Recession steers bargains to car rental customers Businesses, individuals can get good deals.

Business Travel

March 09, 1992|By Tom Belden | Tom Belden,Knight-Ridder News Service

Just as most airlines and hotels are battling to avoid another flood of red ink this year, rental-car companies are expecting 1992 revenues to rise only modestly in what is already a low-margin business.

Airfares for business travelers could increase 10 percent this year, but car-rental rates are expected to rise only 1 percent to 3 percent, according to American Express Co.'s annual travel-outlook survey.

Sluggish economic conditions, among other things, are tending to make rental cars a buyer's market, with all of the competitors more willing than ever to strike good deals with corporations for volume discounts.

Individual travelers can find lots of discounts, too, sometimes at rates even lower than those offered to a large company with thousands of rentals annually.

Is plunge permanent?

All rental-car companies are trying to figure out whether the plunge in business they experienced last year because of the Persian Gulf war and the recession was temporary or permanent, said Raymond Noble, spokesman for Avis Rent a Car System Inc.

Avis could be affected by a number of potential trends, he said, including fewer or shorter business trips, using fewer or smaller rental cars, and more teleconferencing instead of going to out-of-town meetings.

Budget Rent a Car's Travel Barometer, a regular survey of travel agents and corporate travel managers, dovetails with what the other rental companies are hearing about a weak economic recovery.

About half of the 600 agents and managers Budget interviewed early this year expected domestic or international business travel to increase in 1992, and only a small minority said they expected further declines in travel this year.

But that left 30 percent to 40 percent who said they thought travel would be basically unchanged from last year's weak levels.

Overwhelmingly, the Budget survey's respondents also said business travelers are putting price ahead of all other considerations. Choosing a rental-car company based on the frequent-flier bonus points it provides ranked last in importance.

New York surcharge

The rental companies' travails had another interesting, potentially expensive spinoff for residents of New York and several other major cities when two major companies devised new ways this winter to recover some of their costs of doing business.

Most business travelers probably won't be affected much by the actions of Alamo Rent a Car and Hertz Corp. But they could if they need to rent a car in the same city where they live.

The Hertz pricing action applies only to New York City. It particularly hits residents of the Bronx, where the nation's biggest car-rental company says it had to add $56 a day to the cost of a rental to a resident of the borough to cover its liability losses. Daily surcharges are $3 for residents of Manhattan, $34 in Brooklyn and $15 in Queens.

The problem, Hertz spokesman Joe Russo said, is that juries in New York, and particularly in the Bronx, are much more likely than juries in other places to give large damage awards to traffic-accident victims.

And in New York state, the legal principle of vicarious liability applies, meaning that the owner of a vehicle can always be sued for damages, no matter who is at fault in an accident.

Hertz has lost $50 million operating in New York City in the last four years, and for every $1 in revenue it receives in the city, it pays out $1.28 in liability claims, Mr. Russo said.

In one case, a Bronx man rented a Hertz car and lent it to his underage nephew, who seriously injured a pedestrian, Mr. Russo said. The victim's family sued Hertz for $7.5 million, and the company settled the case for $2.5 million, he said.

New York sues Hertz

The surcharges have resulted in a drop in rentals in the Bronx, but that was the purpose, Mr. Russo said.

Hertz's approach didn't sit well with New York city and state officials. They sued the company in January, alleging that the rental rates violate the state's general business law, which prohibits car-rental companies from charging fees apart from those associated with rental rates, taxes and mileage.

The officials also charged that Hertz's policy was racial discrimination because the higher surcharges applied to boroughs with big minority populations.

Hertz hotly denied the charges, and the case is in litigation.

Alamo has tried a variety of ways over the last several months to recover some of the costs of damage to its cars in 10 cities where it says such costs are higher: Philadelphia; Birmingham, Ala.; Boston; Houston; Hartford, Conn.; Memphis, Tenn.; Milwaukee; New York; Norfolk, Va.; and Washington.

Alamo added surcharges of about $10 a day to local rentals by residents of those cities. The plan was dropped after public resistance and replaced with a requirement that a resident who wanted to rent a full-size or luxury car had to have a good driving record, something Alamo checked out with state motor-vehicle authorities. But that proved too cumbersome to enforce, spokeswoman Liz Clark said.

Finally, Alamo solved its problem by simply eliminating the sale of the collision damage waiver to local renters in the 10 cities. The waiver is what most people think of as the insurance they can buy, at a cost of $3 to $12 a day, to avoid any liability for damage to a rental car.

By making renters completely responsible for all damage to its cars, Alamo drove away "that element" that was causing most of the damage, Ms. Clark said.

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