Challenging times for SA’s car rental industry
31 May 2019 - by Hilka Birns
An uncertain macro political future, a shrinking economy and declining international and domestic tourism numbers are resulting in cut-throat conditions, as car-rental companies jostle for market share in a stagnating industry.
“There is no volume growth in all the measured segments: corporate, government, international and local leisure, and insurance replacement,” says Avis Budget Rent-a-Car Sales Executive, Lance Smith.
The Southern African Vehicle Rental and Leasing Association (Savrala) statistics show zero percent revenue growth in the South African car-rental industry between January and September 2018. Rental days declined by 2% and fleet growth by 3,1% over the same period. Meanwhile, Statistics SA reports a 0,6% drop in total tourist numbers and 4,9% lower overseas tourist volumes in February 2019 compared with February 2018. Domestic trips declined by 14,9% between April and June 2018, according to Stats SA’s Second Quarter 2018 report.
Hertz Southern Africa gm International Sales, Hans Manke, says the industry faces more than 10% annual increases on new vehicle prices; average inflation of more than 6%; and a currency decline of more than 20% during the past year, which is putting pressure on costs. Domestic Sales Southern Africa GM, Fiona Angelico, explains: “There is an expectation from our customers to retain our costs in line with the CPI. The exchange rate impacts on the costs of vehicles and parts, making it difficult to meet these expectations. Rising fuel costs put a strain on forecasted budgets.” She says the company is also unable to recoup losses resulting from stolen and damaged vehicles.
Bidvest Car Rental sales & marketing executive, Gaynor von Loggenburg, says the market is expected to continue to contract with a change in sales mix due to “down-buying” in the corporate sector. She says this is resulting in aggressive pricing as competitors try to secure volume in a declining market. “In addition, Brexit is creating uncertainty and impacting the inbound sector, which historically produced high growth for tourism out of Europe,” she says.
Thrifty Car Rental sales director, Leslie Matthews, says as consumers are hard pressed for cash, the company is struggling to collect outstanding debt, especially when it comes to liability responsibility when there have been accidents. “It’s a grudge payment and there are more pressing issues that need consumers’ hard-earned money,” he says.
“It is not easy to be optimistic about the short-term future of the South African economy,” agrees Melissa Nortje, First Car Rental executive head: Strategy, Development & Marketing. “Furthermore, the Administrative Adjudication of Road Traffic Offences Act (AARTO) and its demerit system will force car-rental companies into financial, procedural and operational disarray once again, with no consideration for any major transportation and fleet entities’ environments, once it is implemented.”
However, it’s not all doom and gloom as challenging times call for businesses to be innovative and adapt. Fiona says Hertz has managed to counteract the negatives trends by raising growth trends in all its market segments. “This has assisted us in retaining and increasing our market share in various segments. We are mindful that business is tighter in winter and we have adapted our business model accordingly,” she says.
Leslie says Thrifty is experiencing double-digit growth, despite the prevailing economic climate. “Our forecast is to continue on this path for the next 12 months. We see consumers are looking for alternatives to leasing and financing vehicles. There is a trend toward mobility when required, instead of owning a car,” he says.