CUT-THROAT daily rental rates and falling residual values have made profitability the key issue facing the short term rental industry. Over a seven-year period, the price of the average rental transaction (of just over five days) increased from £111 in 1991 to £123.18 in 1998, according to the British Vehicle Rental & Leasing Association's 1999 Industry Review.

This reported that the £12.18 increase was achieved during a period when inflation rose by 25%, putting great pressure on rental companies' margins. The review claims that large rental fleets are no longer receiving the massive discounts on new car acquisitions that were once prevalent in the market. And it highlights the irony that while the UK has the highest new car prices in Europe, this country also offers among the cheapest daily rental rates. Rental companies rely: 'not only on highly competitive pricing, but also on high levels of service and customer loyalty to attract and retain customers,' said the review.

Rates increased by an average of just 2.84% in 1998, although this industry-wide average masked significant discrepancies between larger operators that managed to force through price rises, and smaller operators who reported no change or even a fall in prices. Many of these smaller firms are being driven out of business as the industry consolidates, and the BVRLA attributed the 8.75% decline in its membership to 886 members in 1998 to the disappearance of the sub-100 vehicle hire company.