One day at a time: The benefits of short-term rental
The procurement upheaval caused by WLTP has prompted some fleets to consider short and medium-term contingencies on an ongoing basis. Curtis Hutchinson reports.
Fleets were already braced for disruption in the lead-up to the introduction of the new Worldwide harmonised Light Vehicle Test Procedure (WLTP) regulations in September. For many, sourcing new cars was temporarily put on hold until the publication of the new emissions and economy ratings. However, although WLTP ratings are now widely available, there remains a disruption in the supply chain which is unlikely to wash through until the first quarter of 2019.
A dilemma now facing many companies is whether to further extend vehicles at the end of their fleet life cycles, until replacement cars are more freely available, or look to short and medium-term contingencies.
“Short or mid-term rental, or mini-lease, is a useful tool in fleet managers’ tool boxes. However, it is typically most cost-effective in exceptional circumstances whether that is due to the current situation as fleet managers await clarity around WLTP and Benefit-in-Kind tax or a requirement for temporary staff,” comments John Pryor, chairman of the Association of Car Fleet Operators (ACFO).
The Institute of Car Fleet Management (ICFM) acknowledges that fleets are reviewing their options, which has prompted a rise in demand for short-term solutions.
“Knee-jerk reactions are driving a broadening range of short-term company car solutions, especially in the 30-day plus mini-lease sector,” says ICFM director Peter Eldridge.
“The challenge will be for the rental companies to keep pace with unprecedented vehicle demand, in times when the vehicle manufacturers themselves are unclear where their production targets should be directed.”
Arval says it’s seen an increase in demand for short and medium-term rental during the second half of this year and expects this to rise until manufacturers are able to fulfil customer orders due to the delays caused by WLTP.
“As a product, daily rental has not fundamentally changed in many years but we believe it has become more attractive to fleets in recent times,” explains Zoe Maitland, head of mobility solutions at Arval UK.
“Fleets have become much more open to the idea of flexible vehicle provision. We have seen this not just in the growth of short-term rental at Arval but also medium-term rentals running from 28 days to two years.
“Daily rental is also fitting current business needs in a growing number of circumstances. An increasing amount of economic activity generally takes place on a fixed term or pay-as-you-go model and rental fits this approach exactly.”
According to Arval, the WLTP supply issue is improving but it expects the impact to carry over into next year.
“One positive aspect is that the situation is introducing the concept of medium-term rental to more fleets and we expect that general usage of the product could increase in the future as a result,” says Maitland.
This growth in medium-term rentals has also been noticed by FleetEurope, the fleet management solutions company.
“WLTP has had a significant impact on the demand for daily rental services. We found that many existing flexible rental vehicles were extended whilst WLTP was being implemented,” says Joe Howick, chief operating officer.
“Some car manufacturers have had to cease or delay the production of non-compliant models, due to the sheer number that need to be WLTP-homologated. This has resulted in fleet operators either having to cancel existing vehicle orders or deal with extended lead times and find a temporary solution to bridge the gap until new vehicles are ready for delivery,” he continues.
“We found mid-term rental and mini lease services are ideally suited to these situations. Both offer the flexibility of being able to off-hire vehicles at short notice without penalty and are more cost-effective than a daily rental vehicle for businesses that can commit to a minimum hire period. They allow fleet operators to either keep the vehicle on-hire at the end of the minimum hire period, at the same low daily rate, or simply hand the vehicle back at short notice without incurring a penalty.”
Meanwhile, the specialist daily rental companies are also seeing a change in the solutions required by corporate customers. Although daily rental has always played a support role for companies leasing or buying their main fleet vehicles, these firms are now appreciating some of the wider employee mobility benefits.
“Rental has grown in popularity in recent years as it allows fleets to keep people on the road in a flexible and cost-effective way,” says Adrian Bewley, assistant vice president of business mobility at Enterprise Rent-A-Car.
“This is growing increasingly important as fleets are currently in a period of considerable uncertainty, due to WLTP and the new IFRS accounting legislation that comes into effect in January 2019. Many businesses are holding off on long-term investment decisions and are looking for more flexibility in how they source and manage their employee mobility. Short-term rental is a key part of that solution.
“Daily rental will help businesses bridge mobility gaps to keep their people on the road until they have a better idea of what the future will look like. It also ensures employees are in modern, low-emission vehicles, which is increasingly important given the growing number of air quality zones and London’s upcoming ULEZ. Fleets that don’t adapt may face steep penalties,” he adds.
The importance of short to medium-term mobility solutions is also highlighted by Gary Smith, managing director of Europcar Mobility Group in the UK.
“The approach to fleet management is changing in line with changing working practices, and as a result, we have seen an overall shift towards a more transient approach to employee mobility,” he outlines.
“The key drivers for this change are extensive and include increases in taxation, the pressure from local government in terms of environmental policies as well as the introduction of WLTP. However, fundamentally, what fleet managers want are solutions that give them choice and flexibility, rather than being locked into one mobility solution for the long-term.”
Over the last 12 months Europcar has noticed a move towards greater use of mid-term solutions, of 28 days and more, and long-term rentals of three months.
“This shift in usage has been driven by the flexibility businesses need – both in relation to cost and in terms of accessing the right vehicle for the job – in comparison to outright vehicle purchase or three to four-year lease deals,” says Smith.
With fleets navigating the obstacles caused by WLTP, many are currently factoring how Brexit will impact their future vehicle requirements.
“There is no question that ongoing uncertainty caused by Brexit has affected fleet decisions in the UK,” states David Brennan, CEO of Nexus Vehicle Rental.
“We are definitely observing more businesses turning to rental for their mobility needs as rentals provide greater cost flexibility. Similarly, fleet capacity can be scaled when needed to allow businesses to always have the resources required to deal with peak periods, whilst downsizing fleets when demand isn’t as great.
“With fleet managers forced to work within strict budgets, there has been a disincentive to commit to significant capital investment, which is where rental has also become an attractive proposition – keeping businesses on the move without substantial overheads,” he adds.
WLTP has prompted many fleets to consider short and medium-term car provision as a way to manage a period of uncertainty. With further political, legislative and economic headwinds on the horizon it is essential that fleets continue to keep their mobility options as flexible as possible to provide the best possible coverage in these changing times.
Share and share alike
Daily rental and mini leases are part of a growing trend towards the delivery of Mobility as a Service (MaaS), an integrated transport eco-system based on the delivery of highly flexible solutions for individuals.
An important and growing part of MaaS in the corporate world is car sharing, with Frost & Sullivan, the independent research company, forecasting a year-on-year growth in the global vehicle parc of 13% to 1.2 million by the end of 2018.
“Car sharing and car clubs are huge growth areas in business travel with hourly car clubs simply another aspect of rental,” says Adrian Bewley, assistant vice president of business mobility at Enterprise Rent-A-Car.
“Fleets want to move people and goods around efficiently, and the simplicity and proximity of access provided by car club vehicles is an important element of business mobility. They’re also an integral part of the extension of air quality zones, as car club vehicles parked on-street in a city will be compliant with the new environmental requirements and enable fleets to avoid penalties.”