Greater Expansion Seen in Leasing and Renting

Growth of the car and truck leasing and rental business in the past 10 years has eclipsed the development of the automotive industry that spawned it. During that period, the number of lease/rental vehicles on the road has doubled, nearly quintupling revenues, according to data compiled by The Hertz Corporation, a leader in the field. Revenues in 1976 amounted to $17.5-billion from 5,038,000 vehicles in use.

Most experts feel the lease/rental business will continue to expand at the 10 to 20-percent annual rate experienced in the previous 15 years, moving yearly revenue to $25-billion by 1980.

From 1975 to 1976, Hertz statistics show that vehicle lease/rental revenues rose by some $1.9-billion, a 12-percent hike. On a unit basis, the number of lease/rental vehicles few about eight percent last year and around 14-percent in the 1973-76 period, when Detroit's sales sagged by 10-percent.

Today, more than one car in every five rolling off U.S. assembly lines - 21.8-percent, to be exact - is slated for lease/rental service, compared with under 10-percent a decade ago. Nearly one of every 13 new trucks also goes to a lease/rental fleet.

The prognosis from every industry observer is for further growth. One major automobile company official forecast that by 1980 almost 40-percent of U.S. passenger car out­put will be earmarked for the non-buyer. "Leasing is the wave of the future," said another Detroit executive. "We might just see the day when ownership is old-fashioned."

The growth rate in the lease/rental industry's first 35 years from its founding in 1916 until 1950, was far slower than it is today.

By the mid-point of the century, only 82,000 lease/rental vehicles were in service and about 50,000 of these were trucks - mostly short-haul delivery vans. These 82,000 vehicles amounted to less than two-tenths of one percent of the nearly 50-million cars and trucks then on U.S. roads.

Lease/rental revenues in 1950 were less than $120-million, with $90-million of this in truck charges, according to a 25-year review of U.S. motor vehicle use and costs prepared by Hertz.

Hertz had only about 6,300 units in service in 1950 and its revenues totaled less than $14-million, primarily from trucks. Ten years later the firm's volume stood at $125-million.

By 1960, the industry's lease/rental units had jumped ten-fold to nearly 900,000. This broke down to about 636,000 cars and 252,000 trucks. Revenues were about $1.36-billion, an increase of more than 1,000-percent. During the same period, the number of cars and trucks rose about 50-percent to 74-million.

During the 16 years from 1950 to 1976, the number of cars and trucks in both short-term rental and long-term leasing service nearly quintupled to its current level of 4,118,000 cars and 920,000 trucks, with revenues up by more than 1,000-percent, according to Hertz estimates. For most of this period, car and truck use in the U.S. rose just 86-percent to about 137,300,000 vehicles.

Lease/rental revenues for cars alone soared from $70-million to $12.3-billion in 16 years. Lease/rental trucks alone brought in $5.261 -billion last year compared to $661-million in 1960.

The industry defines rentals as transient, daily, weekly or monthly use of cars or trucks, generally for less than one year. Leasing refers to longer term periods, usually from one to three years for cars and from two to five years for trucks.

A breakdown of figures for the major areas of the vehi­cle renting and leasing business over the past decade (1966 to 1976) shows varying growth rates. Individual car leasing is the fastest-growing area, but fleet car leasing is the biggest in total volume. Hertz noted the following trends:

• Individual leases grew from 395,000 cars in 1966 to 1,217,000 last year, an increase of 208-percent. Revenues of $512-million rose a record 575-percent to $3,456-billion during that time.
• Passenger car fleet leasing of 1,211,000 units jumped to 2,528,000, a 109-percent hike in 10 years. The $1.6-billion in revenues rose to $7.2-billion in 1976, a 350-percent increase.
• Short-term auto rentals stood at 373,000 units in 1976, up 107-percent from the 180,000 of these units in serv­ice in 1966. Revenues rose 296-percent, increasing from $404-million to $1.6-billion.
• Short-term rental trucks moved up 109-percent from 74,000 to 155,000. Their revenues advanced from $310-million to $1.153-billion, a 272-percent growth.
• Leased trucks rose from 305,000 to 765,000, an in­crease of 151-percent. Reflecting the trend to heavier vehicles and longer mileages in this segment, revenues jumped 353-percent from $906-million to $4.1-billion.

Another interesting fact in the leased truck category is that Hertz has increased its tractor-trailer units from less than 10-percent of the fleet to more than 25-percent in just the past four years. Despite this impressive growth, leased tractor-trailers still represent less than five percent of the 27.6-million trucks now on the road.

Another sector of the industry that has experienced im­pressive growth is combined leasing of automobiles by pri­vate individuals and business. Car leasing has more than quadrupled its revenue and doubled the number of cars on the road from 1966 to 1976. The Hertz study estimates that revenues increased 411-percent since 1966, totaling $10.64-billion last year.

"With car prices, interest rates and fuel costs up more than 50-percent in the past five years, we expect leasing by corporations and individuals will continue to grow in the future at least as fast as it has in the past," said J.E. Menendez, vice president of Hertz's Car Leasing Division. Industry observers predict revenues for leased cars to top $15-billion by 1980 as higher car prices, operating costs and interest rates spur growth.

More than 3,745,000 leased cars were on the highways in 1976, up about 133-percent from the 1,606,000 in 1966. From 1975 to 1976 alone, the number of leased cars jump­ed nine percent.

Statistics reflect the extent to which the growth of the leased car business has exceeded that of the automobile industry. The number of automobiles on the road climbed only 40-percent from 1966 to 1976, rising from 78.3-million to 109.7-million. During the same period, the pur­chase price of Detroit's car output moved ahead about 64-percent, from $23.4-billion to $38.4-billion.

Hertz data shows that single-car lease revenues topped $3.456-billion last year, an increase of 575-percent over the decade-earlier total of $512-million. Some 1.217-million individual car leases were in force in 1976, compared with 395,000 in 1966.

Car leases to businesses with fleets of ten or more auto­mobiles were up from about 901,000 units in 1966 to al­most two million in 1976, a 121-percent climb. Revenues for large business fleets were calculated by Hertz at $5,649-billion last year, up more than 383-percent from the $1,168-billion for 1966. (Another 920,000 lease/rental trucks ac­counted for an additional estimated $5.3-billion in revenue last year.)

The statistics indicate that companies with larger fleets are more likely to lease rather than buy their automobiles. Over 76-percent of the cars in business fleets of over 25 vehicles last year were leased vehicles, up from only 53-percent in 1966. Thirty percent of cars in fleets of 10 to 24 vehicles were leased last year, compared with 12-percent in 1966.

As the leased car totals have risen over the past decade, the number of salesman-owned and company-owned cars in big business fleets has dropped. In 1966, about 475,000 units in the "over-25" business fleets were owned by sales­men. By 1976, that figure had dropped to about 357,000. In the same period, company-owned big-fleet cars dropped from 280,000 to 198,000.

In fact, total domestic, new, personal-use car purchases by individuals took less than half Detroit's new car output in 11 of the past 13 years. In three recent years - 1970, 1974 and 1975 - new U.S. automobile purchases by in­dividuals primarily for their private use accounted for one-third or less of domestic car sales.

Passenger car leasing is more than a half-century old and the industry's greatest growth has come in the past 25 years. The first wave was with business fleet leasing, which was followed by a surge in individual contracts.

In a survey of companies that leased their car fleets, five said they started the practice in 1916. Just six percent of the surveyed companies said they had begun leasing before World War II and only another 11-percent reported they began in the decade between 1943 and 1952. Hertz estimates there were about 16,000 leased cars on the road in 1950. Eight out of ten companies said they did their first leasing after 1953.

Car dealers are participating in this sector of the indus­try as one study found that 6,000 of the nation's 25,000 automobile dealers lease cars as well as sell them. Another survey showed that 39-percent of the companies that lease their car fleets do so from organizations affiliated with car dealerships.

The Hertz data also shows that the lease/rental cars and trucks are far from typical U.S. motor vehicles. They are usually driven farther and sold sooner than the average unit on the road.

Rental cars, for example, are normally disposed of after only nine to 12 months in service. A typical leased car is now sold after about 30 months of use. By comparison, the overall average age of a U.S. passenger car is six years and its usual life is 10 to 11 years.

The typical rental truck is sold after about 35 months on the road while the leased truck is retired following an aver­age of 41 to 42 months' service. The average age of all trucks, however, was 6.94 years in 1975, the latest year for which figures are available.

Although lease/rental vehicles are in such service for rela­tively short periods, their average annual mileage is higher than units in other usage. Yearly rental car mileage averaged 14,478 in 1960, reached a high of 16,912 in 1972 but fell in 15,803 last year. Average annual mileage for a leased rose from 18,605 miles in 1960 to a peak of 23,493 in 1972, then dipped to 21,709 in 1976.

These figures are higher than the average, overall U.S. passenger car mileage of 9,545 in 1960, 10,362 in 1972 and 9,015 in 1976.

For commercial vehicles, the following statistics were compiled by Hertz. Rental trucks travelled an average of 21,583 miles in 1960 and 26,623 miles in 1972. In 1975, average mileage fell to 22,174 but rose again to 27,883 last year. Leased trucks rode an average of 23,838 miles in 1960, 41,714 in 1972 and 38,709 in 1976, with the increase re­flecting the trend to heavier units such as tractor-trailers.

By comparison, the average mileage of a truck operating on a U.S. highway, including many smaller vehicles in personal use - was 10,738 in 1960, 12,269 in the peak 1972 year and 10,942 last year.

As a result, Hertz estimates that lease-rental cars and trucks, which totaled only 3.7-percent of the 137.3-million units on the road last year, rolled about 121-billion vehicle miles, some 9.4-percent of the overall 1.291 -trillion miles travelled by all cars and trucks.

In 1960, when the lease/rental units amounted to about 1.2-percent of the 74-million units then in service, they rolled just 17.8-billion miles, about 2.5-percent of the 719-billion total vehicle miles travelled that year.

While the total lease/rental units on the road remains a relatively small percentage of the total cars and trucks, the ratio of new lease/rental units to all new U.S. vehicles sold has climbed sharply - from about three-tenths of one percent in 1950 to 3.7-percent in 1960, 14.3-percent in 1970 and 15.9-percent last year.

For cars only, the ratio has shot up even more drama­tically - from two-tenths of one percent in 1950 to 3.4-percent in 1960, 15.4-percent in 1970 and 18.5-percent in 1976. Eliminating new imported cars, the ratio is higher still: two-tenths of one percent in 1950 (when few imports were sold) to 3.7-percent in 1960, 18.1-percent in 1970 and 21.8-percent in 1976.

Although trucks are termed "commercial vehicles" and automobiles called "passenger cars," trucks are not used strictly for business nor are cars only for personal use.

Over the past decade (1966-76), Hertz estimates that more than half of all Detroit's new car output went into corporate, government, small-business, professional and other non-personal use, including lease/rental service. On the other hand, more than one of every five trucks sold are recreational vehicles.

Last year, Hertz studies show that the nearly 12-million non-personal-use cars on the road rolled a total of 155-billion vehicle miles and of this the lease/rental fleet logged some 87-billion miles. Non-personal car use accounted for about 10.7-billion gallons of gasoline out of the estimated 74.4-billion gallons used by all cars. Lease/rental autos accounted for about 3.7-billion of this. Trucks used an estimated 33.1-billion gallons of gasoline and diesel fuel, with lease/rental units accounting for about 3.2-billion gallons of the total.

As the figures show, the greatest growth for the 60-year-old lease/rental business has come in the past 15 years. This is confirmed in a survey of corporations which were leasing cars in 1972.

Just six percent of these firms said they had begun car leasing prior to 1943 (though five of them said they'd start­ed in 1916.) About 11-percent of the companies responded that they switched to leasing in the decade from 1943 to 1952, another 33-percent in the period from 1953 to 1962 and 46-percent started between 1963 and 1972. Hertz traces its own origins to 1918 when a predecessor company established a rental fleet of six automobiles in Chicago.

Hertz and eight to 12 other companies are generally re­garded as the leading national firms in the business, with others operating on a regional or local basis. Some national concerns confine their business primarily to cars or to trucks, some specialize in leasing, while others deal pri­marily in renting.

Some industry observers place the number of companies in the business as high as 15,000, ranging from automobile dealers who rent or lease only a handful of vehicles each to major banks and retail chains specializing in car leasing. An estimated 600 firms are in the truck lease/rental field alone.

The number of banks in the business has grown rapidly, especially in the so-called "open-end" car leasing sector. One tabulation showed that in 1968 just 25 banks leased vehicles but by 1973 that number had risen to 500. The figure is assumed to be far higher today.

Within the four major segments of the business, an al­most infinite variety of lease or rental contracts are written to meet diverse customer needs. Under a so-called "open-end" or "finance" lease, for example, the lessee assumes any gain or loss when the vehicle is sold at the end of the lease term. With a "closed-end" contract, on the other hand, the lessor has the responsibility for the profit or loss.

With a "full-maintenance" lease, the lessor provides complete service to the vehicle while with a "non-mainte­nance" contract the lessee usually is responsible for keeping the vehicle running.

As the finance lease becomes the standard of the indus­try, full-maintenance and closed-end leases will decline in importance. The future of finance leasing, as shown by the banks' involvement and rapid expansion into the field, is bright for the leasing industry.

The figures compiled in this study by Hertz include multiple purchases or applications of vehicles and do not necessarily apply strictly to fleet usage. However, this study offers valuable insights into marketing and management trends affecting all owners and lessees of several units or more.