Monthly car rentals accelerate as drivers switch to leasing

Car rental companies in the UAE see a spike in monthly rentals as the Central Bank makes it more difficult to buy a car

Car rental companies are seeing good business after lending rules for vehicle purchases were tightened. Satish Kumar / The National

Car rental companies say more commuters are leasing cars on a monthly basis after changes to UAE lending rules made it harder to buy a vehicle.

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A growing expatriate population and shortage of Japanese models have also been cited by rental companies as reasons for the increase in short-term leases.

Hertz, the world's largest car rental company, reported a 15 per cent increase in rentals across the Emirates last month compared with June last year.

"We have seen strong growth in our monthly rental business," said Nigel Johnson, the managing director at Hertz UAE, which is part of the Al-Futtaim Group. "It's very hard to say what the underlying motivation is, but customers are buying less after the Central Bank changed its rules. We have seen an uptick in volumes."

New Central Bank guidelines on car financing, which were implemented in May, require borrowers to stump up a 20 per cent deposit on all car purchases. The rules also declare the car loan repayments should not exceed 50 per cent of the buyer's monthly income.

Car dealers complain the rules have become too strict, putting off many consumers from buying new cars. This has led many dealers to report a drop in sales last month.

"Obviously there's been an increase in monthly rentals after the Central Bank changes, because people who cannot buy a car either rent a car or get a taxi," said Rahul Singh, the general manager for Thrifty Car Rental UAE.

The increase has prompted the company to launch a scheme where consumers can lease a car for a year, then buy it at an agreed market price once the rental period is over.

A Toyota Yaris can be leased at a rate of about Dh1,600 (US$435) a month and then bought at the end of the year for about Dh35,000, Mr Singh said.

"We felt many people wanted to own a car but cannot, because of the 20 per cent deposit," he said.

Budget Rent A Car said it had always offered customers the opportunity to buy, but the process was not well publicised in the UAE.

"We have seen a big shift from people renting for the long term to lower periods," said Dominic Hagerty, the sales manager in the UAE for Budget. "It's hard to quantify and evaluate why."

He said some consumers were renting cars on a short-term basis while waiting to buy Japanese cars, such as Toyota and Nissan, which had been delayed by the country's earthquake and tsunami.

Mr Johnson said the increase in Hertz monthly volumes also took into account commercial leasing to companies, so some of the growth was being driven by an overall buoyancy in the market.

"The UAE is starting to recover and we have more people coming in, they get their life in order first and so they usually rent a car," he said.