Rentals – a real alternative in challenging times?

Rentals – a real alternative in challenging times?

The current times are certainly challenging (as I mentioned in my article in the February issue) and the future is unpredictable. I think it is fair to say that a business climate like this is not ideal for expanding operations or for launching new brave growth initiatives. Most people would most likely prefer to cut costs and protect the cash flow to ride out the storm rather than to put the foot on the accelerator right now. Investments are consequently being postponed and fleet replacement cycles extended, putting further downward pressure on an already battling economy.

All of this makes perfect sense at the moment and is probably the most responsible way to deal with the current uncertainty, at least if you are running a company with a relatively small or highly geared balance sheet. Market volatility and temporary cash flow constraints may force you to close your shop in a relatively short time, so investments into new exciting ventures are not top of mind. I fully get that reasoning, but a cautious and defensive mindset may cause you to lose out on crucial business deals and great growth opportunities. Most of you would probably agree that this is not the most attractive or desirable future scenario either.

So, what to do? Is there an alternative solution out there somewhere?

I would argue that there is. The rental option! It is available already in the market and is offered by certain original equipment manufacturers (OEMs). Scania is one example. There are also specialised truck rental operations. Customers could choose between short- or long-term rentals and this is, if not a perfect match, then at least a very good route through thorny bushes like the ones currently surrounding us.

I am convinced that the rental concept will grow in importance going forward for the following reasons:

Predictability

The rental option is a fully bundled offering, with repair and maintenance, finance, insurance and FMS services all included in the fee. The cost elements of the business become much easier to predict and control, which is key in any type of business climate but even more so in the turbulent times today.

Risk reduction

Ownership and asset risk remains with the OEM. There is no need to worry about possible price declines in the second-hand market three to four years down the line, as the vehicle is returned to the OEM at the end of the term. Certain return conditions apply, of course, as per any type of
rental transaction, but most if not all the end of contract “risk” would be covered by the repair and maintenance contract.

Convenience

The rental concept is a pre-negotiated offering. It includes all the services mentioned above at one fee, avoiding the need for lengthy discussions on pricing for the components involved. It is already taken care of internally at the OEM. As an operator, you pay a monthly fee, add a driver and fuel and off you go. A quite simple and convenient plug-and-play solution …

Flexibility

Maybe you would like to grab a short-term opportunity without buying an asset or perhaps just to balance peak season demand and fluctuations? Well, then the rental option could be an ideal product for you. It would also be suitable for a larger fleet operator to balance fleet utilisation and risk levels throughout the year. The rental option is available for short periods or for longer commitments. Operators also have in most cases an option to buy the vehicle at any time during the rental period and in certain cases return the vehicles before the end date of the commitment, subject to a notice period.

If flexibility is the name of the game, truck rental may be your new best friend.


C
ash flow

Cash is king. We have often heard this old phrase being stated. Personally, I believe it is one of the most important considerations to keep in mind while being in business and especially during uncertain times. Having said that, if your cash flow is under pressure or if your forecast is more volatile and cloudier than you would like it to be, the rental concept could be an option. As an operator, you get access to a vehicle without digging deep into your pockets for a big upfront deposit. Instead, you would typically pay the first month of rental in advance and then pay a fee for the usage as you go. The price would normally fluctuate due to parameters such as vehicle type, model and operational requirements but also due to the length of the commitment.

Is the rental concept the answer to all our prayers in the post-Covid economic landscape? Of course not. But I do believe it will grow in importance going forward and it is an attractive alternative to the traditional way(s) of procuring an asset. If one or more of the reasons mentioned above tick any of your boxes, I would recommend that you look a little closer at the rental option next time you are in the market for vehicles. I know I would!

Published by

Patrik Glas Crommert

Patrik Glas Crommert is currently MD of Scania Finance Southern and Eastern Africa. He has spent the last 20 years in finance and general management positions in large corporates, of which the last 10 were in Africa. Patrik also has extensive experience within corporate governance roles gathered from various board assignments and from leading global internal audit and compliance functions based in his native Sweden. Entrepreneurial at heart, he is fascinated by start-up businesses, profitable growth and strategy formulation.
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