Buyers Mull Car Rental Merger Talks
Ever-rising fleet costs and increasing turmoil in the U.S. car manufacturing industry have renewed chatter of a potential merger between Dollar Thrifty Automotive Group and Vanguard Car Rental Group, a move analysts said ultimately could be a boon to travel buyers.
Although the car rental companies are not commenting on what they call "market speculation," published reports of merger talks between Dollar Thrifty and Vanguard, parent company of National Car Rental and Alamo Rent A Car, have raised questions. Industry analysts told Business Travel News that such talks have been underway for years, most recently six months ago when a deal reportedly was close but backed away from at the last minute.
As fleet costs get higher—Avis Budget Group, for example, reported fleet costs rose 13 percent in 2006 from 2005 despite an increase of only 3 percent in fleet size—and struggling U.S. auto manufacturers put more pressure on car rental firms, such a deal becomes more likely, said Mike Lynch, who manages the travel procurement practice for King of Prussia, Pa.-based ICG Commerce. Dollar Thrifty largely relies on a DaimlerChrysler fleet and Vanguard mostly uses General Motors vehicles, he said. Merging those fleets would provide the opportunity for higher revenues.
"It is more ripe at this point," Lynch said. "On the surface, it makes a lot of sense. Both are headquartered in Tulsa, Okla., easing the administrative headcount reduction that can be done through a merger."
Neil Abrams, president of Purchase, N.Y.-based Abrams Consulting Group, noted the bullish attitude investors have had toward car rental firms in recent months. Abrams' data show the composite value of all shares increased from less than $60 in October to more than $100 in mid-February. Dollar Thrifty shares rose from $39 to slightly less than $60, he said.
If it were to happen, Abrams said the impact on the market could go several ways. The four brands, along with Avis, Budget and Hertz, each represent fairly similar shares of about 90 percent of the on-airport market.
Ultimately, however, Abrams said a merged company would put half of the nation's major brands under one corporate banner. Such a company would benefit from maintaining current price levels, as the consolidated fleet would give it a competitive advantage, he said.
Lynch agreed that, at the very least, he didn't see such a deal increasing corporate fares much.
"There would be productivity that would optimize the utilization of a fleet, with one car being rented to four different customers at four different price points," Abrams said. "That would certainly have an overriding effect on the industry pricing platform."
The four brands, all of which but National are primarily leisure-focused, would have to maintain their distinction lest the venture lose value, Abrams said. "Companies that consolidate brands seem to maintain their price positions related to the other brands," he said.
The merger could raise antitrust questions, but Lynch said they are not likely to stick.
"They still have to compete with Hertz and Avis," Lynch said. "They're not going to be in a position to dominate the market."