Rental trend continues to grow

A positive start to the year for the rent-a-car sector, with turnover and volumes at +7% in the first quarter of 2023, and a sparkling start for the long-term sector, with turnover from rentals at +15% and the fleet rented for over 12 months at +8%. These early figures following a very good 2023 hint at further growth, which poses a challenge to operators to invest in order to be ready to meet a demand that is not only broader, but also carries different expectations from those served, and very well, so far. In 2023, long-term rental exceeded ten billion in turnover (10.6), up 13% on the previous year. The core business, i.e. rentals, was worth 7.5 billion compared to 6.8 billion in 2022 (+10%), while the resale of used vehicles at the end of the rental period reached almost 2.9 billion euros, a quarter more than the 2.3 billion of the previous year. This result, the latter, is linked to the average values expressed by used vehicles, a favourable situation which is expected to ease although not disappear altogether.

Nlt growth is not news, but a constant. On the other hand, it is interesting to observe how much business comes from private individuals, with and without VAT numbers: they now account for almost 11% of turnover and 13% of the circulating fleet. Important numbers that are getting bigger every year, but which already contain a signal that should not be overlooked: these customers on average choose less expensive vehicles and services than company fleets, which still account for 78% of vehicles and 83% of turnover. So there are more volumes from more small/individual customers in the future, but with a lower turnover per unit and therefore possibly a lower unit margin. In this scenario, we have to ask ourselves whether these customers will only bring economies of scale or also an expectation of different services with associated higher costs.

Opening the chapter on customisation of the service, one comes across the driving style which can vary, and a lot, from driver to driver. In the large numbers of an individual customer's fleet, a general average may be fine, although up to a certain point, since it is still a mixed product that impacts economically on the employee's pocket. What is certain is that no average will be able to satisfy the customer of the individual car if he considers that he is using the car in a virtuous way and expects the economics to take this into account. In this regard, some indication comes from a recent study conducted by a pool of companies (Dekra, Escargo, Targa Telematics and UnipolTech) on a sample of 160 insiders. The panel was 80 per cent convinced 'that insurance premiums should also be defined on the basis of driver profiling based on driving style (speed, acceleration and braking)'. How to put it? A question of style. But not only. In order to take risks, the car must be in motion. And nowadays, technology would also make it possible to customise the kasko premium according to the kilometres driven and the actual time. But what do customers think? 78% of the panel think that corporate ones would be in favour, and for small, so-called consumer ones the percentage rises to 84%.

Leaving aside the technical aspects, this prosperous prospect can be summed up in one simple word: investment, on company organisation and IT systems. Because it would not just be a matter of managing more contracts and more cars, but of dealing with an audience of individual customers with personal and diverse needs. In the practical reality of the balance sheet, such a growth would require absorbing more liquidity than that generated by the business.

As Aniasa president Alberto Viano puts it, 'year-on-year growth of more than 5/7% can put an immediate strain on companies' budgets, which have to support organisational and IT investments with an immediate impact on the income statement. It is a cash-flow issue: you are making profits and you want to grow; if you manage to do so above 5% you become cash-negative. This does not always find the willingness of shareholders, especially now that money is expensive. It is this element that makes the difference, compared to other Nlt development cycles, twenty years ago and then before Covid. Back then, the world was living in a period of abundant liquidity, which brought the cost of money to zero and even below. In that financial scenario, it was easy to deploy capital to buy and rent cars with double-digit returns. That world became sick with Covid and the therapy was an abnormal amount of helicopter-money, which then had to be restored by raising rates to curb inflation. Be that as it may, the message to charterers is that they must learn to be convincing to shareholders or other investors.