Affected market: Provision of rental vehicles
The OFT’s Decision on reference under section 22 of the Enterprise Act
2002 given on 18 May 2006. Full text of decision published 31 May 2006.
Northgate plc (Northgate) is active in the UK in the supply of
vehicles for hire, specialising in the hiring out of light commercial
vehicles (LCVs), from over 70 locations throughout the UK.
Arriva Vehicle Rental Limited (AVR) was, prior to the merger, a
vehicle rental subsidiary of Arriva plc, also specialising predominantly
in the hiring out of LCVs, with 33 branches throughout England. The UK
turnover of AVR in the year ending 31 December 2004 was £109.7m.
Northgate has acquired the entire issued share capital of AVR and the
transaction was completed on 3 February 2006. The statutory deadline is
2 June 2006 and the OFT’s administrative deadline for dealing with this
case is 18 May 2006.
As a result of this transaction Northgate and AVR have ceased to be
distinct. The UK turnover of AVR exceeds £70 million, so the turnover
test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is
satisfied. The OFT therefore believes that it is or may be the case that
a relevant merger situation has been created.
The parties are both principally engaged in the hiring out of LCVs. They
also overlap in the hiring out of other vehicle categories, such as cars
and larger vehicles.
The hiring out of vehicles can be considered by type of vehicle or by
method of hire.
Vehicle hire companies provide LCVs, cars, and larger vehicles to
customers. The parties submit that while demand-side substitution
between such vehicle categories may be limited, supply-side substitution
is possible. They point to some suppliers such as Enterprise Rent-A-Car
and Avis Rent-A-Car which, while traditionally focussing on hiring out
vehicles other than LCVs, have recently increased their LCV numbers
Third parties differed in their views on the supply side
substitutability of vehicle categories. One third party suggested that
supply side substitution is easy as the basic processes involved in the
hiring out of vehicles are the same, while another believed that
although supply side substitution was possible, customer requirements
and regulatory issues are different (with for instance more stringent
vehicle inspection and maintenance requirements for LCVs) and
significant investment may be required to address such matters.
Given the lack of a conclusive view on substitution as between the
parties and third parties a cautious view is taken and individual
vehicle categories are considered separately. In terms of the hire of
vehicles other than LCVs, Northgate submits that the shares of the
parties in the provision of the hire of vehicle categories other than
LCV are very small (certainly less than 5 per cent), and no third
parties raised issues with regard to cars or larger vehicles. These
other overlaps are therefore not considered further.
LCV rental companies offer rental over different time periods and with
differing degrees of flexibility. Broadly speaking these can be
characterised as flexible daily rental or less flexible longer term
contract hire. LCV rental companies tend to specialise in one or the
other. The parties themselves offer a flexible service for longer term
hire that can be cancelled at a day's notice thereby falling within the
definition of ‘daily rental’ (this flexible service forms the vast
majority of Northgate’s and AVR’s LCV rental business). The parties
submit that supply-side substitution is sufficient to include all such
forms of LCV hire in a single market. Third parties stated that they saw
flexible longer term daily rental as offered by the parties as being
aimed at competing with contract hire and representing a ‘grey area’
between daily rental and contract hire. Northgate provided examples of
them losing customers to standard contract hire operators and several
daily rental companies such as Burnt Tree, Newtown and Sixt offer
contract hire. This evidence suggests a degree of commonality between
the businesses. It therefore appears that the parties do compete to some
extent with contract hire companies for customers with long-term needs.
The parties’ internal business documents suggest that there is a limit
to competition between contract and daily or flexible rental. For
example, Northgate’s Strategic Business Plan 2006/09 comments in
reference to a competitor that ‘in the contract hire market there has
been, and continues to be, a move to greater flexibility in their
product offering. They do operate in some sectors of our market but are
unable to offer the flexibility and network provided by Norflex and
Northgate across the majority of our customer base.’
Third parties differed in their views of the ease of supply side
substitution between the business models. One competitor suggested that
the majority of suppliers have chosen to specialise in the provision of
either contract hire or daily rental. They claimed that this confirms
the view that there are significant differences in terms of customer
requirements, risk profile and systems and administrative support.
However, another competitor commented that it was relatively easy to
switch between the two methods of supply with only some additional
administrative and staffing costs being incurred.
Overall, the evidence suggests that businesses specialising in each form
of rental exercise some competitive constraint on each other. However,
given the lack of concern on both a narrow (looking at daily rental
alone) and a wider definition (combining all rental) it is not necessary
to reach a conclusion on this issue.
The parties submit that the relevant geographic market is at least as
wide as the UK. While there are some regional companies active in the
sector the parties point to a number of major UK wide companies
operating in the sector. Due to the lack of concerns expressed at either
a national or a regional level it is not necessary to conclude on this
issue in this decision and shares of supply used below are given on a UK
In the overall LCV rental sector, the merged parties are the leading
company in terms of fleet size with a combined share of supply of less
than 20 per cent. There are a number of other players present with
shares of around 5-10 per cent including Lex, TLS, Lloyds TSB and Sixt.
Taking into account the number of competitors active on the market with
significant shares of supply, and the large number of smaller players
also present, no concerns arise on this wider frame of analysis.
Considering daily rental by itself, data provided in Northgate’s 2006
Business Plan shows Northgate as the largest daily rental company with
Arriva fourth largest after TLS and Leaseway. Sixt, Newtown and Burnt
Tree also have sizeable fleets and there are many smaller players.
Third parties differed in their view of how closely the parties competed
prior to the merger, with a number mentioning them as close or closest
competitors and describing them both as large companies specialising in
daily LCV rental. However, all third parties who responded to our
enquiries, including eight customers (using both daily and flexible
hire), believed that there were sufficient companies in the sector to
maintain competition post merger and none raised any competition
concerns. On the basis of the above analysis, the OFT considers that
competition concerns do not arise in respect of this transaction.
THIRD PARTY VIEWS
Various competitors and customers were contacted and as noted above no
competition concerns were raised about this particular transaction.
The parties overlap in the hiring out of LCVs in the UK. Considering the
overall LCV rental sector, the parties have less than 20 per cent share
post merger and third parties were of the view that sufficient
competition remains in the sector. This is also the case if the frame of
reference is segregated down to the supply of daily rental services
alone. No third party concerns were raised in respect of the
Consequently, the OFT does not believe that it is or may be the case
that the merger has resulted, or may be expected to result in a
substantial lessening of competition within a market or markets in the
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.