Car rental market stifled but ready for lift-off

Car rental firms are hoping that long-term hires and the growing trend toward fleet-management outsourcing by local companies will offset the industry's current decline. But with big international fleet management companies entering the Polish market and ready to scoop up a growing market, the rental firms should look for an edge by providing small fleets to smaller firms or supplying big operators with replacement cars, industry sources said. "(Fleet) outsourcing has developed immensely in Europe," said Radosław Lesiak, the country manager of Jupol-Car, Avis's Polish car rental licensee. But outsourcing the company's fleet to specialists hasn't yet become a standard in Poland, according to Lesiak. "Most cars are rented by firms with foreign capital involvement," he said. Polish companies have rarely outsourced their fleets to car experts, and the fleet management segment is still small. But the idea is beginning to spill over to Poland from the West, industry sources said. "Now that companies are looking for savings, this segment will outperform the market," said Ryszard Walaszek, the commercial director of Filkar, National Car Rental's Polish licensee. Outsourcing gives companies an opportunity to trim costs since car companies can negotiate better purchase deals and insurance terms thanks to their larger scale operations, he said. And they employ specialists who know how to service the cars cost efficiently, he added. Only about 1% of companies in Poland outsource their fleets, compared to 40-60% in Western Europe, Walaszek said.

Taxing situation So far this year, the rental industry has been hit by a number of factors. Rentals in Poland have plunged by 15-20% vs. the first half of last year due to the country's economic slowdown, a strong złoty and a slump in travel following the Sept. 11 terrorist attacks in the United States. But taxes are the long-term concern. Starting in the late 1990s, the government's tax policy led many companies to buy cars rather than rent them. "Big firms then began to buy cars and employ people to look after them," Walaszek said. Companies, for instance, cannot deduct value-added tax (VAT) from their costs when using a rented passenger car and until this year, the car's value couldn't depreciate more than €10,000. "Poland's rent-a-car market is not yet fully developed and strangled by legislation," said Andrzej Witkowski, the general director of Car-Pol Leasing, which holds the local license for Budget Rent a Car. Rather than imposing a heavy tax on cars, the government could raise funds from corporate income tax paid as a result of a prosperous industry, Witkowski said. "If the tax legislation were like Western Europe's, the market would be three times bigger," he said.

Sources But something is changing. Firms are becoming increasingly interested in outsourcing to save money, and the accounting and tax regulations are becoming bearable, Walaszek said. "As Poland is joining the European Union, it is bound to adjust its legislation (to European laws)," he said. But car rentals are losing a major chunk of the fleet-management pie, with the arrival of big international fleet-management firms during the last two years. The French firm PHH Arval, DaimlerChrysler's Debis, General Motors' Prime Car Management, and several other fleet-management and leasing companies have been launched in Poland during the past three years, bringing in big capital. "Global competitors that weren't present in the Polish market before are here now," Walaszek said "It's the best evidence that there is great market potential." Large fleet-management companies have an edge over car rental firms in dealing with big customers that use fleets consisting of 50 or more vehicles since this operation requires large capital resources, said Roma Zgłobik, the sales logistics coordinator of PHH Arval. "We have the necessary purchasing potential," she said. Entering the big fleet segment would require reorganization and major investment from car rental companies, she said. "They are not in the position to adjust themselves right now," Zgłobik added. PHH Arval manages about 2,500 vehicles compared to 1,500-3,000 cars hired at rental firms. But Zgłobik said that car rental firms can still make money on traditional short-term contracts as well as on long-term rentals and fleet management for small- and medium-sized companies because the international fleet managers focus only on large fleets.

Budget's Witkowski agreed. "Due to the economies of scale, fleet management companies have a competitive edge for big clients, but we make money on smaller clients," he said. "They may have 20 clients with 100 cars each, while I am aiming to have 100 clients with 20 cars each." Rentals can also operate as feeders for fleet managers when a company car breaks down and needs to be replaced. "When we provide replacement cars (to our clients), we hire them from car rentals," Zgłobik said. While industry sources see growth potential in fleet outsourcing, they are reticent about growth projections, citing an unpredictable market. But Zgłobik said that the first reliable numbers would emerge toward the end of this year. Three years ago, Polish companies contributed to a boom in new car purchases. Now they're due to replace their fleets, she said, adding that companies have to decide whether to buy or lease new cars or to outsource the fleet and the management entirely.