Car rental agencies grow as Ukrainians become car dependent

Although car rental agencies have operated in Ukraine for over a decade, the industry only began to experience robust growth over the last three years. Today, over 100 international and domestic car rental companies are active in Ukraine. Together they possess over 1,000 cars and generate over $14 million in revenue. “The car rental industry is finally experiencing strong growth due to demand,” said Alla Chenier, general director of Hertz Ukraine.



Experts say the reasons for the recent growth are the improving business climate, growing tourism, and Ukraine’s growing affluence.



Ironically, the car sales boom has added to the growth as Ukrainians have become more dependent on car use. “Whenever a car goes into the shop for repair, Ukrainians turn to rental agencies for short term transportation,” said Russlan Petrovitski, car rental manager for Car Rental and Services.



Because of these trends, industry leader Hertz has more than doubled its rental fleet and profits over the past three years. With the widest national coverage, including 12 regional offices, Hertz accounts for over 20 percent of the car rental market. Together, the top five industry leaders, Hertz, Sixt, Europcar, Avis and Budget, dominate over 75 percent of the market.



Despite the relatively high costs of renting a car in Ukraine, leading companies are able, in large cities, to rent out between 65 and 70 percent of their fleets at any given time, and are often sold out completely, according to industry experts.



Industry observers say Ukraine’s largest cities, Kyiv, Donetsk, Kharkiv, Odesa, Lviv and Dnipropetrovsk, have fully developed rental markets.



“In 2006, one car a month was sent to Donetsk. Today we average over 20 cars a month. Lviv is also developing swiftly due to tourism in Transcarpathia,” said Chenier.



In other regions and in Crimea, the rental industry is much less developed and is considered seasonal, with demand peaking in summer in Crimea and winter in Transcarpathia.



“Russian tourists make up the lion’s share of rentals in Crimea during the summer,” said Chenier. The rental trend in Lviv and Transcarpathia is sport utility vehicles due to the marked increase in green tourism and winter skiing vacations, she added.



Ukrainian rental agencies are now offering a wide variety of automobiles. The majority of rental fleets are made up of practical, mid­sized cars, the usual choice of Western businessmen and Ukraine’s burgeoning middle class. For example, a Chevrolet Aveo or Ford Fiesta can be rented for between 25 to 48 euro a day, and more economical weekly and monthly rates are available at leading agencies . Larger luxury vehicles are popular with Russian and Donetsk businessmen and are used by companies for corporate events and representative purposes.



“Donetsk businessmen often ask for large late model trucks to show off their status,” said Chenier, adding that “most are prepared to pay cash as many do not possess a credit card.”



Despite the growth of domestic demand, foreign businessmen remain Ukraine’s most reliable customers. Business travellers from Germany, France, Russia and the US account for the majority of rentals in the country. Their business accounts for over 35 percent of all car rentals in Ukraine, said Car Rental and Services' Petrovitski.



Despite many Western business travelers’ complaints, Ukrainian agency management insists that services are improving and that in some cases it exceeds Western standards.



“Ukrainian car rental companies are more friendly than our US and European counterparts,” say Julia Voloschuk, an agent with 1 Car Rent Company. “Our customers, in case of emergency, have access to 24­hour roadside assistance operators and may drop off cars at multiple locations free of charge.”



“Ukrainian car rental agencies are more flexible, and allow clients to rent cars without credit cards as long as they can make a deposit,” added Hertz’s Chenier.



Compared to Western agencies, however, the age of Ukrainian rental fleets are older. Western agencies replace their cars annually, while in Ukraine cars are used for two to three years, she said.



While rental car agencies have experienced extraordinary profit growth in the past two years, industry experts do not expect the trend to continue, citing increased competition.



With relatively low opportunity costs to entering the car rental business, many entrepreneurs are entering the market, starting rental companies with as few as three vehicles and offering lower prices than traditional industry leaders.



Nevertheless, “the annual growth in the car rental market will be between 15 and 20 percent for the foreseeable future,” said Petrovitski.



Chenier confirmed this, saying the Ukrainian market has a lot of room to grow.



“Hertz operates over 7,000 and 16,000 cars in Italy and Germany, respectively,” she said. “We operate a fleet of 180 cars in Ukraine.”



The good news for rental car clients is that rates are expected to go down now that Ukraine has entered the World Trade Organization. But, the unique Ukrainian rental environment, high accident incidence and theft rates, will apply cost pressure.



“Due to frequent auto accidents, over 30 percent of rental cars are involved in accidents annually, Ukrainian agencies have to hedge higher than normal maintenance and repair and replacement vehicle budgets,” said Voloschuk.



This is compounded by the number of car rental thefts. While car rental management doesn’t like to talk about the problem, they do acknowledge it is a significant cost to doing business in the country. This type of theft is not covered under Ukrainian law.



Industry groups have been lobbying parliament to amend the law and extend coverage to fraud, with no effect.