Europcar - Better late than never
All,
Please find our unchanged analysis of Europcar here.
The upside of VW re-integrating the Rental company has been making a lot of sense to us and we were surprised the OEM did not come forward to buy the business on the cheap in 2020. Over a year after we bought into the old Europcar bonds - in part on the prospect that VW might step in again, the OEM has finally made another approach for a takeover - long after we sold again. Apparently, it is all over for now, but a level of interest clearly remains and we suspect that the OEM will end up being the ultimate destination of the equity.
VW are the suppliers of some 70% of vehicles to Europcar, a figure accounting for some 2% of annual production volume, which is presumably worth protecting from another suitor. But a take over makes sense from more than one perspective:
Low-interest rates:
- A deal would give VW a crucial foothold in the fleet rental market. The latter is important as ownership, leasing and rental are merging in a low yield environment with increasingly standardised and soon to be electric cars. Controlling Europe’s largest fleet rental business should be instrumental in rolling out flexible ownership deals for customers and in winning over new customers whose brand preconception for electric cars is far lower than for petrol cars.
- VW already offer leasing arrangements, both to consumers and in the context of corporate fleets. But through Europcar, the OEM could drive flexible and fractional ownership patterns in a more targeted way and won’t have to hold an extra fleet in reserve to meet any peak demands.
Brand presence:
- Traditionally 80% of adult consumers already have a fair idea of what car they might purchase next. Most of us are down to one or two brands and already have a model in mind, perhaps extras and a price tag too. That level is far lower at approx. 40% of adults in the transition to electric vehicles. So EOMs must move much closer to the customer again to parade their models - to maintain and certainly to gain market share.
- This is why our local shopping centre now has four car showrooms. Shopping centres have been looking for new tenants and thankfully cars are big. The aim in these locations is merely to inform the public casually and perhaps arrange a test drive from the comfort of the prospectives' homes (address and details taken right there).
- Controlling Europcar (again) would give VW more control (there are limits) over how its cars are presented and where and to whom. With 60% of the population ready to migrate car brand, the biggest player could be the biggest loser or the biggest winner.
Prospectives Data:
- With electrification of Europcar’s fleet comes a project promising vast data collection. Understanding consumer behaviour through the recorded experiences of thousands of customers (average length of trip, number of passengers, nationality/city/neighbourhood of prospectives who recently drove a VW) is crucial in targeting an efficient marketing campaign.
To whom it may concern: "If I was running VW, I’d have bought Europcar a long time ago."
Positioning:
We retain a small 2% of NAV position in the EC finance notes which is earmarked for sale.
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003