2009 Large Market Benchmarking Report: Finding Room For Making Ground Moves

Car rental contracts, while a much smaller part of the travel budget than air and hotel spending, can be fertile negotiating ground for large market travel buyers, particularly since rates are less affected by volume.

The large market buyers surveyed by Business Travel News reported spending in 2008 an average of $40 on daily rentals for midsize cars, not counting taxes or fees. Corporate Travel 100 buyers in 2008 paid on average a rate of $37.80 for midsize car rental, and that number has changed little in the past decade.

Neil Abrams, president of car rental research firm Abrams Consulting Group, said when it comes to rate negotiations, car rental companies see little difference in companies that spend $10 million or $30 million a year in car rentals. They've had trouble in the past negotiating with too-high volume customers that ultimately hurt them, he said.

Car rental companies operate on razor-thin margins, Abrams said, so they have less wiggle room in their rates than hotels and airlines. Additionally, rates are not always the whole story with the car rental industry, which in recent decades has been the target of bevies of local and state taxes by governments looking for ways to fund projects such as sports stadiums. There are a few cities where these taxes and fees come close to equaling the actual rates, so a large part of the car rental price is not negotiable, regardless of a buyer's volume.

Instead, Abrams said large market buyers are better served to look at add-ons and favorable contract terms rather than focus on negotiating rates. "There's last-vehicle availability, insurance coverage, extras like GPS equipment, fuel pricing or looking at midweek pricing versus weekend pricing," he said.

Large market buyers also can enforce a policy that travelers must in most cases refuel their own cars before returning them, rather than paying the inflated refueling fees offered by car rental companies.

Despite the challenges, the major car rental firms' balance sheets have held up relatively well throughout the down economy, Abrams said.

Abrams attributed the industry's stability to vendors improving their methods of controlling their fleets. Car rental companies have a scalable inventory that they can adjust quickly to accommodate demand's ebbs and flows, he said.

It is unlikely that buyers of any size will be able to shave significant amounts from their car rental rates this year, Abrams said. "The fundamentals are strong, and when the fundamentals are strong, rental companies can be much stronger at the negotiating table," he said.

On the chauffeured car side of the ground transportation segment, a majority of large market buyers, 57 percent, reported having contracts in place for those services. This is comparable to the levels seen in most recent years for Corporate Travel 100 companies, which this year saw the percentage of those companies with such contracts in place rise to 69 percent.

While car rental companies largely have been able to weather the economic downturn, chauffeured car companies have taken a brutal beating, resulting in job cuts, corporate-owned location closures by large suppliers and the annihilation of some smaller suppliers.

Like luxury hotels and private jets, chauffeured transportation became a toxic component of some travel programs, with buyers fearing that their use, even when heavily discounted, would be labeled as extravagant. As a double-whammy to the industry, many of its best customers in the financial services sector also have disappeared or faced severe cutbacks as a result of the economic downturn.