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.