Many companies turn to rental cars to reduce costs

Sudibyo M. Wiradji, Contributor, Jakarta

In parallel with the corporate strategy of focusing more on core businesses, many companies have turned to rental cars for their transportation-related needs rather than purchasing new vehicles, partly to cut operational costs.

Clients of car rental companies share the view that buying new cars for company use requires an unnecessary investment. Compared to renting cars, purchasing vehicles is considered inefficient on the grounds that you have to spend extra money for maintenance, drivers and various "unexpected" costs.

"When calculated over a certain period of time, the cost of purchasing cars is higher than renting cars," said Amoseas Indonesia's external affairs vice president, Riky Ibrahim. Amoseas Indonesia is a sister company of Caltex.

"So, for the sake of efficiency, we have a policy that takes advantage of car rental services as far as the use of cars for company transportation is concerned," he said.

The corporate policy on renting cars for business operations was put in place by many companies, mostly engaged in the oil and energy business, long before the economic crisis hit Indonesia in mid-1997.

They have established partnerships with car rental companies such as PT Bara Bentala Indonesia, BP Rentals and PT CTRAC. The crisis, which left many companies in financial trouble, has led many other companies to go through restructuring, including making efforts to save operational costs by avoiding purchasing new cars. Instead they are working with car rental companies to fulfill their transportation needs.

Clients of car rental companies said the average lease-term is between three and five years, and is extendible when the contract ends. Commonly, the contract agreement signed by car rentals and companies that lease cars include points pertaining to repairs, maintenance, car replacement, periodical servicing and car insurance.

The car rental fee, paid on a monthly basis, varies, depending on several factors like brand, model and condition of the car. Users of rental cars at companies include president directors, their board of directors and other staff members.

"When your company hires cars, staff members from the car rental company from which you rent will come to your office to assess the contract agreement. If, based on their assessment, you are a good leaser you may receive a special discount, for example a lower rental fee in the following years," one client said.

Amoseas Indonesia, with energy as its main business, started to use a car rental service in 1983 when the management realized it was necessary to trim operational costs to boost efficiency and professionalism, considering that energy rates are commonly fixed for long periods of time, compared to, for instance pharmaceuticals or food products whose rates tend to fluctuate.

Initially, purchasing cars for operational use may appear to be less costly. But "when we calculate it over three years it turns out that using a car rental service is more efficient and can cut operational costs", Riky Ibrahim said, adding: "By using rented cars, the company is free of the costs for maintenance, regular service checks, replacement parts and 'unexpected' incidents like traffic accidents and theft."

It is a fact that some garages dishonestly profit from companies whose cars need repair, by asking the driver to replace a spare part with a new one, even though the spare part does not need replacement. "This means additional costs," Riky said, adding that garages work in close cooperation with company drivers in such cases.

"But with hired cars, we can avoid such unexpected matters," he said, adding that the company's 20 cars in Jakarta were all rented. The company also uses another 25 rental cars at the company's office in Darajat, Garut, West Java. "We rent them from local car rental companies," he added.

Using a car rental service allows a company to maintain a fixed budget for its transportation needs, and to help smooth out the company's operations because its transportation problems will be minimized. "When a rental car is damaged in an accident we just inform the related car rental company, which takes it to a garage. If the car has to stay in the garage more than one day, the car rental company immediately makes available a replacement car of the same class," he said.

Employees at the state-owned oil company Pertamina said that with the company having different business divisions such as refineries, drilling, processing, marketing and distribution in many different locations in Indonesia, renting cars has turned out to be cost-effective.

"By renting cars, we do not have to think of the maintenance because it is completely taken care of by the car rental companies," said a spokesman for Pertamina, who declined to be named.

Operating in different areas, Pertamina rents cars from different car rental companies in cities where its offices are located, such as Jakarta, Ujungpandang and Balikpapan. The type of car that is rented depends on the location. "For operating in deep forest, we use reliable 4-wheel-drive vehicles instead of luxury sedans to negotiate the tough terrain," he said.

Although car rental companies bear the maintenance costs, their clients also take preventive measures to reduce risks. Amoseas, for instance, holds regular meetings with employees who use the rental cars to brief them on keeping the cars safe.

PT Pelita Air Service, for instance, has been renting its vehicles since 1997 following the company's restructuring program to tackle the adverse effects of the economic crisis that swept through Indonesia.

"We realize that a car is a means of transportation and not a productive asset. Therefore, we've found it inefficient if we make large investments for the purchase of new cars for our business operations," said Agus Triputranto, who is in charge of manpower and cooperative affairs at PT Pelita Service. The company rents cars from PT Bara Bentala Indonesia.

"Car purchases for company use entail the recruitment of new workers to be employed as permanent drivers that we have to pay on a monthly basis," he said.

"Once one of our rental cars was stolen and the rental company immediately replaced it with a new one," he said, adding that the company currently rents some 54 cars of different brands and models from PT Bara Bentala Indonesia, including Kijang vans, pick-ups and trucks.

"Periodically, the rented cars are taken to an appointed and authorized garage for maintenance to keep them in good working order," he concluded.