The Southern African Vehicle Rental and Leasing Association
SA Automotive Year Book 2003/2004

As published in CD-format during October 2003

Representing more than 90% of South Africa’s vehicle rental, leasing and fleet management companies, the Southern African Vehicle Rental and Leasing Association (SAVRALA) is a respected trade association.

Established in the 1970s, it is proactive in steering industry standards to raise and maintain the professional profile of its member companies operating within these industries. As its united and representative voice SAVRALA also strives to protect its members’ interests within any legislation or regulation impacting on the industry.

To illustrate this, the Association’s legal sub-committee has made submissions to and participated in numerous meetings at top level within the National Department of Transport regarding the implications for its members of specific aspects of the legislation contained in the Administrative Adjudication of Road Traffic Offences Act of 1998 (AARTO). AARTO has been much-delayed and is now mooted for implementation during 2005.

SAVRALA has established standards of good practice for the passenger and commercial vehicle rental, leasing and fleet management industries and these are intended to ensure that customers who obtain rental or leasing facilities from Association members receive the highest levels of service, honesty and integrity in all of their dealings.

It currently has a membership base of some 60 companies including associate members comprising motor manufacturers, financial institutions and suppliers of various ancillary products and services including electronic equipment, tyres and automotive glass.

Fleet management and leasing member companies currently manage a corporate and government vehicle park a little over 100 000 vehicles, while rental members run a fleet estimated at over 30 000 units.

With just over 12% of new vehicle sales now going to the rental sector, in the past five decades, the car rental industry has evolved from basic casual/airport car hire into a sophisticated industry offering a comprehensive range of short- and long-term rental products and services.

Customers are assured of a cost effective, reliable solution to their temporary transport needs with none of the risks of ownership attached. Growth opportunities are evident and, as the general population’s purchasing power improves, the need for transport will lead to increased opportunities in this sector.

SAVRALA members across all categories account for around 20% of all new passenger and light commercial vehicle purchases in South Africa annually.

New passenger car sales figures released in August 2003 show that 34 644 units were sold for the month compared with 30 524 units in August 2002. A percentage increase of 13.5%, this has been largely attributed to sales into the rental and government sectors.

The Manufacturer of the Year Awards

In October each year, the Association hosts its prestigious Manufacturer of the Year Awards. Comprising gold, silver and bronze awards across three categories – rental, leasing and overall – they are based on service excellence afforded by the motor manufacturers and importers to SAVRALA’s rental and leasing members over the previous 12-month period.

In the run-up to the awards evening, regarded as the highlight of SAVRALA’s social calendar, leasing and rental members are asked to rate the level of service and support (not individual vehicle models) provided by each of the motor manufacturers and importers according to a seven-point scale.

Strictly confidential, an independent research company oversees the distribution, processing and assessment of a two-stage questionnaire sent to members. In the leasing section evaluation, respondents are asked to rate manufacturers and importers across three categories, while in the rental section evaluation more than 30 questions across six categories are posed.

The survey culminates in the Manufacturer of the Year Awards attended by South Africa’s motor manufacturers, industry VIPs and Association members. With the 2002 and 2003 events having attracted unprecedented support and record turnouts in excess of 450 guests, the highly-contested Manufacturer of the Year Awards grow in stature year-on-year.

For more details, log on to www.savrala.co.za

SAVRALA comments on …

• Outsourcing in brief 
  The trend toward outsourcing is still growing says SAVRALA president, John Broadway, although he remarks that “in South Africa we have, to some degree, been a little slow to catch on to the advantages.”
  

  He attributes this to the fact that South African companies are used to managing their own affairs and are often sceptical of finding solutions by going the outsourcing route. “In part, outsourcing has been seen by many companies as a hands-off means of getting ‘rid of the problem’ of managing a fleet.

  “While fleet management companies will take care of the problem, a hands-off approach to outsourcing is doomed to failure and will only serve to entrench scepticism of outsourcing as a concept.”

  Broadway says that successful outsourcing requires that companies remain involved and learn to manage the fleet management service provider rather than the outsourced task.

  He adds that while outsourcing has had its best recent gains in parastatals and government departments, it is also increasing in the commercial sector of the market as more and more companies realize they cannot manage a fleet as effectively as a fleet management company specialising in this function can.

  “If one had to quantify the many savings that can be derived from outsourcing, it can be as high as 15% to 20% of fleet costs.”

• Rental rates set to rise?
  Following the release of the results of independent research in July 2003, rental customers are being warned of a possible dramatic rise in rental rates.
  

  Using information provided by SAVRALA members, car manufacturers, banks and Stats SA, it has been revealed that since 2000, overall costs in the rental sector have, on average, increased by more than 50% while revenues have increased by less than 20%.

  According to SAVRALA rental section chairman, Paul Pauwen, the objective of the research was to track the major cost driver trends affecting the association’s rental members and a graph has now shown that rental revenue trends last exceeded cost trends in October 2000.

  He says that while costs continued to climb, rental revenues continued to decline and had reached their lowest levels between January and April 2001. “From January 2002 costs had spiraled with revenues showing only slight improvement and by July 2003, the gap between cost and revenue trends had snowballed to 30%.

  “In my opinion, to understand why car rental companies are now moving to increase prices, one has to study the economic situation in SA over the past 20 years.

  “Adapting to a high rate of inflation over so many years, most rental companies derived more profit from the residual values of their vehicles than from their rental. The resultant escalation in the price of new cars means they could sell off their used cars at a profit which enabled them to anchor their rental prices.”

  Pauwen went on to say that when inflation had stood at 15%, car rental companies had known that they would be paying 15% more for a new car in a year’s time and could probably sell their used car for the same or more than had been paid 12 months previously. With the strengthening of the Rand and the decrease in inflation, car prices had stabilized and residual values had declined in relation to static new car prices. While motor manufacturers could have reduced new car prices in the current environment, they had not he said.

  “Instead, they have opted to give buyers more options, attractive maintenance plans for example, so now the consumer is buying new cars rather than used vehicles with no maintenance plans.

  “The result is that car rental companies and the car trade in general have had to drop their used car prices to make them more attractive to buyers. This has impacted on car rental companies forcing them to increase car rental rates which traditionally have been relatively low given the cost of cars in South Africa compared to say Europe or the USA.”

  Pauwen said that the research had looked at the change over a four-year cycle and it showed that over 85% of car rental sector cost drivers comprised new and used car prices, repairs to damaged vehicles, airport rentals and human resources. The most shocking finding had been the cost of vehicle repairs which had doubled over the last three years and now accounted for over 20% of overall costs.

  “The price war in the car rental sector over the past few years has taken its toll and I believe that in order for the rental industry to achieve sustainability, car rental rates must rise by at least 30%.”

• SA vs international fleet management trends
  As in the South African market, in Europe and Australia, the tax man wields great influence and taxation on the corporate use of vehicles shapes the types of fleet management (FM) products available in those markets according to SAVRALA president, John Broadway.
  

  “Changes announced during 2002 in the so-called “block exemption” rules in Europe will fundamentally impact on the motor industry supply chain in years to come and are already causing confusion between historic dealer/manufacturer boundaries over issues like who can retail and who can service vehicles. Internationally, fleet management companies will need to adapt their FM models accordingly.”

  He says that on average, the market share of FM companies in Europe is about twice what it is in South Africa. “Ranging as high as 50%, one in two cars sold in the UK and Holland goes to the FM sector.”

  Increasingly, environmental and pollution issues are influencing European fleet practices comments Broadway and it will not be long before they are escalated in South Africa. “SAVRALA members will play their part in the development of appropriate responses to these important issues.”

• The challenge to deliver world-class best practices
  Post-1994, South Africa has increasingly become part of the global business stage and with the increasing number of international companies returning to the country and a steady flow of SA companies expanding abroad, the focus must be on delivering world-class best practices in terms of fleet management.
  

  Broadway says that South Africa’s fleet management industry has to ensure that it is at the leading and competitive edge of global best practice. “We must maintain professional standards in the provision of services and work to grow the proportion of the national corporate park that we collectively manage above the current 10%. There is certainly plenty of opportunity.”

Association Structure

The association is headed by a President supported by a five-strong National Executive Council comprising a vice president and a chairman and vice chairman responsible for the leasing and car rental sections respectively.

Managing director of LeasePlan Fleet Management, John Broadway, has held the presidential reins for the past four years and, in terms of the Association’s Constitution, is eligible to stand for re-election for a further 12-month period at SAVRALA’s annual general meeting held in October each year.

During the 2002/2003 year he has been supported by chairman of the Leasing section, Sherl Preston of Avis Fleet Services and chairman of the Rental section, Paul Pauwen who is managing director of 080 Car Hire. All are based in Gauteng.

Operating within SAVRALA are various sub-committees overseeing specific industry-related issues including technical, statistics, AARTO/NaTIS, legal and training. Ad hoc sub-committees to oversee specific projects are appointed as needs arise.

Appointment of General Manager – Rental 
“As an association, the rental industry in particular, has served up many challenges relating to the implementation of a sustainable game plan to address the many common and critical issues facing it,” says Broadway. “In consultation with Paul Pauwen and members of the National Executive Committee, we have identified the need for the services of a dynamic and suitably experienced part-time consultant to fulfill a variety of general management roles on behalf of the members of the Rental section.

“Several projects currently in hand require a keen and dedicated focus. AARTO legislation is one,” he explained. “In addition, a general statistical database is currently contracted out and the incumbent will be responsible for ensuring that the supply contract is properly administered and that members derive maximum use from the outputs.”

The appointment of a consultant is currently being negotiated and once a decision has been taken, it will be reported in the national media.

Code of Conduct, Charters and Constitution

Compliance with SAVRALA’s Code of Conduct, Charters and Constitution is a condition of full membership of the association.

The Code and Charters have been formulated to establish good practice for the passenger and light commercial vehicle rental, leasing and fleet management industries. They are intended to ensure that customers who obtain rental or leasing facilities from association members receive the highest levels of service, honesty and integrity in all of their dealings.

To access the SAVRALA Constitution in full, log on to www.savrala.co.za

Rental, leasing and fleet management members are encouraged to display the Charter relevant to them throughout their areas of business.

Rental Charter 
As a member of the Southern African Vehicle Rental and Leasing Association, we pledge to provide for our customers:

• Complete details of pricing, ensuring you are aware of all charges before committing to a rental contract
• Vehicles that are serviced and inspected to the manufacturer’s operating specification as a minimum and complying with all statutory requirements
• Vehicles that are fully valeted and inspected for safety and comfort before each rental, from a selection of low mileage, current model vehicles
• An appropriate range of risk protection products and other services
• Commitment to SAVRALA’s Code of Conduct
• An effective complaints procedure with access to a conciliation service administered by SAVRALA

Leasing and Fleet Management Charter
As a member of the Southern African Vehicle Rental and Leasing Association, we pledge to provide for our customers:

• Integrity in pricing, ensuring you are aware of all charges before commitment to a contract
• Compliance with and understanding of all relevant statutory controls and regulations
• A simple, clear statement relating to the number of payments, their timing, and reasons for any changes in them
• A clear statement of policy on early termination, extension or restructure of a contract, excess kilometer charges and restoration charges
• Commitment to SAVRALA’s Code of Conduct
• An effective complaints procedure with access to a conciliation service administered by SAVRALA

What is Fleet Management?

When talking fleet management, outsourcing is top of mind. Whether it’s IT, HR, logistics – or fleet management for that matter – increasingly, companies are realising the benefits to be derived from selectively apportioning facets of their non-core business to specialist enterprises.

With the outsourcing of transport and related services an increasingly popular alternative to vehicle ownership, specialist FM companies are able to provide a full suite of professional services.

With the key elements being cost control, administrative efficiency and risk management, they are able to oversee and control the life cycle management of a single vehicle or fleet of vehicles from cradle to grave. Without exception, all the FM companies allied to SAVRALA boast a financially sound pedigree and, barring one or two reputable, independent players, are accredited offshoots of banking, dealer group or motor manufacturing organisations.

The services on offer may range from the design of a company car or car allowance policy, to the sourcing and buying of motor vehicles, maintenance and management of fuel, tyres, insurance and accidents, right through to the eventual disposal of the vehicle/s at the end of the agreed lease period.

Fleet management is a somewhat loosely used term and clients are sometimes confused by the spread of services available from banking institutions compared to specialist companies. In broad terms, a key objective of banks is to lend money and grow their asset book. To that, is added an enhanced range of sophisticated fleet services such as fuel management.

The key objective of specialist FM companies is to manage costs and risk on their client’s behalf. Financing is a consequence of their being in business, not a cause. In fact, current statistics reveal that in the corporate FM sector – which totals just under 100 000 vehicles managed by both banks and specialist companies – market share is fairly evenly distributed and the split between financed and non-financed vehicle management contracts is about equal.

In recent times, the corporate sector FM business has not experienced exceptional growth. In part, this is a reflection of the general state of the economy, as indicated in NAAMSA’s new vehicle sales figures.

In the medium-term, several factors will continue to influence the industry’s shape and size. These include:

• the continued growth in government outsourcing its fleet management. Tenders using different precedents have been implemented with varying degrees of success. While not all FM companies are operating in this sector, government business is a reality and here to stay. In time, more FM companies will undoubtedly develop the right solution for government and parastatals,
• companies right-sizing and down-sizing operations. With the outsourcing of non-core areas of their business (IT and HR for example), fleet opportunities have been reduced,
• the continued impact of car allowance schemes. The buying and management of cars has been removed from corporate hands and placed in private buyers’ hands. This continues to negatively impact on fleet opportunities,
• the trend by motor manufacturers to incorporate maintenance plans on new vehicles at point-of-sale is increasing. Increasingly, more motor OEMs will build plans – management and/or service – into their vehicles from scratch which will influence the ability and need to manage fleet costs, and
• the absence of other investment opportunities. Some corporates are finding it more effective to avoid debt by paying cash for their cars. The result is more vehicles managed in-house with the potential risk that inexperienced in-house fleet personnel may be inattentive to key issues such as cost controls, risk management and overall fleet efficiency.

Strengthening the Industry

Under the auspices of SAVRALA’s specialist sub-committees, various industry initiatives have been undertaken:

• Skills Development – Fleet Management training
  In partnership with National Private Colleges/Lyceum College, a private college operating under the Educor Group umbrella, SAVRALA has co-developed a Fleet Management programme.
  

  In July 2003, Lyceum College announced that following approval from the National Standards Body, the Fleet Management qualification had received conditional registration from SAQA and that full accreditation was imminent.

  Primarily, the aim of this education initiative is to increase understanding and awareness in the corporate and government sectors, of the challenges involved in specialist fleet management and, also, to encourage previously disadvantaged South Africans to join the industry.

  The Certificate in Fleet Management is a definitive course designed to improve the skills of existing fleet managers as well as to provide motor industry newcomers with the knowledge required to perform effectively in a fleet management role.

  The programme comprises five compulsory Fleet Management subjects: Fleet Management I, Short-Term Rentals Management, Motor Sector Analysis, Maintenance Management and Vehicle Selection and Procurement Management.

  In addition, there are three electives of which two have to be completed: Cost and Management Accounting, Sales Management and Organisational Behaviour.

  For further details, log on to www.lyceum.co.za

• Legal Wise 
  Fleet management companies in SA face myriad legal requirements which govern the manner in which they do business and a function of SAVRALA’s legal sub-committee is to monitor changes in legislation and keep its members informed.
  

  A key challenge is to contribute to the government’s development of rules and regulations so as not to impinge on corporate efficiencies. As already mentioned the Administrative Adjudication of Road Traffic Offences Act of 1998 (AARTO) and the National Transport Information System (NaTIS) licensing requirements remain under the spotlight.

  After delays spanning several years, AARTO was scheduled for implementation in September 2003. The legislation has again been put on hold possibly until 2005. As the content of the legislation currently stands, when eventually implemented, AARTO will make significant demands on SAVRALA members – and the motoring public overall – in terms of compliance and accountability.

  The sub-committee also acts as a warning system for members and when it advises them of changes, they can then consult their legal, tax or accounting professionals on the ramifications of the changes required for their particular business.

  The legal sub-committee also monitors a huge amount of legislation covering such matters as the Companies Act, the accounting profession’s policies for balance sheet reporting of assets, corporate and fringe benefits, VAT rules and the Usury and Credit Agreement Acts.

• Technical Issues
  By the very nature of their business, SAVRALA members will, from time to time, run into technical problems with the fleets they manage. These could include a high incidence of breakdowns or frequent/high repair costs for example.
  

  Should members be unable to resolve such issues directly with the manufacturer concerned, they have support in the form of the association’s technical committee. If the issue is seen to be in the common interest of members, the technical committee will take it up with the manufacturer. Intervention is a last resort, however, and the technical sub-committee will only enter the fray if the member is unable to resolve the problem.

• Statistics
  This is an industry that operates on minimal margins and careful management of critical elements such as residual values (RVs) and maintenance rates will determine success or failure.
  

  With a view to better understanding and benchmarking RVs in the industry, SAVRALA formed a statistics sub-committee some years ago. Since the late 1990s, leasing members have been submitting RVs across a selected range of vehicles to an independent company. The numbers are then aggregated and a table of values is drawn up and distributed.

  This statistical data reveals significant inconsistencies in the RVs being offered to customers and, for the long-term credibility and sustainability of the leasing industry, getting companies to quote off more or less the same base is essential. This remains a sizeable challenge for the stats sub-committee.

To gain an understanding of the cost, efficiency and risk management benefits available when it comes to corporate or personal leasing and fleet management requirements, consult a SAVRALA-member company.

For details of all current members consult Members Directory on the SAVRALA website:  www.savrala.co.za