June 2004

Charging when and where the costs apply – as opposed to blanket rates increases – is a significant development within the car rental industry over the past few years.

Due to the highly competitive nature of the car rental industry, the ability to simply increase rates to compensate for inflationary cost pressures over the past eight years was simply not an option. Although, the competitive forces have squeezed rates so far that the industry is now under pressure to apply rate increases again.

Since the transition to our new democracy, there has been a significant increase in the number of car rental operators in South Africa, particularly the international brands.

Prior to 1994, there were just three international car rental brands operating at SA airports – Avis, Budget and Hertz (under the banner of Imperial Car Rental) while the local brands of Imperial and Tempest had developed significantly.

By the late 1990s and with the lifting of foreign trade restrictions, Hertz returned under its own banner and the additional brands of Europcar, National/Alamo and more recently, Thrifty have set up shop. Further exacerbating the competition was the fact that the Airports Company of SA (ACSA) allowed all of these new players to have kiosk space at the major airports.

Once the expected surge in foreign inbound tourists after 1994 had died down, the industry was left with almost double the amount of operators in a short space of time. The natural economic consequences of the additional players in what has been a pretty limited pie, was the inevitable price war, with virtually all participants holding and often reducing rates to maintain or attempt to grow market share. The ‘time and kilometre rates’ element of the revenue stream saw minimal increases (averaging at around 4% per annum from 2000 to 2004), while costs over the same period were very much higher.

A result of the competitive forces on standard rates has seen the industry move to the more logical approach of raising revenue by charging where the costs arise. Naturally, these additional costs are incurred where and when services outside the normal renting processes apply, delivery and collection fees for example.

Some years ago, vehicles were delivered (within a certain radius) and/or collected from the renter’s office, home or hotel, free of charge. Not so today – and quite rightly – as there are additional manpower and related expenses related to providing this service. The same applies for accident administration fees, traffic fine administration fees, additional driver charges, airport surcharges etc.

The overall effect is that the car rental invoice has become a lot more than the three or four line entries of 10 years ago (rates, waivers and fuel). Rest assured though, this trend has certainly kept car rental rates in check and the consumer has been the winner all the way. The result is an industry that has become leaner, cut out the waste and improved on its fleet utilization yield (from below 70% in 1999 to above 75% in 2004). The average renter now reaps the benefits of a keenly trimmed rate in the market and several operators to choose from.

This process of holding or reducing rates and applying additional charges, has given the impression that car rental has become more expensive, which is certainly not the case. In fact, when one compares the cost of a rented (small) vehicle, the average daily charge (including fuel and standard waiver cover plus 200 free kilometers) comes in around R300 per day and less than R400 for an air-conditioned vehicle.

Today one cannot get a reasonable taxi service from the airport to town – let alone back again for the same price. Ever tried to rent a lawn mower or a data projector lately? You’d fall off your chair. When considering the expense and high risk nature of the asset, car rental rates are extremely cheap in SA.

Other Developments
· Car rental industry aims to reduce risk
In an effort to further reduce risk to its members, SAVRALA has undertaken a few projects aimed at reducing unnecessary costs. One is to compile and share information of abusers of the industry. Here, we aim to stop renting to those who take our members “for a ride”, generally by running up debt and moving from car rental company to company, or those with unacceptable high accident rates and so forth.

This project is nearing its switch on date and the exciting aspect of this “Information Sharing” drive, is that it will be Internet-based, live and easy to apply. Only association members will have access to the data base and the list will be highly confidential. Members will sign a code of conduct and its application will be purely to reduce the bad debt, high risk and fraudulent element – the aim being to further reduce costs and provided added value to its member base.

· Educating the renter about risk
Another initiative which SAVRALA is currently undertaking in conjunction with ASATA, is to educate the renter and user of car rental services about the many risks related to car rental.

There is no doubt that over the past 10 years, the risks and related costs have risen sharply in this industry – especially where vehicle theft is concerned. Our borders have become easier to cross (witness recent news that 10 luxury, stolen vehicles had crossed the SA/Zimbabwe border at Beit Bridge) and the demand for stolen vehicles by the countries to the north of us, continues to increase.

Rental cars are an easy target for a number of reasons – not least that they are generally driven by visitors in unfamiliar areas and as such, become the targets of the common vehicle thief. The element of carelessness when the vehicle is ‘not your own and you’ve taken all the cover you can’ also adds fuel to the fire. These are the areas we need to address, to keep the renter aware of the risks and related costs and so raising the levels of caution at all times.

Besides the risk of damage and theft, there are also a number of additional expenses which arise from time to time, which we need to bring to the renters attention. These include items such as additional driver charges, traffic fine administration fees, etc. More importantly, the renter has to become more aware of the clauses relating to breach of the rental terms and conditions – which can come as a nasty and costly surprise in the event of accident damage and/or theft the vehicle.

For example, when a renter fails to return the vehicle by the agreed return date and time, he/she is no longer covered by any waiver option they may have signed for. In the event of an accident or theft taking place during the unauthorized, overdue rental period, the full cost for repair/replacement will be for the renter’s account.

By making use of the channels made available through travel agents (thanks to assistance from ASATA) and the general media, SAVRALA intends to heighten renter awareness of these risks and hopefully, further reduce losses and charges, benefiting both the industry and the user of our services.

· Car rental cover
It’s important to know that car rental operators do not sell insurance. Rental vehicles are “self-insured” and all risk lies with the owner of the vehicle. When renting a vehicle, the full risk of damage or loss to the vehicle as well as other party’s property is passed on to the renter. In effect, the car rental company wants to get its vehicle returned in the same condition in which it was rented and if damaged, the renter must pay for all repair costs – if no waiver cover was purchased.

To reduce the renter’s liability for possible damage and losses, car rental operators offer a few “waiver options” which afford their customers limited responsibility for damage and loss.

Acceptance of a standard damage and/or theft waiver reduces the renter’s liability for full damage and loss expenses to an “excess” charge of a few thousand rand, usually between five and 10 per cent of the value of the vehicle. Depending on vehicle category, this could vary between R5 000 for entry level models and R20 000 for luxury vehicles. Furthermore, acceptance of the super damage and/or loss waiver option further reduces this “excess” to around R1 000 for entry level cars and R4 000 for luxury vehicles.

In the event of an accident taking place involving no other vehicle, animal, person or object, most companies will apply a “double excess” charge. This may also applies when damages occur on a gravel road.

Third Party damage claims are generally covered by most car rental companies but only when any of the waiver options has been accepted.

The renter must also be aware that even if damage/loss waivers are purchased, these will fall away and zero cover be provided when the renter has breached the contract. Examples include allowing non-listed persons to drive the vehicle (not even hotel valet parking staff!), exceeding the agreed return date or time, legal transgressions including speeding, drinking and driving or cases of gross negligence.

When in doubt and for peace of mind when it comes to car rental travel, we always suggest that the renter takes the super waiver option, drives responsibly and keeps the vehicle parked as safely and securely as possible at all times.

Car rental charges are mostly uncomplicated and in line with expectations. It’s when accidents, theft and traffic violations occur – or when an unauthorized individual is handed the keys of the vehicle – that problems occur with a small percentage of rental transactions. These generally relate to additional charges and unexpected excesses or breach and full damage costs being applied.

· Dealing with accident theft or damage
For a renter, having a hired vehicle damaged or stolen, can be a traumatic and unpleasant experience. While the car rental operators are generally quick to respond by providing a replacement vehicle for the renter to continue on their journey, they are equally quick to respond with a full analysis and investigation of the incident. This is for a number of acceptable reasons, the first being to reduce further risk.

For example, if the renter has been reckless or careless, chances are that a replacement vehicle will not be provided. Furthermore, if the renter was in breach of the rental agreement, then the waiver covers will fall away and full costs of repair/replacement may be applied.

Here are some examples of what constitutes breach of car rental contracts:
1. Renter negligence – depending on the degree thereof – could constitute breach
2. Transgression of traffic laws or ordinances
3. Non-reporting of incidents to the car rental operator
4. Unauthorised cross-border travel
5. If vehicle is driven by an unauthorized and/or unlicensed driver
6. If the agreed rental return date and time has been exceeded – unless prior approval has been obtained
7. Driving off-road (gravel for example)

What to do, in the event of an accident and/or theft of the rented vehicle:
1. Notify your car rental operator (preferably the renting station) as soon as possible
2. Report the incident to the nearest police station and record the case number
3. In the event of an accident, do not admit guilt or liability to any other party. Take all details of other parties involved and pass these on to the rental company
4. Complete the rental company’s damage/theft report in full and attach a copy of your driver’s licence and identification document
5. If possible, get details of witnesses