Times are hard for car rental companies. No one knows that better than Robert Barton, chief operating officer for U-Save Car & Truck Rental and president of the American Car Rental Association, a trade group. Times are also hard for car rental customers, who are encountering new fees, surcharges and higher prices. I asked Barton to explain what’s happening, and what the industry plans to do.
Q: What’s wrong with the car rental business?
Barton: Credit is non-existent. Many companies want to buy new cars this year but do not have the financing to do so. The three main sources of lending — asset-backed securities, commercial paper market, and traditional lease and bank funding — have all dried up.
One company had 76,000 cars on order in February 2008. In February 2009 the number of cars on order dropped to 7,000. The money the federal government has given to help the Big Three has not helped the car rental industry, the dealers, or the consumers buy cars.
Q: How is the fate of the rental business tied to that of the car manufacturers?
Barton: When the manufacturers face the challenges they currently face, and discounting of pricing takes place, used vehicles lose their value.
If a car rental company has been depreciating a vehicle for a year — based upon a set schedule — and then the manufacturers discount the value of the product, the used vehicle values take a hit, and the rental company is upside down. That means they have the vehicle on their books for less than what it is worth.
Demand for used vehicles has fallen as dealers don’t have the credit to buy. This means rental companies are over-fleeted – there are more cars available than the demand for cars, and pricing drops. In other words, a perfect storm.
Q: Given all that, what is the industry doing right?
Barton: We’re right-sizing our fleets. We are buying vehicles based upon our own abilities and needs, and not necessarily on what Detroit incentivizes us to purchase.
Fleets are shrinking which will allow us to better manage the acquisition and disposal process, as well as manage capacity and pricing to demand. We are also not relying on Detroit, and are mixing our fleets with vehicles from foreign manufacturers. We’re adding, more fuel-efficient cars to our fleets, eliminated millions of dollars of overhead, and also going through a period of consolidation.
Q: When I talk with car rental company representatives, I’m told time and again that a rental car is a great bargain when compared with the company’s actual costs. Can you give me an idea — and maybe a few specific numbers — that illustrate how affordable a rental car is today, when compared with another travel product?
Barton: The best comparison is probably to the hotel industry. Whereas recent economic downturns have created reduced pricing in the hotel industry, pricing has been steadily going up for the last 20 years.
You can still rent a car today in many cities for the same rates you did 30 years ago. By comparison, I just did a little searching for mid-April online. A three-star hotel on the strip in Vegas, on the weekend, starts at $149 and goes to over $250. A car for that same time period is $33 a day which, by the way, is up from last month.