COVID-19 - crashing car rental
Thursday 19 March 2020Article
It seems hard now to believe that just a few weeks ago major car rental companies were announcing record results for 2019. North American markets were performing strongly, and even an over-supplied European market was showing signs of pricing and volume improvement in Q4.
The battle for who wins among car rental providers is now over – with the rapid spread of COVID-19 across the globe it is a simple battle for industry survival. Share prices for ABG, Hertz & Europcar are down over 70% in the last 30 days alone and continue to decline. The industry of course experienced hard downturns following 9/11 and at the outset of the global financial crisis, but nothing nearly as all-encompassing across segments and geographies. In the words of one senior executive we spoke to this week “It’s like nothing I’ve ever experienced before”.
So, how to respond?
First, be aggressive on cost and cash. Car rental fleets are much more flexible than outsiders presume and the industry is already shedding cars fast. But other costs are also highly variable, and smart cutting – using force majeure clauses if needed – could make the difference.
Second, be part of the solution. As supply chains and industries scramble to adjust to the new (hopefully temporary) normal the rental industry’s ability to quickly get cars on the ground may be both truly socially useful and a means of generating critical revenue for rental firms. Hunt out new users (e.g. booming need for deliveries, or offering discounts for key workers who need to travel but don’t want to use public transport).
Third, be ready for the bounce. When restrictions ease, which they eventually must, it is likely demand will bounce back. Being ready to jump on this opportunity quickly may be the difference in whether companies survive or fail.
There will also come a time when companies need to think hard about the kind of business to rebuild. With weaker players very likely put out of business how can the survivors grab their demand? Despite the current gloom this will create opportunity.
- Opportunity to rethink broken propositions, pricing strategies and channel management
- Opportunity to rebalance operating models and networks to balance risk and leverage operating capabilities into adjacent markets
- Opportunity to accelerate rental’s role in mobility; coming out of this companies and individuals may be much more open to flexible vehicle ownership and subscription models over ownership and fixed term leases.
We look forward to helping our clients through these difficult times.
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