Posts: Rental cars - Information

The economic crisis and rental cars

The economic crisis and rental cars

The economic crisis is one of the most popular topics lately. When I give it a thought we haven't spoken of anything else but crisis in Bulgaria for the past 20 years or so. The real question now is how does the latest crisis affect the car rental business?

Many car rental companies have gone bankrupt this year. A major part of this bankruptcies were caused by the aggressive expansion policy of the respective company owners of car rentals. These policy includes leasing large quantities of new rental cars or taking bank loans to buy such cars. These cars however stayed much often on the car rentals' parking lots instead with a customer on the road. The cause is simple - the economic crisis worldwide. By definition the car rental service is a luxury good for the consumer, or so it says in the big economics textbooks. What does it mean? It means that the moment the inflation starts to eat up on the population's savings and income, the luxury goods are the first to suffer a decline in demand. Another reason for all these car rental bankruptcies would be the season and weather affected fluctuations of the demand, strongly connected with the same fluctuations of the tourist traffic. This means that a rental car company owner has to take these into account when she/he does the financial calculations for the year. Pretty much all newcomers in the car rental business make the same mistake to count on a steady growth and constant demand throughout the year. This is so not true for this business. A car rental manager has to save some of the high income throughout the high season to be able to cover the car rental's expenditure throughout the low season. Sadly most of the newcomers have heard that there is good money in the rental cars and that's enough for them to dive into the deep... only to drown an year later.

Bottom line - the car rental business was left with its strongest, most adaptive contenders in the game. Yes, the demand is low due to the economic conditions worldwide, but is more than enough for these very few surviving companies with traditions, high quality service and good market segment knowledge to go on.