Long-term rent bucks trend of finance crisis
While long-term rental weathers the economic storm in west Europe, Rob M. Henneveld, managing director of Dutch-based Global Automotive Consultancy, puts into focus the state of the Romanian industry
Western European countries last year saw an increase in operational leasing, which is sometimes known as long-term rental, even though analysts believed the market would see a downturn.
Corporate customers were reluctant to own their cars or fleets because the running costs suddenly became very high and unpredictable. Taxes from central and local governments on CO2 emissions rose. There was also a sense of insecurity in the residual value of vehicles. This encouraged fleet owners to look into the option of operational leasing to prevent carrying the risks of the residual value of the vehicles.
Operational leasing is in an empty circle when it comes to growth or stagnation. If the economy is going through a difficult period, companies need financial resources to invest in their core business and are more likely to outsource their fleet management to an operational leasing company. Even in an economic downturn one can see growth in this market and the basic economic perspectives look very good.
Romania is seeing a large amount of new interest in this market. But what this sector is missing is an after-sale structure. There is none for full service leasing to speak of. There are not enough workshops to carry out maintenance and not enough body shops to carry out the damage repairs. The reaction to this could well be that the operational leasing companies will start to develop their own network of after-sale services. This will not be good for the car importers, who currently keep these services in-house.
Drive down costs
For the leasing company it is important to provide good management information and drive down the total cost of ownership. When they deliver this, they are in business. In other countries in the European Union, such as the United Kingdom, Germany, Belgium, Holland and France, some firms have a consultative approach to fleet management. They help the client to lower his costs as much as possible. Ownership status In eastern Europe, there is a tendency for customers to own cars. This is true in Romania, the Czech Republic, Poland and Hungary. However in western Europe there is a different attitude - they do not want this burden and responsibility. The fleet owners want to outsource. This means that to try and promote operational leasing needs a different approach that must breach this psychological barrier.
Another major problem is that the whole market does not understand fully yet the product that is sold by the leasing companies. At the moment, they are selling a concept, but this proposition is a service too. The tragedy of what is happening in eastern European countries is that full operational leasing is seen as a kind of commodity. It is only judged by the monthly cost of the leasing contract and the fleet owners do not always take into consideration the level of quality of the service. Due to such a price battle, the quality of service is suffering. In the end, customers are getting a lower quality service for less money.
Importers also rule
Romania is different from many European countries, such as Spain, Belgium and the UK, where the leasing companies are independent or they are attached to large financial groups. In Romania the car importers also own their own leasing companies. These importers are very strongly protective of their own leasing interest.
In countries such as Belgium, the Netherlands and the UK, leasing companies tend to work together in developing IT-solutions, internal protocol and to cooperate on back office issues to help the development and acceptance of operational leasing.
Next step: short-term
In the future I believe short term rental will become more popular. Romania provides few options for short term rental, but there is a huge demand. Also with short-term rental, leasing companies find it easier to monitor the residual value of the vehicles.