Costs drive hire car probe

THE hire car industry has been targeted by the WA Ministry of Fair Trading, which has joined similar bodies around the country in a bid to end unfair practices.

Seen as vital to both the tourism industry and general commerce, big differences between advertised rates and actual rates charged are seen as a key concern by regul-ators.

The ultimate aim of the national pro-cess is to enforce hire car compan-ies to provide standardised con-tracts and intro-duce more trans-parency into the industry.

State and Federal Govern-ments are set to begin consult-ations with the in-dustry and consumer groups, to reduce the “sleaze factor” in a highly competitive in-dustry which at best baf-fles and, at worst, enrages its customers.

Perth has the cheapest hire cars in Australian capitals, but even here the problem persists in securing a firm daily rate for a car which bears any relation to the figure many companies ad-vertise.

WA Ministry of Fair Trading will be involved with the national project under which a number of working parties are being formed to put the industry under the microscope, in-cluding consultation with consumer groups and com-panies.

“The United Kingdom had standardised contracts for hiring cars. There is no rea-son why Australia can’t do the same,” said a Fair Trading spokes-man

The biggest var-iable is the in-surance offered to reduce the excess, in the event of accident or theft, which can increase the daily rate by between a quarter and a third.

The rate for a medium-sized car can vary consider-ably.

Typically prices can increase from about $40 per day, for a single week’s

hire charge, to cost as much as $55 to $60 per day when this insurance is added.

The alternative for many hirers is to take the of risk having to pay the first $2500,



more, in the event of an accident or a car theft. The insurance reduces the excess to about $250 in most cases.

Such figures work out to an annual rate six or seven times that required to insure a private car – and remember the hire car company already has insurance, to cover costs above that excess of at least $2500.

At least one Perth hire car company– which has very low excess insurance – says that costs in damage or loss to hire cars could be three times as high as for private vehicles.

But an executive who spoke to Business News ad-mitted that it was difficult to justify figures currently be-ing charged by many com-panies.

The motorist feels obliged in most cases to pay, rather than risk a ruinous bill for at least $2500 in an excess pay-ment.

It is difficult to escape the conclusion that hire car com-panies regard the profits on these charges as part of their net return on hiring the car.

For it emerges that most companies carry this insur-ance themselves. They do not have policies cov-ering those high excess figures but it appears they maintain a pool of cash from these pay-ments, from which dam-age and loss are met – but which very likely yield consid-erable surpluses that are retained by the company.

There is a remarkable consistency in these rates. A Perth businessman in Mel-bourne found that the insurance for reducing the excess varied by less than $1 at four companies where he sought rates for hiring a car; all were $19-$20 (although in Perth one company quoted $22, others $15 a day).

The “come on” rate advertised by hire car organisations bears little resemblance to the final figure; if it includes excess insurance it can be three times the rate advertised in the Yellow Pages or a newspaper ad.

One Perth company which claimed it tried to provide an honest figure – the total rate – found it was losing business to its competitors and had to revert to the low, unrealistic figures, and then add other charges at the desk.

Few customers, especially overseas visitors, were prepared to take the risk of having an expensive accident without the additional cover.

“It is not as if you could dodge the excess in the event of an accident,” said one frequent hirer.

“They have the imprint of your credit card and can simply charge your account with the excess.”

The businessman quoted irritating incidents in which he had left a car at an airport, without being able to see a company representative, and later finding additional, usually small charges, on his credit card bill.

A lack of consistency and transparency could be a serious problem for Australia’s tourist industry.

A national insurer that covers many of Australia’s hire car companies with their basic (pre-excess) insurance said that hire cars were subject to a far higher level of claims than private vehicles.

An executive cited drivers’ unfamiliarity with roads in a strange city, particularly so for overseas visitors who were accustomed to driving on the other side of the road, as a major reason for higher claims.

People in hire cars tended to travel longer distances, and, again, were usually unfamiliar with long distance driving in Australia.

He suggested that some big fleets could average two accidents a year, per vehicle, which could explain the high excess insurance rates.

The basic insurance for hire cars (that is, without coverage for those high excess figures) was calculated on a fleet’s accident history, so that if a company had a record of low claims, the figure to cover the fleet would be favourable.

It was significant that companies which took some trouble in explaining the operation of their cars and local road conditions to customers had lower accident rates (and therefore lower insurance bills).

Some had provided tapes – in a number of languages – for overseas tourists, which again reduced the accident rate.

The insurance company found that the size of the city, and density of the traffic, had a direct relationship to accident claims.

Sydney had by far the highest incidence among hire cars, on a per capita basis, followed by Melbourne.

This is confirmed by the excess insurance quotes offered in Perth, which are generally lower than for the bigger cities.

Despite such caveats, the hire car industry has been to some degree a victim of the intense competition it generates.

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