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Car rental industry in Malaysia

POSTED BY CBT Team ON 24 June 2014

Tan Chong & Sons Motor Co

Acme Hire-N-Drive, set up in 1963 by the late Tan Sri Tan Yuet Foh and Dato’ Tan Kim Hor who were the co-founders of Tan Chong & Sons Motor Company in 1958, was the pioneer car rental firm in Malaysia.

The two brothers contributed 100 units of Nissan Cedric (registration BL 1 to BL 100) for use during the formation of Malaysia celebrations in 1963.

In 1972, they bought over Mayflower Tours (established in 1960) and merged it with Acme to form Mayflower Acme Tours and operated the largest fleet of tour buses and limousine taxis in the country.

Currently, Mayflower boasts a fleet size of over 2,000 rental and leasing vehicles making them the largest operator in this sector.

In the local car rental scene today, the towering figure is none other than Felix Fernandez, president of the Car Rental Association of Malaysia (CRAM).

This national association started as the Car Rental Association of Kuala Lumpur and Selangor (CRAKLS) before membership was extended nationwide.

I served for a term in CRAKLS as the honorary treasurer in the mid-1980s and was then running Mayflower car rental, and later set up several car rental companies as the general manager.

Felix, who was instrumental in almost doubling CRAM membership, started his car rental career with Sistem Sewa Kereta Malaysia, the local Avis franchise holder, in 1978.

He worked his way up to general manager before leaving to team up with Richard Hawkins, founder of Hawk Rent A Car, and served as CEO for Malaysian operations since inception.

His 36 years of unbroken experience is unrivalled by anyone in the local car rental industry which had gone through several upheavals and cycles.

From the early 1960s to 1980s, not many people could afford to buy cars. Apart from foreign businessmen, expatriates and tourists, many locals rented cars over the weekends and festive holidays, mostly for travel back to hometowns or villages.

Cars in this era were less reliable, highways were few and head-on collisions at trunk roads were frequent. The number of people that ventured into this capital intensive business was small.

Before credit cards were commonly used, many cars were not returned by customers as they could easily disappear without trace, often using addresses that no longer existed.

Such losses cannot be claimed from insurance as the vehicles were handed over voluntarily to the customers, and not exactly stolen.

The police too would classify them under NFA (No Further Action) by treating them as civilian cases similar to hire-purchase defaulters on the run.

The 1983 budget, announced in October 1982, caused upheavals not just in the car rental sector but affected the motor industry as well.

Exemption for excise duty was extended from taxi cabs (metered taxis) to hire cars (outstation taxis) but was wrongly interpreted by some for rental cars (hire & drive).

The Penang branch of a leading car rental company was asked to pay back excise duties after some of their cars were wrongly given exemptions.

It was also the period when some car rental companies made a killing in the market when road tax was doubled for company-owned vehicles and astronomically high for diesel engines.

For example, company-owned cars with 3-litre diesel or 5-litre petrol engines were subjected to RM36,000 road tax annually, an amount higher than the value of the older vehicles!

In contrast, the road tax for limousine taxis was only 12 sen per cc flat for petrol engines and 44 sen for diesel. The annual road tax for a 5-litre petrol engine car was RM600 and 3-litre diesel RM1.320.

Mercedes 300Ds which were popular then were replaced with petrol engines and transferred to individual ownership to avoid high road tax.

Many luxury cars, including Rolls Royce, were licensed under “Hire & Drive” or “Limousine Taxis” but remained for private use and the value of these licenses shot up overnight.

The car rental industry slowed down during mid-1980s recession but went on an overdrive from 1988 when the Malaysian economy went through a decade of boom.

From the early 1990s, there was a long queue for Proton cars although they were loaded with accessories, possibly making more profits from these add-ons than the sale of the car.

Car rental companies made chunks of profits selling used rental cars as they could fetch sixty percent of the new car price when the book value was fully written off after 5 years.

But they were hit by the 1997 Asian Financial crisis which was felt locally in 1998. It marked the end of the golden era for car rental business.

The industry would never be the same again due to low used car values and falling new car prices as operating profits are minimal owing to stiff competition.

When the Ministry of Tourism took over the licensing of tour buses and rental vehicles, it allowed those licensed under “Hire & Drive” to be used for chauffeur drive while the Commercial Vehicle Licensing Board (CVLB) continued to issue licences for “Limousine Taxis”.

The issuing of tour bus and rental vehicle licences had been taken over by the Land Public Transport Commission (SPAD) and the “Hire & Drive” licences remained status quo.

However, the huge surplus of vehicles used for chauffeur drive has led to SPAD freezing all taxi licences including “Hire & Drive”.

This has affected leading car rental companies that operate at airports for business travellers and also fly-drive tourists.

Tourists on motoring holidays deserve a red carpet welcome as they spread their tourist dollar everywhere they go but the shortage of rental cars has affected this tourism sector.

Although the records may show a large number of “Hire & Drive” licences flooding the market, leading car rental firms should be allowed to expand their services.

They know what they are doing and understand the market better than anyone. They are venturing into blue oceans while some people may still hold a myopic view of the sector.

Thirty years ago, CRAKL members had proposed to CVLB that only the companies need to be licensed and there should be no restriction on car rental permits.

The operator’s licence was introduced by SPAD but the restriction on fleet size was not lifted. As a result, the industry is getting more constraints instead of liberalisation.

The car rental business is not easy to understand as even the experts in associated sectors can be dumbfounded.

For example, motor distributors and banks could easily go into car leasing but prefer to stay out as their staff could easily step on quicksand.

Since the mid-1980s, most rental cars are hired or leased by the corporate market, many on monthly or yearly basis.

Most of these cars were used by expatriates and it has been the global policy of many multi-national companies not to own but rent or lease cars.

The exodus of expatriates in recent years had not reduced the demand as many local companies have also followed suit.

Today, many leading car rental companies offer cars for rent or lease, and provide chauffeur driven and fleet management services.

However, none of them are operating a state-of-the-art facility I envisaged more than 20 years ago.

It would be a private multi-storey car park with the ground floor used for the workshop, a cafeteria and office on the first floor, and car parks on the upper floors.

This will also allow long term customers to drive to the workshop at their convenience, spend time working at the cafeteria with Wi-Fi services, complimentary snacks and drinks.

This is better than hiring a large team of drivers going to the customers with replacement cars for the rental vehicle to be brought back for servicing and another trip later to exchange cars.

Recently, the country’s first electric vehicle car-sharing programme was launched but was wrongly described by some as available for rental to the public.

It is more like time-share schemes at holiday resorts among members whereas car rental is like hotel stay, and leasing similar to living in serviced apartments or leased condominiums.

YS Chan
Kuala Lumpur

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