Challenges & Opportunities for European Auto Rental Market
Reprinted from AUTO RENTAL NEWS Magazine August/September 1994
by Neil Abrams
Transportation restrictions, fleet availability and theft are some of the issues that operators must address as they move to a pan-European industry. Neil Abrams, an industry consultant with expertise in European operations, reports on the state of the industry. His insights can benefit any company doing European business, or seriously considering it.
DATELINE: VENICE, ITALY
As my wife and I sailed from the Venice Airport via water taxi on the final leg of our journey to the site of the 29th annual assemblage of the European Car and Truck Rental Association (ECATRA), at the Excelsior Hotel on the Isle of Lido (about 15 minutes from St. Marks Square, the center of Venice), I had two strong impressions. The first was the ethereal beauty, tranquillity, and history radiating from the cathedrals and ancient buildings arising along the sides of the canals that drew us to the hotel.
The second thought was the irony of holding an auto rental meeting in a city totally lacking the demand for autos to rent (but a plethora of gondolas for rent). However, it was obvious that the conference planners chose Venice for its ambiance, charm and serenity, affording an opportunity for conferees to focus on important and serious EEC (European Economic Community) issues facing the industry in general, and the individual operator/delegates specifically.
Of the 18 member countries of ECATRA, 15 were represented (only Sweden, Ireland and Luxembourg were missing). Although Germany, France and Great Britain, in order of magnitude, collectively control approximately 75% of the ECATRA fleet, there is mutual respect among all the country delegates, and dedication to the evolution and progress of the industry as a whole on the continent. It is that evolution and progress, and the clear and present challenges along the way, that formed the core of the formal and informal sessions during the three days of the Congress.
Obstacles to Building a Pan-European Industry
To fully comprehend the enormity of the opportunities and obstacles to a pan-European auto rental industry, it must be recognized that driving from Italy to Switzerland, either in a leased truck or rented car, is quite different than traveling across the George Washington Bridge from New York to New Jersey, or across the desert border separating California and Nevada. The reality of building a profitable auto rental operation under present conditions requires the ability to address the distinct cultural, geographic, economic/fiscal, language and legislative differences among the member nations of the European Union (EU). Therein lies the core of the challenge for the auto rental industry and ECATRA members.
Once this fundamental concept is understood, the universal concerns over insurance costs, vehicle security, fleet financing, manufacturer programs and profit margins all fall in line. The basic concern as to how to continue to be profitable in the business crosses all international lines, and the sharing of information among delegates was refreshing. It was interesting to see how mutuality of concerns can ignite and foster cooperation. The threat was seen as not coming from inside the industry, but from external influences that could only be dealt with through unity.
Europe remains well behind the U.S. in its recovery from the international recession. The European auto rental industry was hit quite hard, and although some national economies are now emerging, there are others, such as Germany and Sweden, that continue to have serious problems. The good news, according to my sources who have attended ECATRA meetings for many years, is that in general, the delegates were much more upbeat than they have been for some time.
Although it was hard to find anyone who was outright bullish, there was hope, optimism and even some confidence about the next couple of years. There was a clear consensus that a true single European economy was many years, if not decades, away, but the member associations and companies of ECATRA were united in their attack of issues of common concern and obstacles to growth and profitability.
Theft, Manufacturer Relations & Insurance Top Concerns
Some of the most prominent issues facing ECATRA include:
1. Cabotage Regulations Consistent with the mandate for the development of a common transport network is the ability for car and truck rental units to move across national borders in order to take advantage of pan-European commercial and leisure business opportunities. There are presently taxation and registration constraints to the wholesale movement of vehicles across borders (called Cabotage regulations). The liberalization of these rules, and relaxation of restrictions, an effort that has been ongoing for 30 years, is imperative to unleashing the enormous potential for all transportation-related segments of the European marketplace. According to sources, transportation amounts to between 9 percent and 15 percent of Europe’s GDP (Gross Domestic Product).
2. Security – Almost universally described by the ECATRA delegates as an invasive, devastating and eroding dilemma is the loss of vehicles due to theft and conversions. This issue is magnified by two main factors. The first is the black market for autos and parts created by the collapse of the Communist bloc in East Europe. The lack of production capability, cost efficient operations, and parts manufacturing in the former bloc countries and Russian republics have left a void in supply and a great demand for Western European vehicles and parts that are difficult to trace. The second factor is the lack of a universal registration system for all fleet vehicles manufactured and distributed in Europe. ECATRA is presently working with Interpol (International Police) to address this serious matter and to work on recovery mechanisms. Additionally, new security-directed technologies and warning systems are being developed and introduced to ECATRA members to provide hope that improvement is around the corner.
3. Selective Distribution System – This issue speaks to the heart of vehicle distribution from auto manufacturers to the rental/leasing companies, and the underlying restrictive practices allowing control and influence by the manufacturers. Key issues are the refusal of manufacturers to supply fleet to ECATRA members (sound familiar?) and the attempt by manufacturers to control the relationship between the rental/leasing company and the customer. The problem appears to be particularly severe in Germany (the largest rental fleet in Europe), where manufacturers demand the names of the long term rental customers, which ECATRA maintains is discriminatory, unlawful and contrary to consumer interests. ECATRA supports a lobby working with the Manufacturers’ Association in Brussels to delete anti-competitive statutes and what they feel are discriminatory practices aimed at operators.
4. Insurance – One of the most interesting segments of this annual conference is a report on the state of the industry on a country by country basis. Almost universally, skyrocketing insurance costs were among the most serious business issues identified. From Austria to Malta to Israel and Germany, the commentary was the same. Between the manufacturers and the insurance companies, operators feel out of control. The most extreme case is Germany once again, where not only have insurance companies put pressure on auto rental operators, but an insurer has actually gone into the auto rental business, forcing existing companies out of business. The industry has taken this matter into the German courts.
Professor Garel Rhys, Head of the Economics Department, the Cardiff Business School of the University of Wales and the keynote speaker of the ECATRA Conference, discussed the current status of the European “motoring” industry and the prognosis for the ’90s and beyond. He pointed out, to my interest, that the number of cars on the roads of Western Europe have surpassed that in the U.S. He talked about the opportunities for manufacturers in China as well as the forecast that Korea will be the new big player in the auto manufacturing game as a result of the partnership between government and industry.
He further pointed out that what has happened in the U.S. is happening to Europe, that is, the view of an auto as a commodity with little distinction. He was, I believe, trying to make a point to the assemblage regarding the strategic thinking and plan of the manufacturers which holds such dominance over auto and truck rental.
European Economy Slowly Recovering from Recession
As an overview to the present position of the European auto rental community, Mr. Jacques LeGrand, ECATRA’s EC liaison, made the following conclusions:
- There is an overwhelming mandate for the industry to band together to pursue major legislative initiatives with the EU to protect the industry and the customer.
- Europe remains a high cost, low growth economy. It is losing the competitive advantage to other international forces.
- Investment in Europe will only happen if confidence is restored.
- The recession is still on and recovering in fits and starts, and on a country by country basis.
- The ultimate objective must be to alleviate controls and restrictions, but the complications of nationalistic rules and regulations, and the lack of pan-European cohesiveness and consistency, is a major obstacle.
The most compelling challenge to European auto rental operators was summarized for me by one successful auto rental veteran, an operator from Great Britain, who said to me during a coffee break, “The first true citizen of Europe has not yet been born.” I had to think for a while (as you may), well into the next work session, about what he was trying to tell me. Eventually, the light did go on, and that single, simple comment underscored the enormity of the effort required of the European business community in general, and auto rental industry in particular, for the coming decades.