COVID-19 hit the travel industry hard. We’re not just talking the cruise and airline companies. With flying down by over 90% in early April, and rental car companies generating two thirds of their revenue from airports, business plummeted. While they attempted to encourage consumer confidence with a new standard of cleaning their vehicles in May, it could not overcome a major obstacle. With restrictions on travel and local government or self-imposed quarantines, drivers were not comfortable with rental cars. It’s even driven one rental car company to bankruptcy and forced drastic measures from others to avoid the same.
So, what does a rental car company bankruptcy have to do with your company and its fleet?
Early last week, Hertz announced that they agreed to selling almost 200,000 cars before the end of the year to pay off their creditors. Competitors like Avis are not in such dire straits, but they’re still unloading over 100,000 vehicles to compensate for the losses in Q1 and Q2. All of these sales mean two things. Rental cars are about to flood the used car market, more than they already have. That means eroded resale values. If you had designs on getting reinvestment on your current vehicle, maybe see if it’ll get you through another year or so. The second isn’t as immediately obvious, but a considerably bigger problem to your company’s fleet.
How is your business currently doing? Not many businesses have labeled 2020 their banner year, understandably. But, we’re also aware that some industries, even entire regions, are doing better than others. It’s likely safe to assume your company isn’t racking up expenses on long shots with the anticipation that the last two quarters of the year can’t be worse than the first two. How much driving activity is your company seeing?
If driving activity is below normal levels, that’s not exactly surprising. With the shift to remote work, video chat seems the easiest and safest way to connect with people you may have traveled to meet, negotiate with, what have you. What would be more surprising is if you haven’t looked to your fleet when considering cost-cutting measures.
Idle vehicle costs can stay under the radar when it’s only a couple of vehicles in the fleet that aren’t in use. Perhaps someone transferred to a different department or exited the company, leaving it unused until the company fills the position. Those idle vehicle costs are impossible to avoid when none of those vehicles are moving. Your company may not have purchased them outright, but you’re paying for them. And the costs of maintenance and upkeep? Well, if they’re not being used, that might not be the biggest budget drag. But you still have the lease payments and, potentially, the storage payments, among other idle vehicle costs.
Which brings us to the biggest problem with your company’s fleet.
As previously mentioned, the flood of used vehicles is eroding resale values. The lowering residual values have the additional consequence of making leases more expensive. Cost-conscious companies attempting to get out of their fleet vehicle leases aren’t walking away from those negotiations happy. Look at Hertz and Avis. Companies in the business of leasing vehicles are not doing well. Cutting leases short and taking used cars back is doing them no favors, especially when they’re not contractually obligated to. Which leaves you stuck with the fleet vehicles you have. What can you do from here?
If you’re still dead set on the up-side of company-provided vehicles, we have a few pieces that might change your mind. But if you’re ready to commit to a change that will boost your cost-control and keep your mobile employees happy, look into transitioning to a fixed and variable rate (FAVR) program. We’re experts in this area, and happy to share our knowledge at any time. You can contact us here, or start by reading your way through the transition process.