Rental Car Firms Struggle To Increase Corporate Rates - Business Travel News

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Rental Car Firms Struggle To Increase Corporate Rates

May 09, 2012 - 03:10 PM ET

By Jay Boehmer

Try as they might, rental car firms this year have struggled to increase rates on corporate clients, with commercial pricing down by as much as 5 percent year over year. Corporate demand for rental cars, however, has grown, as evidenced by an increase in rental days.

The average daily cost to rent a car in the United States during the first quarter decreased nearly 5 percent year over year to $40.92, according to Travel GPA data, which is based on nearly a million 2012 transactions booked primarily by U.S.-based travel management companies, roughly the same total as last year.

Avis Budget this month reported first-quarter commercial volumes grew 3 percent year over year, but pricing declined by 2 percent. Hertz, meanwhile, disclosed that U.S. on-airport corporate pricing during the first quarter fell 3.6 percent year over year.

Avis CEO Ron Nelson said the three primary competitors for U.S. corporate business—Avis, Hertz and National, which is owned by privately held Enterprise—have been "competing very fervently for corporate accounts, and everyone continues to be very aggressive about pricing." He expected full-year 2012 corporate rates to decline year over year by 2 percent, similar to what "we saw last year."

Nelson added that the increasing role of procurement in negotiating car rental contracts also "tends to put downward bias on rates."

"We can complain about corporate pricing all we want," said Nelson, "and we try to get higher pricing all the time, but really the answer for us is to figure out how to change our cost structure so that we can maintain our margins in the face of a tougher market. We continue to maintain a 99 percent retention rate, so we're not losing customers by this. If we do lose a customer, it's because we've looked at it pretty carefully and concluded that there's not an opportunity to make any money, so we let it go."

While Dollar Thrifty did not share corporate-specific pricing and demand metrics in its quarterly conference call on Wednesday, the company indicated that overall first-quarter pricing decreased by 4 percent year over year, though rental days experienced a 6.5 percent uptick.

Despite the weakness in corporate pricing, the three major publicly traded rental car companies during the first quarter grew rental revenues, thanks to increasing demand from both the leisure and business segments. Meanwhile, those firms continue to benefit from a strong resale market for used cars.

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