Big Two changes affect car rental companies, renters

Your Money

May 06, 2007|By Minneapolis Star Tribune

MINNEAPOLIS -- Dr. Shawn Watts needed to rent a car at Minneapolis-St. Paul International Airport to drive to Fargo, N.D., for a job interview. More or less pleased with her $30-a-day rate from Dollar Rent a Car but an unbridled bargain hunter, Watts sat in a corner of the rental car lobby surfing her laptop for a last-minute better deal online.

"I used to be able to find a rental car for $20 a day," said Watts, a surgeon from New Orleans. But these days, "car rates have gone up across the board," she said.

Many car renters share Watts' observation. By some measures car-rental prices have climbed 20 percent over the past two years, and industry watchers see them climbing another 5 percent to 8 percent this summer.

It's another drag on their wallets - along with higher gasoline prices and airfares - heading into the summer. As a result, consumers will have to book earlier and look harder for deals.

Who's the culprit? Nearly everyone is pointing to General Motors Corp. and Ford Motor Co.

The Big Two, which sell more vehicles into the U.S. rental car market than all other automakers combined, have made fundamental changes in sales to rental companies and other fleets. They are charging more and requiring the companies to buy vehicles loaded with more bells and whistles. Meanwhile, they're reducing the number of vehicles they sell to rental companies.

Traditionally, automakers have accepted lower profit margins from their fleet sales than from sales to individual consumers. For one thing, it kept factories running - their union workers are paid a majority of their salaries even if factories temporarily shut down - as retail sales faltered.

But with Ford and GM racking up billions in losses in recent years, the companies have vastly restructured their operations, closing factories and laying off thousands. Changing their rental fleet strategy is part of that.

Another factor driving prices higher is restructuring on the auto rental side as well. The eight largest rental car companies soon will be controlled by only four companies.

"The cost for the rental companies to procure a single vehicle is up close to 50 percent over the last couple of years," says Neil Abrams, president of Abrams Consulting Group, a Purchase, N.Y., rental industry consultant. "Obviously there was no choice but to pass this along to the customer," Abrams said.

But rental industry officials don't see the developments being so stark or onerous. And like any changing business relationship, there are differing views on where it's headed. Rates for daily vehicles may have jumped, but weekly rates haven't risen as much and the rates corporations pay for rentals for their employees have been relatively unaffected, Hertz spokesman Richard Broome said.

Moreover, the rental companies are not getting run over roughshod by automakers, he said. Hertz, the largest airport car renter, is getting all the cars it needs appointed the way it wants them, Broome said. "The idea that they are forcing cars on us is not correct."

But GM says it indeed is changing course and making more money on its fleet business. In 2005 the automaker sold or leased 770,000 cars and light trucks to the rental agencies, reduced that to 700,000 last year and plans to dedicate only 600,000 to the rental companies this year, GM spokesman Rob Minton said.

Besides fewer cars available, rental prices are rising because vehicles have more optional equipment in them, Minton said.

"Instead of getting a base vehicle with crank windows and rubber floor mats," he said, "now the rental car companies are buying vehicles that have premium sound systems, chrome wheels, leather seats, that type of thing."

For example: Last year, GM sold rental fleets 84,000 vehicles with sunroofs. Three years ago, the number was zero, Minton said.

Ford also has said it plans to reduce the number of cars it sells and leases to rental companies but won't say how many. It also seems to be washing its hands of any role in raising rental car prices.

"What a car rental company charges its customers is completely up to them," Ford spokeswoman Becky Sanch said.

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