I wrote an opinion piece in BTN on Jan. 28,
2022, titled “Where
Have All the Fleets Gone?” I just re-read it and thought, “It’s been over a
year later. What has changed?”
The answer to that question is not as
much as I—and probably everyone else—would have liked. There have been
improvements.
There are fleet shortages (parts shortages,
also), but they are not as bad as they were last year. Yes, there is still a semiconductor
shortage. The price for vehicles is still high, and the interest rates for
borrowing for fleet purchases also increase the cost, whether it is a new or
used vehicle.
The used car market, which is very
important to the whole industry, still has vehicles selling for higher prices,
but now there is a shortage in there as well. During the summer, as leisure
travel picks up, suppliers will hold on to current fleet and there will be even
fewer used cars available for purchase in the open market.
New car availability is still an issue. This
has resulted in older fleets, and the user is noticing. The extent of the
issue, however, will vary by supplier and location and so will the impact to
the user. In high-demand areas, such as during the summer where vacation and leisure
rentals are heating up, there can be scarcity. This may result in short-term
rentals being turned off and/or higher prices for them compared to weekly
rentals.
Uneven Impact
Having worked in and with both the rental
car and chauffeur-driven industry, there are similarities but differences in
the two—though they are impacted by many of the same market dynamics.
The most significant difference is in
profitability, which is very difficult to achieve in the chauffeur-driven space.
For one, the chauffeur-driven market, unlike rental car suppliers, doesn’t have
the same strong mix of leisure customers.
The rental car industry’s profitability
since the Covid recovery has been subsidized from rising leisure pricing. That
may not last forever. Already, some rental car suppliers and the majority of
chauffeured suppliers have and are pushing price increases on the corporate
side as costs have gone up and are continuing to do so.
The chauffeured industry has lost over 40
percent of suppliers with five or more cars in their fleet since 2019, Driving
Transactions principal analyst Ken Lucci recently told me. That means more than
5,000 suppliers have disappeared from the market. The remainder have had a much
better year thanks to price increases and the fact that there is less
competition. However, that 60 percent is operating only at about 60 percent of
capacity.
There is still an issue with fleet: Sedan
production has been severely cut back, and larger vehicles from sprinters to
buses are hard to obtain. On the labor side, drivers are being paid more, and
there are fewer of them, especially for the larger vehicles that require a
harder-to-obtain CDL license. For every three drivers who leave the business,
Driving Transactions estimates only 1.2 are coming back.
Insurance costs are continually rising, either
driving suppliers out of the business or increasing the cost of doing business.
Fuel costs also significantly impact this industry as it is difficult to recoup
rising prices. One rental car company told me their No. 1 issue is the ability
to hire employees, it is a problem for everyone.
Flashback
I wrote in March 2019 an opinion piece in
BTN titled, “The
Effect of IPOs on Transportation Network Companies.” At that time, I
suggested that going IPO for both Lyft and Uber would put pressure on them to
be profitable and that prices would increase as they would have to answer to
analyst and the investment community.
According to Forbes,
Uber has become 41 percent more expensive since the start of the coronavirus
pandemic. Lyft has had a similar trajectory.
TNCs’ pricing increases negatively affect corporations because
of the corporation’s inability to control pricing in that segment of the business.
It is unlike rental car and chauffeured pricing, which is locked in for a set
amount of time and can be negotiated. To control the TNC segment, it will have
to be monitored, and companies must be willing to look at and move business to chauffeured
service, rental car, and other forms of transportation, which may be more
economical, and—as I will continue to argue—safer.
No one can escape the driver shortage. According
to Ridester, the TNCs’ high turnover rate is one of the most significant issues
that Uber and other rideshare apps face, both before Covid-19 and now. Every
year, a vast percentage of new Uber drivers quit and move on to other jobs. Ridester
published a
report in March that showed only 3 percent of drivers who signed up to drive
for Uber are still driving with them a year later.
There is a looming question of whether
the U.S. will enter a recession. Will it be mild, or will we avoid it? With Silicon
Valley Bank and now with First Republic, we are seeing some ominous signs in
the banking industry. There are global issues, as well. How will the
Russia-Ukraine war and China’s abandonment of its zero-Covid policy evolve?
Technology companies are also currently experiencing a challenging time. This
may result in a less of an increase in corporate business in 2023. We will have
to wait and see.
Sustainability’s importance has been
increasing, as have electric vehicles in fleets. This also raises the cost of
doing business.
So what’s important for corporate buyers
right now when it comes to managing supplier agreements for car rental and
chauffeured ground transportation?
For me, it’s back to basics: There are
shortages and costs are going up. They will continue to do so. Companies need
to pay attention to their cost, and the service levels they are receiving. A
company should not take price increases without checking the marketplace to
mitigate the next price increase. And the next one will be coming.
