Daily rental love-hate relationships

When discussing long term trends in the motor industry, sharing generally features alongside autonomy, connectivity and electrification – together making up the ‘ACES’ acronym.  When discussing sharing, most attention is on start-ups in the field of micro-mobility schemes offering cars by the km or minute, such as Car2Go or Zipcar, some of which have been founded by the OEMs or attracted major investments from them.  Even before the retrenchment caused by the pandemic, some of these schemes were failing or pulling out of markets and cities, so it would be reasonable to presume that this is one trend that might not trouble the industry in the longer term.

However, the full spectrum of mobility arguably extends from these micro-mobility schemes through daily rental and subscription schemes to operating leases, and the industry has a long history of being deeply involved in both leasing and daily rental.  In the case of rental, almost all manufacturers at some point use the channel to push volume, but the relationship has at times gone much further than that with some manufacturers having a direct stake as the owner or substantial shareholder in major rental companies, such as Ford with Hertz, GM with Avis and Volkswagen with Europcar, all of whom sold their stakes in the decade leading up to 2006.

Now the tide has turned, at least for Volkswagen, who last week announced that they were joining a syndicate to make an offer to buy Europcar at a valuation of €2.9 billion.  The other members of the syndicate are an asset manager, Attestor, and Volkswagen’s lifelong Dutch importer partner, PON Holdings.  The motivation for the deal is not to secure disposal channels for excess VW production as cynics might have suggested about previous manufacturer involvement in the daily rental business, but as part of the mobility strategies of both VW and PON.  Attestor is an existing major investor in Europcar, and it seems that they see the best return on their investment through the transformation of Europcar into a true mobility player.

The deal therefore raises questions about what the business opportunity is in the mobility space by the end of this decade.  In his recent strategy presentation to investors, Herbert Diess stated that 85% of mobility needs in 2030 would be by people driving owned, leased, shared or rented cars, and that mobility as a service (MaaS) would achieve a market size of US$100 billion by that date.  Any such forecasts are based on massive assumptions, but in the context of a market anywhere close to that level, a share of a €2.9 billion investment in a major player today seems like a fairly safe bet.

The key question is what has changed since previous manufacturer divestments fifteen years ago, and what does a business like Europcar bring to organisations with the experience and resources of VW and PON?  In ICDP, we remain sceptical that the car by the hour/km type model can be commercially viable unless it is treated as a subsidised element of the public transport system, or other more attractive options for consumers to use their own cars are restricted or banned by regulation.  We do however see other forms of mobility offer emerging that will require a very different type of engagement between the supplier and the customer than manufacturers – and to a large extent, dealers – are used to.  Expanding the content of a traditional lease to include not only servicing, but also insurance and other services requires customer contact on a much more frequent basis than a once in three year purchase or an annual service.  Individual transaction values are more likely to be measured in tens of Euros rather than tens of thousands of Euros.  This is a different mindset and culture to that of the traditional sales-driven automotive business model, but is closely aligned with the fleet management and customer care skills of a Europcar.

Taking it a step further, as ICDP has described in our ‘clean slate’ model, cars may be retained in an operating fleet beyond the first user, allowing the fleet owner – the manufacturer, a dealer group or a third party – to profit from the car for much longer than in the conventional model.  This brings in other skills that are not typical of a manufacturer or traditional dealer of monitoring demand at different price points, fleet utilisation, operating costs per vehicle and opportunities in the used market to time the best point to defleet.  Again, these are skills that are at the core of a daily rental business.

So, will the VW/PON/Europcar deal signal the start of a rush by manufacturers to buy daily rental companies?  Possibly not a rush given the many challenges facing manufacturers, retailers and rental companies, but the skills will need to be developed in manufacturers, large importers and dealer groups, and acquisitions and joint ventures with rental or fleet management companies may be the most effective way to do this.  In terms of love/hate, perhaps not marriages made in heaven, but definitely marriages of convenience that will support the effective development and delivery of a range of new mobility offers.