Lack of Lease Lets Companies’ Rental Fees Spike




Before he co-founded Loyal Car Rental Plc in 2013 with his friend, Wondirad Aschalew used to own one automobile which he rents out to Adika Car Rental Plc. When Adika receives a bulk order or wins a tender for the supply of vehicles which is beyond the number of vehicles it owns, it just approaches individuals like Wondirad who own cars to rent out.

After working with Adika for two years, he came to find that the car rental business is a lucrative one and decided to join the business. He observed that many companies and institutions rent vehicles for different purposes in addition to individuals.

Therefore, three years ago he founded Loyal Car Rental with his friend with seven automobiles, two high-roof minibuses and one Isuzu, targeting institutions and private companies as their clients. Currently, their business is operating with 30 vehicles, which they rent from different individuals with the same arrangement that Adika had been working with him.

“Unlike the previous years, many companies are the primary renters of cars,” said Wondirad. “Previously individuals were the main ones who rented vehicles, now everything has changed, and businesses are our customers.”

According to data from the Addis Ababa Trade Bureau, in Addis Abeba, about 458 companies are registered to engage with a business of renting vehicles for different purposes including projects, individual use and operations.

Currently, he rents out cars to different private companies and government institutions such as East Africa Tiger Brands Industries, Dashen Brewery and Flintstone Engineering.

According to data from the Addis Ababa Trade Bureau, in Addis Abeba, about 458 companies are registered to engage with a business of renting vehicles for different purposes including projects, individual use and operations.

These companies including Wondirad’s, offer various types of cars including Corolla, pickups, high-roof minibuses, land cruisers, buses and FSR Isuzu. They rent out automobiles and pickups starting from six months up to three years. V8 (Land Rover Range Rover Sport) and FSR Isuzu rents from a week up to one year. On average for one tenure, renters take five to six vehicles from these companies, according to the people in the business.

When these corporations and institutions rent cars from the rental companies, they pay the rent on a monthly basis. The companies rent the vehicles with two options; with drivers or without drivers. When the companies rent the cars, they deposit the agreed amount of money, which will be returned to them upon the return of the car. The money is filed as a guarantee in case an accident happens. Most of the time the renters pay the rental fees by the end of every month.

What makes working with businesses better than individuals is their credibility, according to Etsay Kelelom, general manager of Enat Car Rental, a company that was established a year ago located in Lideta District. The manager claims that the business can supply up to 100 vehicles at once.

Enat’s customer companies include Ethio Telecom, Ethiopian Electric Power, Information Network and Security Agency (INSA) and Addis Ababa Water & Sewerage Authority. “For instance, INSA rents 70-80 vehicles from us for two years,” said Etsay.

Dashen Brewery is one of the private companies that rent vehicles. The company rents cars for two years. To rent the vehicles, Dashen usually announces a tender and collects pro forma invoices to choose the business that is going to supply the cars.

“We are renting vehicles with the main reason being the unavailability of car leasing arrangements in the country,” said a senior executive at Dashen Brewery.

Abroad, leasing cars is a very common practice. A car lease lets companies drive a new vehicle without paying a large sum of cash or taking out a loan. To lease a car, the companies only make a small down payment, which is less than the average 20pc of a car’s value they would pay to buy followed by monthly payments for the term of the lease. When the term expires, the companies will return the vehicle.

“Internationally most businesses lease cars for three to five years,” said this executive from Dashen. “This is how long we are renting from private companies,” said this official.

On the other hand, government institutions rent vehicles for two purposes, one for projects and the other for their casual work routines. They rent heavy trucks and machinery for projects, and they rent pickups, minibuses and automobiles for their work processes.

“Many companies claim that they procure vehicles, but they don’t actually buy rather they rent,” said Wondirad, witnessing that the number of companies coming to him to rent cars is increasing these days.

These companies prefer to stick to renting vehicles as they found out that purchasing cars is expensive. The price of a used car in Ethiopia ranges from 125,000 Br to 840,000 Br while the price of new vehicles ranges from 250,000 Br to 2.5 million Br, according to www.Mekina.net, an electronic commerce that connects car sellers and buyers.

Once they purchase the vehicles, they might face additional processes which most of them prefer to omit. These include expenses for vehicle maintenance service, drivers pay, expenses to the transport and logistics department and spare part purchase.

Therefore, for short-term projects and operations, these companies prefer to rent the cars than to buy.

Following this, since the past couple of years, it can be said that the business is booming, according to Wondirad.

In 2016, the country spent 845.8 million dollars to import vehicles. And currently, there are around 750,000 vehicles in Ethiopia, according to the Federal Transport Authority.

Even if these renters and the rental companies don’t prefer to disclose the amount of money they get and spend to rent the vehicles, on average the tenants pay 250 Br-300 Br for the cars on a daily basis for automobiles and 600 Br for vehicles such as pickups.

Not only private companies and government institutions rent cars, but also non-governmental organisations (NGOs) such as the United Nations Development Programme (UNDP).

“We rent cars for very short periods of time to handle extraordinary demands from ad hoc activities such as major conferences,” said Martha Mogus, head of communications for UNDP.

To rent the cars, the NGO goes through a competitive procurement process. The reliability of the vehicle and service provider are major factors during the process.

But this does not mean that the business is smooth and totally safe, some risks and dangers are there. And an accident is the major one. Two types of accident can occur to the cars; to the body of the car, which is considered as a simple accident, and to the mechanical parts of the vehicle which is the severe one.

Most of the vehicles have comprehensive insurance, which covers all the damages to the vehicles, according to the rental companies. But it may take a long time and process to settle the case with the insurance companies.

But if the problem occurs to the vehicle, the rental company will give the renter another car as a replacement until the vehicle gets fixed. But if the tenant caused the damage themselves, the rental companies will approach the case in two ways.

If the injuries are minor, the renter themselves will fix them, and they are also supposed to fix the car in the case of a major breakdown. This will be managed according to the agreement that the two parties sign and abide by when they enter into the contract.

With all these challenges, the business is booming, and there are now many companies mushrooming in the market. Following this, the tender process to rent vehicles is now experiencing a slowdown, according to the rental companies. The rental companies prefer to hire sales agents who just approach each and every company to rent their car by offering lower prices.

“The number of businesses entering the market is increasing significantly, and this has led to the decline in the rental fee,” said Etsey.

To testify this, Wondirad asserts that many people who were sales agents for car rental companies now own their own car rental company.

In 2016, the country spent 845.8 million dollars to import vehicles. And currently, there are around 750,000 vehicles in Ethiopia, according to the Federal Transport Authority. The average annual vehicle import amounts to 18,000. With a population close to 100 million, Ethiopia stands with the lowest motorization rate globally, with only six cars per 1,000 inhabitants.

Currently, Ethiopia produces 8,000 commercial and private vehicles for the local market. According to data from the Ethiopian Investment Commission (EIC), a total of 31 foreign vehicle investment and 73 domestic vehicle assembly investment projects got licenses, but only 18 of them are operational.

For her part, the senior executive of Dashen Brewery believes that leasing cars is better than procuring and renting the cars for a better cash flow of companies and to boost business opportunities as it can save money spent on renting a car.



By FASIKA TADESSE
FORTUNE STAFF WRITER

Published on May 06,2017 [ Vol 17 ,No 888]


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