Rental firms won’t flood used-car market with stock
The vehicle rental industry is joined at the hip with the tourism industry.
With airports, conference centres and hotels closed for more than 100 days due to the countrywide lockdown, the coronavirus has been unkind to rental companies.
Recent news reported a big offloading of rental fleets into the pre-owned vehicle market, with promises of good bargains. Motor News spoke to Sandile Ntseoane, GM of the Southern African Vehicle Rental & Leasing Association (Savrala).
Phuti Mpyane: How bad is the situation and will the industry recover?
Sandile Ntseoane: Tourism and car rental is particularly affected by the pandemic and it will take a long time to recover.
About 50% of our revenue is reliant on air travel and, as such, start-up timelines and volumes of passengers flying on domestic and international flights is crucial.
Our business and tourism as a whole was hardest hit by travel restrictions and airlines experiencing a steep fall in traffic well ahead of the lockdown on March 27, with revenue literally drying up overnight.
The harsh reality is that we are unable to answer this question at this time.
Given the uncertainty of key influences outside our control, with devastating long-term consequence, predicting the immediate future is at best a guessing game.
PM: What was the state of business before the Covid-19 lockdown?
SN: The industry had a generally good month and quarter compared to the same period last year, when the lockdown started. Most of the members were flying.
PM: Looking at the demise of rental companies in the US, where does the SA business lie in terms of risk?
SN: Airports take up a huge portion of the business in SA, and even the off-airport operations are supported by people who have flown in and then prefer to rent a car at a downtown branch.
The impact has been huge, though there is a slight offset by the increase in the requirement for vehicles from government at off airport locations.
A lot of the demise of US car rental companies is due to the growth in the trust-based economy, with car rental, ride or car sharing and e-hailing. While Uber has done brilliantly here, the lack of public transport infrastructure still means that a vehicle is a necessity, not a luxury.
PM: It has been widely reported that rental car companies are about to flood the used-car market with relatively new stock. Is this a true reflection?
SN: It’s not a true reflection but we could defleet slightly as per normal.
The car rental industry may be sitting with excess stock but as most of the businesses are part of bigger conglomerates, with interest rates being low, the cost of holding vehicles is low, so I don’t see rental companies getting too desperate.
PM: How does the industry hope to recoup lost investments in a depressed economy?
SN: The best way to keep the return on investment at a reasonable rate is to reduce the investment.
You will probably see the fleet sizes shrink over the next few months and grow again as demand returns.
Fortunately, our largest inbound markets seem to already be on their way to recovery. The market for used cars is likely to go up.
PM: Is the rental industry not able to find other solutions rather than to sell off stock? SN: With no assistance from government it’s a matter of adjusting and re-engineering our businesses.
Some companies are entertaining short-term leases, but that is also competitive due to the fact that people are not earning what they were preCovid-19, and with many working from home it does not make sense to lease or own a vehicle.
PM: Do you foresee business as usual after lockdown levels, and is the industry depended solely on the tourism industry reopening?
SM: We depend on people feeling safe to travel, and people having money to travel. It will be many years before people have recovered from the financial devastation that Covid has created.
Some say three years to recover to 95% of what we now have, and I think that is a fair comment.
As businesses return to work under Level 3 and start to understand their own business implications and survival, our traditional customer base will shrink as they too reduce and align costs, with volumes only returning to 30% at best in the short term.
The economic unlocking by government limits demand and recovery across key markets, and is further complicated by wide variations in when and how other markets come back online, or whether people will be forced back into confinement with subsequent outbreaks of Covid-19. All this makes it difficult to understand how business boundaries and demand will evolve in the short term.