Car rental rates remain high, but prices are easing
Sales in the sector have grown an average 15% since 1997, fueled mainly by growth in the business sector, according to multinational agencies based here. Last year, however, revenue stabilized because of the financial crises in both Russia and Asia, said Joergen Hansen, vice president of Avis in Poland.
But Hansen envisions a return to the growth track in coming years fueled by corporate and personal use. Chief among the obstacles facing the sector in the short term are low personal income levels, tax laws and insurance rates. The latter two keep costs and, in the meantime rates, high and further inhibit reaching a broader client base, rental company executives said.
Despite short-term difficulties, the rental car market has been a sector of opportunity. A good example is agency Five Rent a Car, whose fleet began with six cars in 1993 and now totals 220 cars, according to Roman Jezierski, a sales specialist with the company. Less dramatic, but illustrating steady growth, is Hertz's doubling of its fleet to the current 500 cars, said Leszek Pomorski, Hertz's systems director.
Corporate clients have fueled most of this growth, a trend that is likely to continue, the executives said. "For the foreseeable future it will be businessmen," Avis' Hansen said, which boasts about 30% of the market among multinational agencies here.
Hansen estimated the total market, including locally based agencies, to be worth $70 million-$80 million.
Traditionally high rental prices have begun to ease as the sector expands, but heavy operating costs continue to restrain general growth, rental agencies said. Some agencies have been pushing rates down despite the restraint. Hertz, for example, trimmed its prices by about 15% in the last year, Pomorski said.
Even with the decrease, though, renting here is stil far more expensive than in Western Europe. The weekly rate to rent an economy car, such as a Ford Fiesta or Opel Corsa, here carries a base rate of DM 742 with 22% VAT added to the bottom line. In Frankfurt, on the other hand, renting the same type of car over the same time frame costs only DM 405, taxes included.
Chief contributors to the higher bill are tax policy and insurance costs. Insurance rates here annually run 10% of the value of the car compared to 3-4% in Germany, Hansen said. The good news is rates in Poland are dropping. Car insurance here was 14% a few years ago, he said.
Reasons behind higher insurance rates are many, among them bad roads and inadequate repair facilities that require parts to be specially shipped from abroad. But the main culprit is auto theft. And the trend does not appear to be abating.
In Warsaw, for example, some 13,188 vehicles were stolen in 1998, up 8% from the previous year, according to figures from the Warsaw Police Department. The market in stolen autos is mainly for parts and feeds domestic demand, industry representatives said. In addition to adding to business costs, the high theft rate is also limiting services and diversity in product lines.
"The problem is within Poland," Pomorski said.
But not only. Hertz, for example, does not allow its Polish fleet to cross borders to the east. "This is a policy not only with Hertz," he said.
In another move to reduce theft, car rental agencies are also dressing down their fleets. "We are trying to fill the expectations of customers and the local situation," Pomorski said.
And that means removing, or not replacing, luxury models on offer, said Agnieszka Wesolowa, a worker with Szczecin-based Lux Autorent and an agent for Europcar. "Before we had Audis and Mercedes and unfortunately they are gone."
Tax policy is also indirectly limiting product lines and directly increasing business costs. Depreciation rates of 20% a year are capped for cars with a price tag of ECU 10,000, or an ECU 2,000 a year limit per car can be deducted as an operating expense. In addition, the 22% VAT paid on the purchase cannot be written off, which is allowed in Western markets, Hansen said.
The VAT bill doesn't only sting the rental agency. On top of the base rate for renting a car, a customer must pay 22% VAT for the service, which cannot be directly written off.
VAT regulations and depreciation allowances are likely to come more in line with European Union (EU) regulations as Poland moves closer to membership, Hansen said. And despite these obstacles, prices are slowly falling as competition and the overall market grow, he said.
"One of the reasons is because the volume is getting bigger and bigger," Hansen said about lower prices, adding that companies have more buying power in both insurance and car repairs. Upstream costs of purchasing cars are also down due to increased competition, he said.
While business is the main engine of growth in the car rental sector, the potential for personal use remains largely untapped. With local salaries generally ranging from zl. 1,000-zl. 1,400, even lower weekend rates are unappetizing. "It costs too much for most people," said Jezierski of Five Rent a Car.
In countries like Germany and Denmark, weekend rentals are common, Hansen said. In fact, city residents there account for 70-80% of weekend receipts in these countries, whereas in Poland it's running 50%, he said.
But Hansen envisions a return to the growth track in coming years fueled by corporate and personal use. Chief among the obstacles facing the sector in the short term are low personal income levels, tax laws and insurance rates. The latter two keep costs and, in the meantime rates, high and further inhibit reaching a broader client base, rental company executives said.
Despite short-term difficulties, the rental car market has been a sector of opportunity. A good example is agency Five Rent a Car, whose fleet began with six cars in 1993 and now totals 220 cars, according to Roman Jezierski, a sales specialist with the company. Less dramatic, but illustrating steady growth, is Hertz's doubling of its fleet to the current 500 cars, said Leszek Pomorski, Hertz's systems director.
Corporate clients have fueled most of this growth, a trend that is likely to continue, the executives said. "For the foreseeable future it will be businessmen," Avis' Hansen said, which boasts about 30% of the market among multinational agencies here.
Hansen estimated the total market, including locally based agencies, to be worth $70 million-$80 million.
Traditionally high rental prices have begun to ease as the sector expands, but heavy operating costs continue to restrain general growth, rental agencies said. Some agencies have been pushing rates down despite the restraint. Hertz, for example, trimmed its prices by about 15% in the last year, Pomorski said.
Even with the decrease, though, renting here is stil far more expensive than in Western Europe. The weekly rate to rent an economy car, such as a Ford Fiesta or Opel Corsa, here carries a base rate of DM 742 with 22% VAT added to the bottom line. In Frankfurt, on the other hand, renting the same type of car over the same time frame costs only DM 405, taxes included.
Chief contributors to the higher bill are tax policy and insurance costs. Insurance rates here annually run 10% of the value of the car compared to 3-4% in Germany, Hansen said. The good news is rates in Poland are dropping. Car insurance here was 14% a few years ago, he said.
Reasons behind higher insurance rates are many, among them bad roads and inadequate repair facilities that require parts to be specially shipped from abroad. But the main culprit is auto theft. And the trend does not appear to be abating.
In Warsaw, for example, some 13,188 vehicles were stolen in 1998, up 8% from the previous year, according to figures from the Warsaw Police Department. The market in stolen autos is mainly for parts and feeds domestic demand, industry representatives said. In addition to adding to business costs, the high theft rate is also limiting services and diversity in product lines.
"The problem is within Poland," Pomorski said.
But not only. Hertz, for example, does not allow its Polish fleet to cross borders to the east. "This is a policy not only with Hertz," he said.
In another move to reduce theft, car rental agencies are also dressing down their fleets. "We are trying to fill the expectations of customers and the local situation," Pomorski said.
And that means removing, or not replacing, luxury models on offer, said Agnieszka Wesolowa, a worker with Szczecin-based Lux Autorent and an agent for Europcar. "Before we had Audis and Mercedes and unfortunately they are gone."
Tax policy is also indirectly limiting product lines and directly increasing business costs. Depreciation rates of 20% a year are capped for cars with a price tag of ECU 10,000, or an ECU 2,000 a year limit per car can be deducted as an operating expense. In addition, the 22% VAT paid on the purchase cannot be written off, which is allowed in Western markets, Hansen said.
The VAT bill doesn't only sting the rental agency. On top of the base rate for renting a car, a customer must pay 22% VAT for the service, which cannot be directly written off.
VAT regulations and depreciation allowances are likely to come more in line with European Union (EU) regulations as Poland moves closer to membership, Hansen said. And despite these obstacles, prices are slowly falling as competition and the overall market grow, he said.
"One of the reasons is because the volume is getting bigger and bigger," Hansen said about lower prices, adding that companies have more buying power in both insurance and car repairs. Upstream costs of purchasing cars are also down due to increased competition, he said.
While business is the main engine of growth in the car rental sector, the potential for personal use remains largely untapped. With local salaries generally ranging from zl. 1,000-zl. 1,400, even lower weekend rates are unappetizing. "It costs too much for most people," said Jezierski of Five Rent a Car.
In countries like Germany and Denmark, weekend rentals are common, Hansen said. In fact, city residents there account for 70-80% of weekend receipts in these countries, whereas in Poland it's running 50%, he said.
