque’s UK brand strategy & mobility services manager Claire McGreal explained to Automotive Management Online: “Given the changes we face in the automotive landscape, and as drivers’ needs change, we need to adapt and diversify from traditional concepts like outright ownership, into more flexible and user-friendly options like subscriptions.”

It certainly seems that while many businesses and other organisations have for decades leased rather than owned vehicles, they are now embracing even more flexible offerings in light of economic uncertainty, cost efficiencies and mobility trends, and private drivers too are increasingly favouring leasing and even more short-term vehicle solutions, with OEMs and tech-based operators meeting this need.

 

Sources:

1. https://www.fleetpoint.org/leasing-2/end-of-the-road-for-traditional-three-and-four-year-company-car-leases/

2. https://www.motoringresearch.com/car-news/drivers-dont-want-own-cars/

3. https://www.am-online.com/news/market-insight/2019/04/18/long-lead-times-push-pch-customers-into-medium-term-rental-says-meridian

4. https://www.businesscar.co.uk/news/2010/smes-leading-way-in-short-term-leasing

5. https://www.fleetnews.co.uk/news/2010/4/15/launch-of-daily-rental-and-short-term-leasing/36402/

6. https://en.wikipedia.org/wiki/Car_rental

7. https://www.fleetnews.co.uk/news/2003/12/2/changes-at-work-boost-short-term-contracts/15438/

8. https://www.fleetnews.co.uk/news/2010/8/5/economic-uncertainty-strengthens-short-term-appeal/37337/?page=2

9. https://www.fleetnews.co.uk/fleet-management/fleets-face-up-to-rising-cost-of-short-term-rental/39929/

10. https://www.businesscar.co.uk/news/2015/fleets-turning-to-short-term-rental,-says-ge-capital

11. https://www.fleetnews.co.uk/fleet-leasing/news/latest-fleet-leasing/2018/05/17/rise-in-short-term-hire-bookings-for-ogilvie-fleet

12. https://www.fleetpoint.org/carandvannews/car/uk-true-fleet-sees-lowest-march-figures-since-2014/

13. https://www.fleetnews.co.uk/news/fleet-industry-news/2019/04/15/flexibility-wanted-by-fleets-leasing-vehicles

14. https://www.thecarconnection.com/news/1122803_enterprise-rent-a-car-gets-into-the-subscription-game

15. https://www.autonews.com/mobility-report/tech-company-vulog-underpins-expansion-shared-mobility-fleets

16. https://www.newbusiness.co.uk/articles/vehicles/vans-buy-rent-or-lease

17. https://www.globalfleet.com/en/leasing-and-rental/asia-pacific/analysis/understanding-car-rental-australia-and-new-zealand?t%5B0%5D=Australia&t%5B1%5D=Avis&t%5B2%5D=Europcar&t%5B3%5D=Hertz&curl=1

18. https://www.am-online.com/news/car-manufacturer-news/2019/04/01/volkswagen-launches-514-a-month-vehicle-subscription-service