Dear Alex,
I’ve often wondered how car hire firms can supply customers with a product worth £12,000 for no more than the price of a good meal in a restaurant. Am I missing something?
John Boyd, London
Alex replies:
When you examine the car rental business you realise it’s all about recycling cars between the manufacturers and their dealers rather than the daily hire fee itself. That’s because big rental firms make a living out of what they pay for their vehicles and what their value is at the time of disposal.
The motor business varies from country to country because of different rates of taxation, customer purchasing patterns and so on, but in the UK a rental firm might pay a fleet rate of £10,000 for a volume car with a £14,000 list price. The manufacturer’s guaranteed buy-back price would be, say, £9,000. In the UK, that car would stay in the fleet for four to nine months or more. Much depends on the economic situation and residual values. So the firms make up this loss of £1,000 with rental charges plus extras such as fuel surcharges, insurance and collision damage waiver.
The depreciation in value of the vehicle will determine the rate we pay. It also determines how hungry the rental firms will be when they ask us to pay the extras.
Car rental firms can be a nuisance to deal with but they play an important part in the travel and motor industry. It’s a win-win situation for all concerned. The manufacturer gets market exposure for a new model and has an easy way of disposing of large numbers of vehicles that might be clogging the factory compounds, while franchised dealers have a ready supply of nearly-new cars that arrive at predetermined times throughout the year. The latter appeal to private purchasers partly because they are new and shiny but also because they come with the balance of the manufacturer’s guarantee.
The customer isn’t forgotten in all of this – they pay a reasonable price for mobility whenever it’s needed and also get to drive a reasonably new vehicle.
