As car rental companies strive for global girth, the competitive circles are widening
The global car rental market is a prodigious pie indeed. In 2013 it was a $36.89 billion affair, one whose compound annual growth rate (CAGR) from 2014 and 2019 is pegged at 13.6 percent according to the 2014 Report on the International Car Rental Markets – Trends and Forecast to 2019, from business intelligence specialists Research and Markets.
While United States-based car rental companies vie for increasingly greater slices of this planetary pie, foreign competition isn’t staying static. Consider Sixt Rent A Car, the world’s fifth-largest car rental company. The German-based company is a bit of a stealth contender in US markets, but that status is changing fast.
Sixt enjoys deep roots in Germany (some 40 percent of the airport market) and is Europe’s number three car rental concern. Sixt is a major player in France, Spain, Great Britain, the Netherlands, Austria, Switzerland, Belgium and Luxembourg – prime business markets all.
Now, its sights are set on expanding its growing – but still embryonic – US presence. Together, Hertz, AvisBudget and Enterprise Holdings Incorporated (Enterprise, National and Alamo) comprise “about 95 percent of the total [US] market,” says Alexander Sixt, the firm’s head of corporate strategies, mergers and acquisitions. Calling it a “David and Goliath scenario,” the former executive with Deutsche Bank has no illusions as to what Sixt is up against.
The company’s US bridgehead is Miami. With “the vast numbers of Germans inbound to Florida,” MIA was a natural. What’s surprising is how fast US travelers took to the newcomer. According to Sixt, fully 80 percent of its Miami business is now comprised “of domestic customers from the US.”
With a firm foothold established in south Florida, Sixt expanded US operations into quintessential US business centers such as Atlanta, Charlotte, Detroit and Seattle. In all, Sixt now has 40 US locations, 25 of them corporate. Although he contends airport concession bidding procedures make it difficult for new entrants to compete, Alexander Sixt says, “We are bidding for every airport concession that becomes available.”
Sixt’s strategy is to set up shop in places inbound European business travelers already frequent. Detroit is a natural because of the automotive affinity between Germany and Motown. The same connection is at work in Charlotte, NC, which is a comparatively short drive from BMW’s growing South Carolina manufacturing base. As for Seattle, high-tech is the hot nexus. So successful has Sixt become out in Washington state that Alexander Sixt anticipates a large software company might switch its Seattle business to the German car rental firm.
All of this red, white and blue expansion flies in the face of the notion that the US car rental market is saturated, with scant room for any competition. “I think we proved the market was not saturated at the Miami airport,” says Sixt. Ditto the German market back in the 1980s where the assumption was the same.
“There’s still room for a fourth major player in the US market,” asserts Sixt. “The business traveler has a right to have a new player with an attractive pricing and product position. We are a premium company that offers a premium product for an economy price.”
How does Hertz view the new (Sixt is actually sixs year older than Hertz, as it was founded in 1912) German import – and the notion the US rental car arena is saturated? “There’s always room for additional players within the car rental market,” says Paula Rivera, Hertz’s manager of public affairs. “We view healthy competition as being positive.”
Americans AboardCertainly Hertz is a believer in aggressively competing on foreign turf. Operating in some 150 countries, the rental giant derives about a quarter of its income from international markets. It recently entered into a co-branding pact with China Auto Rental, the Peoples Republic’s largest auto rental outfit. The agreement covers more than 600 of CAR’s directly operated service locations says Hertz spokeswoman Rivera.
Meanwhile, Enterprise Holdings, Inc’s Chinese dance partner is eHi, China’s second-largest car rental firm. The Chinese company offers chauffeur-driven cars in some 70 cities. Visitors can’t use their International Driver’s Permit in China. You need a Chinese license. That means for all practical purposes driver-and-car-for-hire constitutes “the only way foreign business travelers can actually rent a car in China today,” says Enterprise Holding’s Brad Carr, the company’s vice president of rental development.
While demand for reliable, often branded, ground transport is especially high in Asia Pacific, Enterprise Holdings’ National brand is polishing its product closer to home, introducing Emerald Club services in Latin America and the Caribbean. Touting the program’s “speed, choice and convenience,” National’s Emerald Club Priority Service just premiered at all its Mexican airport locations. The roll out “has gone very well,” says Carr. Look for Brazil to get the Emerald treatment a few months from now.
However, Latin Emerald Club options won’t completely mimic those found in the US, Carr cautions, especially the Emerald Aisle. In the US version of this National treasure, renters spy the car they want, get in and go. “The selection piece will be different,” says Carr. That’s because the parking lots in Latin America aren’t laid out the way they are in North America. “There’s just not enough space to have the Emerald Aisle,” he says.Even as Sixt expands in the US, and National offers more service south of the border, Enterprise is expanding its European presence. As of mid-summer 2014, Enterprise operated in 19 European countries, “with more in the pipeline,” according to a prepared release.
Meanwhile, earlier this year Hertz played to its European strength by revamping its city center flagship location at Paris Saint Ferdinand, sited near the mythic Champs Elysees. And that’s just the tip of the global iceberg for the car rental behemoth. Cognizant that looks matter to business travelers, Hertz has done a makeover on some 400 locations around the world of late.
The Price is RightWhile appearances count to the corporate traveler, it’s pricing that is paramount for corporate travel buyers. And as far as worldwide ground transport goes just now, the rates are right. “What we’re seeing for the most part,” says Joe Bates, “is flat pricing globally.” The vice president of research for the Global Business Travel Association attributes this to consolidation in the car rental industry, competition and the overabundance of automobiles for rent.
According to GBTA and Carlson Wagonlit Travel’s 2015 Global Travel Price Outlook, the prognostication for rental car rates is flat for North America, the Middle East and Africa as well as Western Europe. There’s a projected pricing rise of 2 percent for Latin America and 1 percent for both Asia Pacific and Eastern Europe.
Numbers only matter in perspective. The same report projects a worldwide 2.2 percent rise in airfares and a 2.6 percent hike in hotel rates.
“Unlike the airline and hotel spaces,” says Bates, “I think that travel managers and travel buyers are probably in a very good position when it comes to ground transportation. There really are dynamics in play which are keeping prices down.”
Uber Uber Alles?Aside from pure pricing other dynamics are at work just now in the international car rental market, and one of them is the ascendance of Uber and Uber-like competitors. Ponder this for a moment: An article in Harvard Business Review says the car-share firm is valued at a staggering $18.2 billion as of mid-October 2014. By contrast, Hertz’s market cap is $9.7 billion.
Traditional car rental firms are responding to Uber’s ascent with increasing nimbleness. Sixt’s car-share entry is called Drive Now. It sports some 350,000 members. With Drive Now vehicles already operating in Munich, Berlin, Dusseldorf, Cologne, Hamburg and Vienna, Sixt just introduced an all-electric version in San Francisco.
Alexander Sixt says average rental duration is about 30 minutes, and that customers can now open their Drive Now conveyances via smartphone. “You don’t need any other devices, such as a chip card, to open the car. I think that’s going to be a dramatic shift in the US.”
For Hertz, the entry into the field is Hertz 24/7. “Car sharing is important in the international travel arena,” notes Hertz’s Paula Rivera. “The benefits inherent in car sharing are inherent with companies moving away from company cars and long-term leasing, into mobility solutions that represent a more cost-effective and environmentally-friendly alternative.”
EHI’s Brad Carr says he’s seen car sharing “grow pretty dramatically.” The idea is to construct a continuum of solutions for the business traveler, “so that any customer will be able to rent from us in any sort of situation.” That’s why over the last summer, Enterprise Holdings acquired Zimride, the largest ride-matching program in the US.
Alexander Sixt agrees this sort of flexibility is imperative. At the end of the day it comes down to solving – both from the business traveler’s and the rental company’s perspective – the riddle of fleet management: “yield, utilization and pricing.”
One way Sixt is boosting utilization is to do away with the traditional concept that customers pick up and drop off their shared car in a specific, pre-defined spot. Sixt says this is at odds with the whole notion of flexibility. “We eliminated the concept totally,” he says. “You can pick up your car and drop it off anywhere you’d like in the city. We built technology that allows you to do that. It’s proprietary software developed by Sixt.”
Mobile MomentumIt’s technology – and particularly mobility – that powers the most potent benefits car rental companies tout. “Technology continues to be a driving force for travelers, both internationally and here in the States,” Hertz’s Rivera says. “It’s anticipated that more than $25 billion worth of travel bookings, or approximately 18 percent of global travel bookings, will be made from mobile devices.”
In today’s competitive environment, an app doesn’t stay idle for long. Updates flow as expectations grow. Hertz just upgraded its mobile app. You can now access it in airplane mode, the better to reschedule and update rentals while on the move. Bookings are faster and there’s an enhanced location search option as well.
Distill all this high-tech and what you hope to get is “speed, efficiency and accuracy.” From a travel buyer’s perspective that means making sure that if somebody negotiated a corporate rate, “all those attributes of the agreement pull through to the mobile app,” says Carr. “That it’s all recognized.”
Car rental companies understand precisely that. Now it’s a matter of extending that upgraded product to the farthest ends of their partnership chain, to the franchisees out in the field. “You almost have to have that before you can even begin servicing the corporate customer,” says Carr. “As we open new countries throughout Europe with the Enterprise brand, that’s part of the process: making sure all those pieces are flowing through and working smoothly – before those locations are even open.”
Opening they are, for major players in virtually all corners of the earth. As global travelers demand global solutions, there’s precious little room for parochial car rental players any longer, and tired tech just won’t do. Car rental companies have got to be flexible, fast, just around the corner – and all around the world.