May 2005

SAVRALA’s car rental members represent over 95% of the rental vehicles operating in South Africa and are responsible for the purchase of around 35 000 new vehicles per annum (approximately 15% of total new passenger vehicle sales).

One can imagine that with fleets of this size, vehicle crime and theft is a subject that stirs up emotion and concern to our members. It is our view that every effort should be made to reduce theft and to challenge the organized vehicle theft syndicates.

Vehicle crime and its prevention is a constantly changing and evolutionary process. In order to protect our assets and ensure the safety of our society, the car rental industry has to stay ahead of the criminal element.

South Africa is a haven for vehicle theft operators who supply the markets both north of our borders and within SA and this growing problem has been plaguing vehicle and fleet owners for the past two decades. As a result, SA has been at the forefront of vehicle crime prevention technology and many of the ignition immobiliser and remote alarm systems introduced into worldwide vehicle production lines, were pioneered in this country. However, as hard as we work at it, the criminal element works even harder to undermine our efforts, adopting more ruthless ways of overcoming vehicle security thus forcing the industry to search for improved methods to combat this scourge on our society.

Every now and then, a revolutionary process such a Microdot technology comes to the fore. While it may not provide a total solution to the problem, it may go a long way in upsetting and deterring the criminal element.

It is an effective method of vehicle (and component) identification utilizing thousands of near-invisible dots which contain the vehicle’s VIN number. These are sprayed onto strategic areas and parts of the vehicle.

A further strength lies in Microdot as a deterrent to the stolen “used” parts sales and “chop-shop” industry, a huge part of the vehicle theft and hijacking chain. Micro-dotting can go a long way in closing this loop in the cycle. Furthermore, vehicle manufacturers and dealers should benefit from increased sales of legitimate parts.

There is no doubt that Microdot technology will help reduce vehicle theft and by doing so, provide increased security to drivers and passengers. And, when compared to the cost of a tank of petrol, Microdotting is surprisingly inexpensive!

If Microdotting will assist with improved safety, is cost-effective to implement and has the potential to increase legitimate parts’ sales, why then, are vehicle manufacturers not beating down the door to implement this technology on their production lines?

While we appreciate the need for approval from overseas principals and investigations carried out as to how best to implement the process in-plant, it seems there is some resistance and slowness to react by NAAMSA members.

It reminds one of similar reluctance in the 1980s regarding the introduction of vehicle ignition immobiliser systems. Having toiled for years with the “messiness” of after-market fitment to protect their fleets, the car rental industry strove hard for this to become standard, on-line fitment.

While there is no doubt that Microdotting has a positive to role in reducing vehicle theft, its effectiveness lies in the need for critical mass. South Africa cannot have border control posts or roadblocks and policing personnel looking for micro-dotted vehicles and parts, when only a fraction of cars on the road are fitted accordingly.

Microdotting needs to be introduced onto as many vehicles as quickly as possible and, there is no better way to do this than on vehicle production lines. This practice would also give uniformity to the unique vehicle VIN number usage as opposed to a mix of VIN and PIN numbers which can be confusing for law enforcement.

SAVRALA strongly supports the use and installation of microdot technology and we urge that the much-needed critical mass be achieved in as short a period as possible. We request NAAMSA members to look seriously at the on-line introduction of microdot technology as a matter of urgency.

In today’s vehicle “price freeze” environment, what better time then now, to introduce this initiative?

March 2005

Over the past decade, SA’s car rental industry has undergone significant adjustments, the most significant of these being the increase in competitor activity resulting in a number of new and international brand operations setting up shop.

Competitive Forces

Pre-1995 there were four dominant players in SA car rental scene – Avis, Imperial, Budget and Tempest. Hertz was also present but as a “sub-brand” at Imperial counters. Effectively, there were two-and-a-half international brands plus two strong local brands.

Between 1995 and 1999: The opening up of SA trade to the world, combined with ACSA’s keenness to open up business at the main airports across SA, saw the number of car rental brands and players doubled to eight, with Hertz operating as a separate brand and Europcar, National/Alamo and then Thrifty moving onto the scene.

Due to the high growth of tourist traffic to the “New” South Africa, the abnormal increase in the number of players and the resultant high “cut-throat” competitive forces that had not existed pre-1998, this period saw significant increases in the car rental volumes handled.

Post 1999: Once the new players had settled in and signed contracts with ACSA and the substantial growth of foreign inbound visitors began to taper off, strong competitive forces and price cutting began to take effect in the car rental market.

By 2000, the eight major car rental operators began to consolidate their positions and strive for growth in market share, resulting in the price cutting and subsequent rate increase cycles which have almost become a “cyclical” trend in the industry.

The points and graphs below aim to indicate the trend of rate increases over the past five years:

This following graph indicates the average daily Time and Kilometre (rate) revenue generated by SAVRALA car rental members over the past five years. These rates exclude revenue generated by the sale of waivers (often and incorrectly referred to as insurance).

1. Notice that as a result of excessive competitive forces, the rate yield dropped from the Year 2000 (blue line) to 2001 (pink line) by an average of less than 5% for the year – but severely in the first half. This was followed by some positive adjustment in 2002 (green) to correct the “destructive” price cutting of 2001 (up by 13%). The following two years to end-2004, saw annual increases of 5% and 4% respectively, with current competitive forces at play and rates dipping below the previous year levels toward the end of 2004.

2. Over the four year period 2000 to 2004, average car rental rates have only increased by around 4% per annum, from R149 per day (in 2000), to an average of R168 in 2004.

3. Revenue from waivers are a significant portion of the car rental bill and need to be taken into account when looking at the overall pricing picture of car rental charges. Unfortunately, the industry does not measure the Waiver sales portion of the rate charges. However, some insight is provided in the next paragraph to include waiver revenue accordingly.

4. When including Waiver revenue, on average, the “total” daily revenue per rental day was around R260 in 2004. This may be higher or lower, depending on which segment the business is transacted in – for example, many local companies cover car rental within their own corporate policies, so waiver revenue hit rates are lower.

On the other hand, foreign-inbound business tends to have a higher rate of waiver acceptance. However, the high degree of competition in this segment has led to a further erosion of the T & K portion of the revenue stream and has reduced yield while affording the waiver protection. Instead of being closer to the R300 level, the daily total revenue is substantially lower.

5. The improved strength in the rand over the past two years will have impacted no doubt as an “increase” in the cost of car rental to the foreign-inbound segment, exacerbating the perception by the Foreign Tour Operators that the SA car rental market has become very expensive. The fact is that car rental in SA is still relatively inexpensive when compared to other tourist destinations.

6. Despite the afore-going factors, the average daily cost of car rental in South Africa is regarded as inexpensive in the overall “travel spend” basket. When one compares a 30 to 45 minute transfer journey from the airport to a city hotel in Johannesburg, Cape Town or Durban that can cost anything R300 and R500, as opposed to the freedom of driving “your own” hired vehicle for 24 hours at a similar or less charge, which option would most travelers prefer?

7. When one compares daily car rental charges with those of corporate hotels (three or four star) some 10 years ago, they were very similar in cost. Today, however, the average daily car rental rate of R250 (including waiver revenue) is substantially less that of a hotel’s daily room charge which is closer to double the cost of car rental.

8. At an average of R250 (or $43 or 21 UK Pounds per day including waiver cover), car rental travel in SA today is regarded as a fairly reasonably and inexpensive item in tourists’ travel budgets. Consider, too, that South Africa does not have a strong public transport infrastructure to support tourist travel making car rental, transfer shuttles and coach tours, the main means of road travel. With such a limited choice of other modes of transport, one would expect that car rental should command higher rates. This, however, is not the case.

9. As can be seen by the T & K (rate) yield graph, competitive forces continue to keep the lid on pricing in the local car rental industry. Since the latter part of 2004, statistics have indicated that rate increases are once again under extreme pressure.

10. The Cost to Revenue Trend Monitor graph also provides clear indication that car rental revenues have increased at a pace substantially lower than the cost, a phenomenon which has beset the industry over the past five years. The main factors driving up costs have been damage and vehicle theft, salaries, vehicle servicing and petrol increases. This has placed pressure on a number of the operators and has seen improvements in fleet utilization from an average of 70% in 2000 to almost 77% in 2004. This is a significant and very necessary improvement in order to keep costs under some degree of control.

11. Many feel that with the stagnation of new vehicle price increases, car rental rates should also remain stagnant. However, car rental operators sell off their fleets within 11 months and “low” new car prices impact negatively on the residual values of these used vehicles, thereby effectively driving “up” the cost of holding vehicles on fleet.

January 2005

“A pretty flat year” is how Rental Section, GM, Wayne Duvenage, sums up 2004 saying that real transaction growth was in the lower single digit figures with the industry concluding over 1,6-million rentals by year end.

“With just under five days on average per rental, the total number of rental days was around 8-million. In terms of pricing on a year-on-year basis, the industry managed to obtain a positive rate adjustment of some 7%. This was, however, short of what was necessary to maintain adequate returns for shareholders.”

During 2004, the industry had faced increasing challenges including lower used vehicle residual values, higher than inflation increases in vehicle repairs and maintenance costs as well as spiraling damage and theft expenses.

These factors had produced a typical margin squeeze and the trend of growing expenses ahead of revenues over the past three years had forced the industry, yet again, to tighten its belt explains Duvenage.

While efficiencies had improved with vehicle utilization running at close to 76% on average, he comments that the downside had been that running tight fleets had caused more frequent sellout situations. “The companies that managed their fleet the best in 2004 are the ones that were able to increase market share.”

While the foreign inbound market is expected to remain relatively flat in the short term, Duvenage says that the car rental industry hopes to achieve a 5% increase in its volumes during 2005 reaching approximately 8,5-million rental days. “Rates, however, need to rise between 8% -10% and overall revenues by 15%.”

Current revenue yield trends indicate that the competitive nature of the industry continues to be of benefit to the consumer, something which has continued for several years and which we anticipate will abate to some degree in 2005. Product innovations, value added experiences and improved service levels will emerge as the differentiating factors during 2005.

During the past 12 months, SAVRALA members have given financial support to Business Against Crime and become active proponents in the fight against vehicle and related crime. The installation of microdot technology as a factory standard on vehicle production lines – in preference to after-market fitment – is being firmly encouraged.

“While microdot technology does not offer a total solution to the problem, it is an effective method of vehicle and component identification and will go a long way in deterring the criminal element,” explains Gary Smith, chairman of the association’s rental section. “Its effectiveness, however, lies in critical mass. It’s pointless for border control posts, roadblock and policing personnel to look for micro-dotted vehicles and parts if only a fraction of the vehicles on the road are fitted accordingly.”

SAVRALA is currently compiling a list of car rental industry abusers, information that will be shared with its members. “Our aim is to stop renting to those individuals who quite literally are taking our members for a ride by running up debt and then moving their business from company to company. Or those with unacceptably high accident rates for example,” adds Smith.

The car rental industry, as measured by SAVRALA members who contribute to the statistical database, are responsible for the purchase of around 35 000 new vehicles per year. Responsible for between 90% – 95% of the overall car rental market in South Africa, they account for virtually all business conducted at airports as well 90% of off-airport rental transactions.