FOCUS ISSUE: Car Rentals

FOCUS ISSUE: Car Rentals

Car rental industry gets windfall from global management trend

Rudijanto
Contributor
Jakarta

Car rental companies have received the benefits of the current
outsourcing trend among corporations but major international car
rental firms may also reap the benefit as domestic car rental
companies seek franchise agreements to boost revenue.

"Our market has grown by an average of between 15 percent and
20 percent since the market started to pick up in 2000. This is
reflected in the growth of our fleet from 3000 cars in 1998-1999
to 7500 in October this year," said Astra Rent A Car's (TRAC)
marketing director Edi Gunawan.

Other car rental companies also experienced the same market
growth during this period. They include PT Pusaka Prima Transport
(Pusaka Prima), a subsidiary of major Indonesian transportation
company Blue Bird Group. The company even plans to strengthen its
operations in some cities.

"Next year, we will open offices and places to station our
cars in several cities, including Semarang and Yogyakarta, both
in Central Java. Currently, we only have representative offices
in those cities," said Pusaka Prima's director Kresna Priawan
Djokosoetomo.

Blue Bird Group operates two car rental companies, Pusaka
Prima and Thrifty Car Rental with a total fleet of 1,600 cars
from Mercedes up to Toyota Kijang. Blue Bird Group's biggest
fleet is its taxi fleet consisting of 18,000 vehicles.

Not only are major established car rental companies optimistic
about the market, but several middle-scale companies also share
this view. PT Bahana Prestasi (BP) with a fleet of 280 cars also
claims an average growth in sales of up to 15 percent.

"The market is huge and looks like an iceberg. We still don't
know exactly the size of the market but we believe what we see is
only the tip of the iceberg. Nobody can claim that he has this
percentage of the market share," said BP's president director
Mitah Fauzi.

As the economy starts to recover from the 1997-1999 crisis,
the car rental business has started to experience a windfall.
With major Indonesian corporations doing their best to
restructure and reach highest efficiency, they seek to avoid
problems that are related to car ownership and transport
management.

High uncertainty in doing business in this country has also
made foreign-owned corporations tend to avoid asset ownership,
including car ownership. All of these domestic factors constitute
a blessing for car rental companies that experienced stagnancy
and even downsizing between 1998 and 1999.

But what appears so promising is that this avoidance of car
ownership with all of its related problems, such as maintenance,
insurance and driver' management, is actually not only a domestic
phenomenon but it has become a global trend among major
corporations.

Severely bitten by the global economic downturn, international
corporations have started to return to their respective core
businesses. This refocusing on the core business are aimed at
reaching the highest level of efficiency amid a softening
economy.

International corporations have decided to outsource whatever
services are not related to their core businesses. It is no
wonder, therefore, that all sectors, including car rental and
even logistics companies, that cater to the needs for this
outsourcing have grown well.

Managing an asset such as cars is considered an additional
burden that affects the performance of their core business.
Corporations do not want to be bothered with calculating car
asset depreciation and all the fluctuating costs related to
transportation.

With this urgent need for corporations to focus on their core
business, they prefer to run on a fixed budget for corporate
transportation. Car rental with its fixed monthly and yearly fees
become a logical choice since it frees them from the unnecessary
management of corporate transportation.

"We do all things related to transportation needs for our
corporate customers. They just pay fixed fees and have their
transportation needs taken care of by our highly trained staff
with well-maintained vehicles. If they want to change their cars
we will replace them with whatever model they want," said Kresna
of Pustaka Prima.

Kresna expressed his conviction that car rental is more
beneficial for corporations than owning and maintaining their own
fleet as well as the human resources needed to maintain and
operate such vehicles.

"At the end of the day, when you calculate all the costs
related to car maintenance, insurance, licenses and so on, I
think car rental is more cost-saving for corporations," Kresna
said.

As the car rental business starts to pick up, competition
becomes tougher as established players tighten their grip on the
market and newcomers jump in for their share. All aspects are
involved in the competition including pricing, quality and even
hijacking of personnel from competitors.

However, almost all players in the industry believe that
competition is still fair. Edi of TRAC even welcomes competition
since it can boost his company's performance. Such competition
tends to result in better service for customers.

"Sometimes, there are companies, particularly newcomers that
compete in pricing to grab the market. But we are not driven to
compete in pricing because we prioritize values for our
customers," said Edi.

Currently, Indonesia has several established car rental
companies, including Indorent, Volvo House Fatmawati, BP Rental,
Wahana Indotrada Mobilindo, Cipaganti and Globe. New players
include Tunas, Hartono and Family.

Like TRAC, most car rental companies prefer to sharpen their
focus on the corporate sector since this sector is far more
stable than the retail sector. Corporations usually rent cars on
a long-term basis, namely six months up to one year and even up
to three years.

Such long-term business provides more financial stability to
car rental companies. Though highly unstable, some players
believe that retail car rental, on an hourly or daily basis,
gives higher returns.

While competition in all sectors is picking up, some domestic
car rental companies have entered into franchise agreements with
major overseas car rental companies to boost their image and,
thereby win the competition.

Already Blue Bird Group has a franchise agreement with U.S.-
based Thrifty. Operating in over 65 countries, Thrifty is
considered a good brand for Blue Bird Group's car rental
companies on the island of Bali.

"Many foreign visitors in Bali are already familiar with
Thrifty because this U.S. car rental company has become a global
player. Those familiar with Thrifty services will normally choose
our cars," said Kresna.

Another car rental company BP is also planning to look for
international partner in a franchise agreement to boost its
image. BP's president director Miftah Fauzi revealed that the
company has been corresponding with international car companies
for a franchise agreement.

"A franchise is the best choice to boost our company's image.
If we do not have a franchise agreement, we have to spend more
money to establish an name for ourselves," said Fauzi.

Aside from boosting his company's image, he expects that such
franchise agreement will expand his company's network overseas.
Since BP is in the logistics business, Fauzi is seeking an
international company that has both cars and trucks in their
rental business.

The trend among domestic companies of joining a franchise with
major overseas car rental companies means that not only domestic
car rental companies will enjoy the market boom but foreign
companies as well.

However, not all car rental companies seek franchise agreement
with major international car rental companies. Edi of TRAC
(formerly Toyota Rent a Car) believes that his company will not
be able to develop well under such franchise agreements as they
limit the company's expansion.

"Our vision is to be a world class company and, therefore we
cannot use the brand of others. We have abandoned such a
franchise agreement with our Japanese principal by changing our
name to TRAC. Our plan is to expand into the overseas market by
2008," said Edi.

The inclusion of foreign brands in the domestic car rental
market is expected to enhance local performance through the
transfer of foreign know-how and systems. If this is not the
case, customers have a valid reason to opt for a local brand with
more professional services, rather than paying more for franchise
brands.