20100225

how things have changed

I had to rent a car this week. In the compact lines, the only makes Alamo offered were Hyundai and Kia.

Back in the salad days of salarymanhood, they were always Buicks and Pontiacs. Earlier, they were Hertz Thunderbirds. Those days I stuck with one rental agency all the time, and usually rented mid-size then, but I still don't recall seeing Oriental imports on their lots at all in the late Nineties or early Aughts. Now they have crowded Murcan makes out the lowest rungs of the rental fleets as well as some prized places in luxury classes.

Not that I'm complaining, the compact handles competently if a little stiffly, and my favoritest-ever car was a Golf. Rental agencies surely have access to the numbers about durability, cost of ownership, and (ahem) brand loyalty. They wouldn't be renting Korean cars if it didn't make sense, and there were too many of them for it to be an experiment.

When did this happen, and where was I looking instead?
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Anonymous said...

I know some folks in the rental-car biz; some time back, I had occasion/opportunity to discuss this with them (i.e., Invasion Of The Asians.

Basic reply: Got virtually nothing to do with durability (they only keep the cars, max, two years or 50K - 60K miles, whichever comes first), cost of operation (due to huge Gov. involvement, mileage costs run about the same for all brands; other costs matter little or none, renters pay the freight anyhow) and nothing to do with "brand loyalty" (a foreign concept to them, indeed) - it's all about initial cost and depreciable and resale value, on both of which Asia makers - particularly Korean - beat U.S. and most European makes, like a drum.

Asian makers, especially Korean, are able to keep costs (thus, prices to Hertz, Dollar, whoever) lower because of a) little or no labor union costs to "pass along" to consumer (rental companies, in this case), b) lower profit margin accepted by Asians (they'll even go into negative numbers, sometimes, to move lots of product) to achieve/maintain "market penetration", c) lower engineering and production costs (due to a lot of factors) and, finally, until quite recently (the Toyota contretemps now counteracting this at least a bit), the Asian makes have had at least the appearance of durability with few-to-no problems. All this keeps "investment", or "sunk" costs low, and "recoverable" or "residual" value (relatively) high - and car-rental companies are all about keeping up-front cost low, and return on investment as high as possible. Lower cost of operation became a factor, too, as gas/oil and service parts prices climbed - Asians do better, generally, in that area as well.

I started seeing this "Asian invasion" first in the mid-90's, actually - though it was first appreciable among to low-end rental companies (Dollar, the independents, etc.) - maybe that's why you didn't notice it. They had to compete closely on price; their "service" profile was already lower than Hertz, Avis, et.al.

To stay competitive and make a useful profit, rental companies can have no "brand loyalty". Virtually all popularly-available rental cars are "program cars" anyway - cars built-into the makers' production programs as part of the projected/assumed number of "units" built for production costing purposes - so they are sold to the rental companies at (or even below) actual production cost, simply to "move product". Most never see a dealer's lot, not even a wholesaler's - delivery is factory-to-rental company - so there is no "sales commission" in the ordinary sense.

06 April, 2010 08:09

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