Artwell Dlamini
5 December 2008
Johannesburg — CAR rental companies are struggling to stay profitable in the face of a severe slump in the used-car market and slowdown in the car-hiring business.
Budget Group is delaying replacing its fleet of cars because it cannot find the right prices for them in a depressed used-car market.
Linda Lombard, sales and marketing director at Budget Group, says the car-rental company plans to hold its fleet for 12-18 months, instead of the usual six to nine months.
Standard Bank economist Denelee van Dyk says car-rental companies are constrained in turning their fleet as a result of low trading values in the second-hand car market.
Jeff Osborne, CE of the Retail Motor Association, a body that represents car dealers, says the prices of some used cars have dropped 50% below book value.
Imperial Car Rental, part of Imperial Holdings, which owns car dealerships, says it has not "de-fleeted" or replaced its vehicle pool since the economic downturn began.
"Prices of used cars have come down because of oversupply," Osborne says, and this market remains in a "slump". Some companies are keeping their cars longer. "They are not getting the right prices for their fleet."
Despite the oversupply of used cars and low prices, Osborne says consumers are finding it hard to capitalise on the bargains. Consumers struggle to get credit due to the National Credit Act, and are grappling with debts, high costs of living and high interest rates, he says.
Osborne says car-rental firms are competing with cars repossessed by banks that are also coming on to the market. He says car repossessions are estimated at 7000 a month. Among themselves, car-rental companies offload a "significant" number of cars into the second-hand car market. Car-rental businesses face another challenge -- fewer foreign tourists visited SA in October, a month that is usually brisk for the car-rental industry. Lombard says it has been "the most difficult" October and November despite the weak rand, which is generally attractive for foreign tourists.
"Foreign tourists didn't turn up for holidays in October," she says. SA receives a large number of foreign visitors at this time of the year. Lombard attributes this to the economic crisis in Europe and the mortgage debacle in the US. Imperial Car Rental confirms this trend. CE Dawn Nathan-Jones says the company "has been fairly robust until the end of August when we noticed slight declines, mainly from inbound tourism".
Nathan-Jones says international passenger volumes were down 4% in October in line with the world economic downturn. "However, we don't expect a huge decline in numbers as the favourable rate of exchange makes South Africa an affordable holiday destination," Nathan-Jones says.
South African tourists, who cannot travel overseas due to the weak rand, are opting to take holidays at home, which is pushing up the demand for car rentals over the Christmas holiday period, says Nathan-Jones.
Lombard also says SA is becoming attractive to South Africans, giving "us a lovely relief".
"We are seeing more South Africans make plans to have holidays in SA", Lombard says, but she complains that local tourists use shorter rental periods (4-5 days) than their foreign counterparts (14-18 days) do.
"We still need foreign tourists," Lombard says, noting that "competitive pricing" has put profit margins under pressure at a time when domestic corporations are reviewing air travel budgets.
Lombard says air business travel is depressed in line with tough economic conditions, but remains upbeat, saying international sporting events such as the Confederations and Lion Cups are taking place next year.
Nathan-Jones says so far Imperial has not seen a decline in air business travel. She is optimistic about the prospects of the business next year. Petrol prices are coming down and construction projects support the car rental business, Nathan-Jones says.
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