Making money in the car and van hire market depends on ensuring that a fleet of vehicles is given its maximum possible use. If demand falls, hire companies must respond either by reducing prices to stimulate demand or cut the size of the fleet they operate.
As a consequence, this market is extremely competitive, but is facing a fresh challenge in the form of WhipCar. This online business, with the strapline 'rent the car next door', allows individuals to register with the site and hire out their cars to people who live nearby for anything from a few hours to weeks at a time. The service operates on the basis that many people's cars sit idle for most of the day and allows them to earn money from this costly asset.
Whether WhipCar will take off remains to be seen, but it does tap into a clear need that many consumers have to hire vehicles for short periods of time, demonstrated by the rise in the number of car clubs in the UK.
Car ownership has increased in recent years, which should reduce the need for car hire. However, the recession has forced some two-car families to cut back to one. This has coincided with an upturn in car hire in 2008 and 2009. As demand in the private hire market has increased, it has dropped in the business hire sector.
The total UK car and van hire market was worth £1.99bn in 2009, a rise of 22% on 2004, according to Mintel. However, volume - the total number of hire days - has remained fairly static at about 40m, so the value increase is a result of higher hourly rental rates.
Car hire remains an infrequent requirement for the majority of people - most of the adult population has used it only once in the previous year. In addition, the recession has altered consumer behaviour in ways both to the sector's benefit and detriment.
According to BMRB, two of the key events that lead to car and van hire are UK holidays and moving house. Although there was a rise in Brits holidaying at home in 2009, introducing the dreaded neologism 'staycation', the housing market was hit hard, with sales and, therefore, moves dropping compared with previous years.
At the end of last year there were 2630 hire outlets, according to Mintel. While the majority of these are run by hire companies, some, such as Budget and Practical Car & Van Rental, also use franchise operators.
Enterprise Rent-A-Car leads the UK market with a 16% share followed by Europcar, Avis and Hertz.
Enterprise has been operating in the UK only since 1994 but has built market share by combining low daily rental prices with high levels of customer service. It now has 330 branches across the country. This year it trialled its WeCar car-sharing programme, already established in the US, with Woking Borough Council. It allows staff to use two vehicles for short business trips.
Avis and Hertz focus more on the business market, so their share of the private-hire market is smaller. The latter has responded to the need for shorter hire periods with its Hertz 369 service, where cars can be rented for three, six or nine hours, and the Connect by Hertz car-sharing scheme, which is widespread in the US and has now been introduced to London.
Independent local businesses account for almost a third of the market.
The rising cost of car ownership presents an opportunity to the hire business and, although purchase prices have dropped, depreciation and maintenance costs have not. Mintel predicts that the value of the market will grow 7% by 2014 to reach £2.12bn. However, when inflation is taken into account, this is a near-static sector and the number of hire days will decrease by 8% to reach 37.2m in 2014.
This article was first published on marketingmagazine.co.uk