In conversation with Mr. Rauf Ahmed, Regional Operations Manager, Hanco Rent a Car, we tried to understand the Car Rental & Leasing space in Saudi Arabian market. We also discussed about the rapid industrialization that Saudi is undergoing and how has that impacted the car rental and leasing demand.
“Car Rental & Leasing market in Saudi Arabia is being driven by tourism, industrialisation and entry of women drivers."
Q1) Could you share your insights about the car rental and leasing industry in Saudi Arabia?
Car leasing market is purely dependent on the availability of private, government or semi-government contracts, hence the demand fluctuates over time and is fairly volatile. Whereas, car rental business is an instant cash generating vertical due to its nature of daily rental. There is higher demand for car rental due to its flexibility, availability and affordability. Companies demanding car leasing contracts include Aramco, Saudi telecommunication company and Sabic.
Q2) Could you list down the top players operating in this sector in Saudi Arabia?
Some of the top companies operating in the car leasing and rental market are Budget rent a car, Avis, Hanco, Lumi, Yelo, Theeb, Autoworld, Key rent a car, Europcar, Hertz, Cherry, Enterprise, SIXT, Samara and Best rent a car. The top brands dominating the market include Hyundai and Toyota. Some of the Chinese companies are also starting to gain share in the market.
Q3) What are the factors that have affected the car rental and leasing market recently?
Government policies and the Covid-19 pandemic has affected the car rental and leasing market drastically. The Saudization rule which mentions that the entire workforce needs to include just the citizens of Saudi Arabia has affected the size of the companies and their workforce. The pandemic on the other hand caused the fleet size of most of the companies to fall drastically. This was because of the supply demand mismatch and also due to the ongoing semiconductor chip shortage.
Q4) Who are the major end user industries in the car rental and leasing market in Saudi Arabia?
The major end user industries that demand cars on rent and lease include Oil & Gas Refineries, Food Industry, FMCG, Construction, Manufacturing, Logistics, E-commerce, F&B, Government & Semi- Government Contracts, Telecommunication sector and Online trading. Some of the major companies include Aramco, Bin Laden Company, Sabic and STC.
Q5) What is the region wise demand of car rental and leasing in Saudi Arabia?
The capital city of Riyadh and other big cities like Jubail, Yanbu, Jeddah, Khobar and Dammam have good business in the car rental side due to factors like greater population and high tourism. Other cities like Makkah and Medina which are popular tourist spots also attract higher cars on rent. Leasing on the other hand depends upon the presence of major industries and of contracts. Major industrial areas like Jubail, Yanbu demand cars on lease. For petrochemical industries, cars are also demanded on lease in cities like Yanbu and Jubail. Car rental in metro cities is in high demand. In eastern province, major industries are operating like oil, gas and steel demanding leased cars. In Riyadh, huge number of cars are demanded on lease due to the presence of headquarters.
Q6) Could you comment on the type of cars demanded on rent and the tenure of lease contracts preferred by major industries?
Oil and refineries take cars on lease for at least 4 to 5 years. They are shifting from buying transport to leasing them in order to avoid maintenance costs and for services like repair and accident replacement. In addition, the type of cars most popularly demanded on rent and lease by industries include small sedans and pickup trucks. Construction, logistics and manufacturing sectors demand pickup trucks on rent. Whereas F&B, E-commerce companies go for sedans and small cars for delivery purposes. Minimum demand for leasing a car is 2 years and the most preferred duration is 4+ years with hardly any end user opting for 1 year lease.
Q7) Do car dealers also extend cars on lease to consumers, government or corporates?
Car dealers like Hyundai, Toyota are the major ones and are into car leasing as well. The difference between car rental/ leasing companies and the car dealer companies who provide leasing is that the car rental and leasing companies are in a position to provide diversity of car types like trucks, sedan, small cars, SUV, MUV, luxury cars and much more whereas this variety is not prevalent in car dealers. Apart from the rigidity in car type, there is rigidity in vehicle brand type as well.
Q8) How has the economic conditions in Saudi Arabia affected the car leasing and rental companies and how is it performing presently?
In 2016-17 there were huge announcements made in the policy space that allowed women to drive and also launched the 2030 vision. According to Saudization mentioned in 2030 vision, only the citizens of Saudi will be allowed to work in Saudi companies and would lead to the ‘Saudization’ of the workforce. This led to a huge fall in the volume of companies as they downsized and the workforce fell. Pandemic added to the misery and reduced the fleet size as well. Companies shrank even further. But there’s a ray of hope as post pandemic the occupancy rates has increased to 80-85%. This is due to huge construction demand created by industrial projects like Red Sea Project and Neom City. Tourism is also bouncing back and is being promoted. Companies have improved their profitability situations as well.