Is price setting a possibility in the vehicle rental sector?

Falling new vehicle sales in the UK market could have major repercussions for the rental sector in 2012 when it comes to leasing cars and light commercial vehicles, we discussed yesterday. On the surface, lower prices for car and van hire look too good to be true, but with prices so low, are you sacrificing essential cover or being stung for ancillary insurance that you do take out with the rental firms?

Following on from yesterday’s article delving into what may or may not be covered, today we look at how several of the top brass in the car and small van hire sector are interpreting the signs. Whilst everyone acknowledges that there’s a problem with rates for vehicle hire being too low, the impression as an outsider looking in is that there’s a lot of finger-pointing to apportion blame elsewhere rather than take the bull by the horns and actually do something about it.  It appears no one wants to put themselves in a position to be shot at and draw the fire from those who may be the ones to pick up the gun and shoot it themselves.

Roddy Graham, from his vantage position as commercial director of Leasedrive group, believes that the bigger players in the market will continue to look for opportunities to increase their market share next year, foregoing the chance to raise the overall market price by doing so.

There are several factors affecting this judgement, elements of which are reflected across the industry.

Graham is disappointed that, on the back of vehicle manufacturers offloading unsold units at heavily discounted rates to the rental sector, those in the position to buy in that volume see the bulk acquisition as an opportunity to reduce the price to the end user, rather than make more profit.

In addition, he reveals frustration that the market is not moving as one to “collectively raise rates to more sensible levels” and that, if this process continues it will not be long “before one of the major names cries wolf as profits become significantly impacted.”

What Graham may not have full visibility to, or even willing to comprehend, is that every company within a niche has different targets, structures and cost bases. If you buy bulk at the lowest rate, your profit comes from volume. If you sell on the quality of your brand name, that dictates the price, not the cost of the product. Surely simple business economics?

What is more of a concern for the van driver next year, if the statement is to be taken at face value, is the implication that a whole market price could be set if it wasn’t for the fear factor alone that there may be one consortium member who would jump ship and spoil the party for everyone else.  This could alert the OFT; as well as investigating the recent rises in domestic and commercial vehicle insurance, they may suddenly have a blip appear on their radar from the vehicle rental sector when they weren’t even aware there was a ship on the horizon.

More views from the industry leaders in the next article.