Rental-Car Biz Hit Hard by Credit Crunch

Companies Use Varied Marketing Approaches to Combat Lower Demand

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DETROIT (AdAge.com) -- The eight major car-rental brands have been hit by a perfect storm of lower demand, less airport travel, tight credit and a shift by automakers from their traditional stance of buying back most of their vehicles.

Ad spending of rental car companies
1. Part of Avis Budget. 2. Part of DollarThrifty.
Source: TNS Media Intelligence
Nearly all the big players, now controlled by just four companies, made significant staff cuts this year and have slashed costs by getting rid of duplicate back-shop operations after consolidation in the past couple of years, said Michael Kane, president of industry consultant VRCG.

The credit crunch slammed the companies because their biggest buyers, dealers, can't get the money to buy back used cars at auctions. Dollar Thrifty Automotive Group, for example, was able to unload only about 5,000 of its 30,000 cars at auction in the third quarter vs. 19,000 in the same period a year ago.

Mr. Kane said automakers have changed their policies on so-called buyback cars from the rental companies in the past 12 months. The buyback program was "like a drug," he said. "If you didn't have to worry about 85% to 90% of your cars, your [inventory]-planning muscles atrophy."

Opposite directions
The car-rental companies' ad spending has been mixed. Industry leader Enterprise Rent-A-Car, which acquired the National Car Rental and Alamo Rent A Car brands last year, cut spending, while Hertz saw its ad dollars rise. Avis Budget went in opposite directions with its two brands, as did Dollar Thrifty.

"Wise rental-car companies don't advertise in the [two] peak seasons, summer and winter," Mr. Kane said. "They advertise right before the troughs."

That's what Enterprise has been doing in the slow time before the next peak, which typically starts at Christmas. The marketer is advertising half-off deals on most weekends via a national TV spot from independent Avrett Free Ginsberg, New York. Steve Short, VP of the company's leisure-business development, said this is the third straight year of Enterprise's fall promotion. Customers can rent the cars at convenient neighborhood sites and are taking "short-haul, getaway weekends instead of more-elaborate trips," he said. Enterprise also inked an affinity deal this year with Costco that offers special deals to members. Mr. Short said the deal has exceeded the car renter's projections.

Enterprise has one more edge over the competition, Mr. Kane said: It "never fell in love with buybacks, but the other companies cannot say the same thing."

Neil Abrams, founder of Abrams Consulting Group, said there have been discussions that the weakest player, Dollar Thrifty, will be acquired by either a private-equity firm or Hertz Global Holdings, the only major player with a single car-rental brand. A spokesman at Dollar Thrifty called such talk "purely speculative" and declined to comment further. Hertz did not return calls.

Dire situation
Dollar Thrifty President-CEO Scott Thompson said in a recent conference call reporting lower third-quarter revenue that industry conditions in September "deteriorated significantly," with dramatic drops in both demand and pricing beyond the normal seasonal shift.

Mr. Thompson said Dollar Thrifty expects "the operating climate to remain very challenging in the foreseeable future," and he projected the outfit's rental revenue would slide between 4% and 5% for the full year, and it would report a pretax loss.

Hertz Chairman-CEO Mark Frissora announced in late October that the company was hiking rental rates an average of 5% to 10% in North America to "align rental revenues more closely with our overall costs." Hertz reported that its third-quarter adjusted net income fell 50% to $106 million compared with the same period a year ago.

Avis Budget Chairman-CEO Ronald Nelson also announced unspecified "targeted increases in pricing in order to improve revenue per day and overall profitability." Avis Budget Group reported a pretax loss of $1.2 billion in the most recent quarter.

But the industry hasn't seen any price hikes in a long time, Mr. Kane said. "Prices plummet when demand is down," he said, indicating that the planned increases may not stick.
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