Coronavirus: Rental industry faces slow recovery

This article was first published in the June digital edition of Fleet News on June 25.

The vehicle rental sector has been hit hard by the Coronavirus pandemic, as business travel all but ground to a halt during lockdown, and the sector’s future faces a number of challenges as it bids to recover.

Rental is often used by fleets seeking to take advantage of the added flexibility of being able to return vehicles when they aren’t needed with no additional costs.

Commercial vehicles have been in high demand by some fleets during the pandemic, such as those in the home delivery sector. However, many other fleets were forced to ground their vehicles meaning those ‘on hire’ were returned.

Businesses, meanwhile, have been forced to adapt to new remote working policies and conduct meetings virtually rather than face-to-face, further reducing the need for car hire.

Gary Smith, managing director of Europcar Mobility Group UK, said: “The scale of disruption on the travel and leisure industry caused by Covid-19 is unprecedented for the sector as almost all global destinations have imposed restrictions on travel, followed by complete bans to contain the pandemic with lockdowns in most countries. This led to a fast decline in airline traffic, impacting our leisure business in all markets.”

Hertz Debts in North America

Hertz was forced to file for bankruptcy in the USA and Canada at the end of May, as the business lost all its revenue and amassed debts of more than £15 billion, with the majority of its branches closed during the pandemic.

Rival US firm Avis posted a $158 million (£127m) loss in the first quarter of 2020, warning of an $800m (£643m) cash burn between April and June.

Fleet News contacted Avis Budget Group to ask how its business in the UK was affected, but it declined to comment.

Hertz filed for a Chapter 11 restructure, which means its creditors will have to accept less than full repayment of its debts. Hertz UK is not affected by the ruling, however.

Scot Group, which owns the master franchises for Hertz brands Thrifty Car & Van Rental and Dollar Rent-a-Car in the UK, said it also remains unaffected.

Martin Wilson, Scot Group managing director, told Fleet News: “Although the impact of Covid-19 has been felt across the automotive sector, particularly in vehicle rentals, the impact to Scot Group, while challenging, has not been as great as some others due to our mix of business.

“Many rental businesses rely heavily on the leisure market which, of course, has been the worst hit as the crisis developed, while Scot Group enjoys some 80% of its revenues from the domestic corporate market. Corporate partners include much of the FN50, the direct insurance sector, manufacturer replacement programmes, the delivery supply chain and Government departments that include defence and front-line services.”

The company is now focusing its sales team to grow its footprint in the corporate sector and with the Government currently advising against the use of public transport, the business sees its ‘new normal’ arriving sooner than most.

It said bookings for long-term rental have shown a sharp rebound and daily rental in both car and commercial vehicle is growing day by day.

Rental firms in the UK operated with a reduced capacity during the lockdown, despite the official rules allowing them to remain open as a provider of ‘essential services’.

Rental Staff Furloughed

Many took advantage of the Government’s Job Retention scheme, with Europcar furloughing 1,405 staff – some 65% of its workforce.

Enterprise is believed to have furloughed around 600 staff members, according to one employee who contacted Fleet News. However, the company said it was not willing to confirm the figure.

David Brennan, managing director of Nexus Vehicle Rental – a platform that provides vehicle rental from a network of suppliers – said: “We have seen many companies completely stop their business travel and then work from home during the lockdown. 

“However, we also have seen that many of our clients are classed as key workers and so demand from these has been sustained and, in some cases, grown significantly. 

“For example, we had large van order from Morrisons to fulfil as they increased their home delivery programme in this period.”

Car Rental Demand Weakness

He believes demand from businesses will increase slowly as companies return to an increased level of normality within the new lockdown rules. 

“Van and truck rental demand has been – and will be – strong and the weakness has been in car rental demand. This is the area that may be the last to pick up. Very short duration rental demand will probably continue to be limited as many people have got used to working on Zoom or Teams,” Brennan added.

Enterprise said it was hit “significantly” in all countries by the sudden drop in demand, and it is continuing to assess the long-term impact of the pandemic as it evolves.

“More than ever, we are absolutely focused on having the right vehicle in the right place at the right time to serve our customers,” a spokesperson for the brand told Fleet News.

“We continue to adjust our fleet composition and branch network to remain as responsive as possible to changing customer requirements.”

The firm confirmed that 286 people no longer work for the company as a result of the integration of SHB Hire into its Flex-E-Rent business. The vehicle rental company also told Fleet News that as a result of merging operations, some depots had closed.

In recent weeks, the company says reservations and searches are up across all its booking channels.

“This trend has been slowly building week-on-week since our low in mid-April and there are grounds for cautious optimism as restrictions are further lifted. Even so, there is still a long way to go before we return to pre-Covid-19 levels,” the Enterprise spokesperson added.

The company has been forced to make decisions during the crisis to support its long-term health, such as limiting the use of third-party contractors, pausing hiring, reducing overall discretionary spend, reducing the hours of its part-time staff and making adjustments to senior executive and employee compensation.

Across the sector, fleet sizes are shrinking in response to declining demand. US-based groups have been affected more severely than their European counterparts, partly due to their outright purchase business model, which is dependent on the strength of the used car market.

Europcar, like most European rental companies, uses a flexible buyback financing model to finance 85% of its fleet, which means it was able to reduce its fleet size quickly and cheaply.

“Our flexible fleet model has enabled us to downsize the fleet to be more aligned to demand during the downturn. Discussions remain ongoing with OEMs to further flex and optimise our fleet plans for 2020 and beyond. This involves some postponement of fleet purchasing,” said Smith.