BACK TO THE CAR RENTAL FUTURE
By Joe Brancatelli
May 19, 2010 -- This is how the car-rental process goes for most leisure travelers: They find the cheapest price, select a "category" or "class" of car that rarely correlates with any automotive verbiage they understand, make the reservation, and hardly think twice about the brand name of the rental firm.
And this is how the car-rental process goes for most business travelers: They find out if their company has a corporate rate from some rental firm, learn the car size they are allowed to choose, then make the booking.
Sorry if that sounds cold-blooded and generic, but such has always been the way of car rentals. The fleets are stocked with the same cars from the same carmakers. With rare exceptions, you can't even reserve the make or model you want to drive. No frequent-renter program rises to the level of airline frequent-flyer or hotel frequent-guest plans. Branded service programs, like Avis Preferred or Thrifty Blue Chip, are designed to minimize your interaction with the company at the point of sale. Even breakthrough "loyalty" programs like Hertz #1 Gold or National Emerald Aisle are little more than clever twists on getting you to your car faster.
In fact, about the only time you hear travelers talk about car rentals is when the price is "too high." Of course, at less than $40 a day on average, according to CarRentalExpress.com, which claims they can get it for you cheaper, renting a car worth $15,000 to $50,000 may still be cheaper than renting a $900 carpet-shampoo machine from your local supermarket. There are also occasional gripes about misleading ups and extras since the rental companies offset low base price with a bewildering series of charges like "concession recovery fees" (that's their way of shifting the cost of airport real estate to you) or wildly inflated insurance levies (at $25 a day for the "collision damage waiver," you pay an annualized premium of more than $9,000) .
Except for price, Jerry Seinfeld's spot-on screed about "taking" and "holding" reservations, and some hoary advertising slogans ("Let Hertz put you in the driver's seat" or "Avis tries harder"), the car-rental business is remarkably drab, something that hasn't escaped the notice of the people who work in the industry.
"I hate this business," one senior-level executive of a car-rental firm told me years ago. "There's no loyalty, high fixed costs, low margins, and the customers are never happy."
He's in the hotel business now and laughed when I told him I'd be writing about Hertz Global Holdings' proposed $1.27 billion purchase of the Dollar Thrifty Automotive Group. If approved by federal antitrust regulators, and if it survives a possible counteroffer from the Avis Budget Group, the Hertz-Dollar Thrifty deal will concentrate about 95 percent of the nation's rental business in the hands of three companies. That brings the industry full circle, back to the early 1980s, when I first started renting cars for business trips.
Back then, the industry was dominated by Hertz, perennial No. 2 Avis, and National Car Rental. The industry expanded rapidly in the 1990s when the major firms were all owned by car manufacturers. The carmakers used their rental arms to keep manufacturing levels artificially high. That meant insanely low daily prices for us, and cars that rarely hit the 10,000-mile mark before they were banished from the rental pool and sent off to used-car lots. But the rapid decompression of auto manufacturing in the last decade led carmakers to offload the rental firms, several of which eventually went bankrupt and all of which have had trouble raising cash to fund new fleets. A full-size 2008 sedan I rented over the Christmas holidays had 41,000 miles on the odometer, higher mileage than I've run up on my own 7-year-old convertible.
The industry's consolidation in recent years has left Enterprise Holdings, a privately held entity formed in 2009, in control of the Enterprise Rent-A-Car, National, and Alamo Rent A Car. After bouncing from General Motors to RCA to United Airlines and finally to Ford, 92-year-old Hertz Corporation was sold to private investors in 2005. They took it public in 2006, and, early last year, Hertz Global Holdings purchased bankrupt Advantage Rent-A-Car, the creation of flamboyant Denny Hecker, the Minnesota car dealer whose empire crumbled in a mountain of debt.
The other major group, Avis Budget, was created in 2006 when the Cendant conglomerate split into four separate companies. Avis Rent a Car, created in 1946, is the poster child for the transitory nature of the car-rental industry. Warren Avis sold the firm in 1954 to a Boston financier and an investment group bought it in 1956. Lazard Freres purchased Avis in 1962 and sold it to ITT in 1965. It was spun off as a public company in 1972, then snapped up by Norton Simon in 1977. Esmark bought Norton Simon in 1983 and was itself gobbled up by Beatrice in 1984. When Kolberg Kravis & Roberts bought Beatrice in 1986, it sold most of Avis to Wesray Capital and Avis Europe was floated as a publicly traded firm. In 1987, Avis became employee-owned via an ESOP. General Motors emerged as a minority owner in 1989 and Avis Europe was purchased by a company partly controlled by GM and Avis. HFS Incorporated, the predecessor to Cendant, took control in 1996. HFS was a franchise operator, so it retained the Avis name and franchise rights when it took the company public in 1997. Cendant then reacquired all of Avis in 2001. Budget, which has had half a dozen owners since its founding in 1958, was purchased by Cendant in 2002.
The obvious question—besides how rental firms manage to take and hold any of our reservations while they're engulfed in so much corporate gamesmanship—is why three car-rental giants now need so many brands. The answer is actually much simpler than the ownership histories.
Even in the commodity price-driven car-rental industry, existing brands have value. Hertz, for example, is using the Advantage name to lure leisure travelers while trying to focus Hertz on corporate travelers, its traditional customer base. If it acquires Dollar Thrifty, Dollar will also be positioned in the leisure market while Thrifty will aim at small businesses. Enterprise built its rental business largely in suburban and other off-airport locations, so it has leveraged National as an on-airport business-travel brand and Alamo as a leisure-travel brand.
And there are some economies of scale. All of the brands in a rental group share IT, back-office, and real estate costs, as well as those costly on-airport logistics centers and even costlier in-terminal rental counters. Rental fleets are often shared too. Hertz says one of its first goals is to rationalize the dual fleets of Hertz and Dollar Thrifty. It says Hertz's busy days, during the week, when business travelers need cars, align with Dollar Thrifty, whose busy days are weekends, when vacationers want vehicles. Fleet utilization can be maximized if cars flow to Hertz locations during the week and Dollar Thrifty outlets on the weekend.
"When you're dealing in pennies' worth of revenue on capital costs of $25,000 a unit for cars, that's the stuff that makes the difference between eking out profit and living with losses," a rental executive says.
The Fine Print…
Iceland's volcanic ash cloud delayed or canceled at least 1,000 flights over the weekend in the United Kingdom and Ireland and at Amsterdam's Schiphol Airport. Britain's Met Office now issues five-day forecasts for the cloud. If you travel to Europe,check the status of Irish airports and British airspace. Eurocontrol handles airports in continental Europe. And one followup to our column about passenger's rights: Italy fined discount carrier Ryanair 3 million euros last week for stranding 178 passengers in Rome without food, beverages, and lodging during April's ash-cloud disruptions.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
THE FINE PRINT This column is Copyright © 2010 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2010 by Joe Brancatelli. All rights reserved.