While forecasts from travel management companies and industry groups predicted car rental costs in North America would rise this year between 2 percent and 7 percent--owing to higher fuel prices, fleet costs and local taxes--the category may represent a savings opportunity as many companies with mature air and hotel programs focus on ground transportation. A recent survey by management consulting firm Runzheimer International indicated that companies can negotiate lower rates in several ways while also securing from car rental firms various "value-add" components.
Car rental costs typically account for only five or 10 pennies of each corporate travel dollar, but the segment can present plenty of complexity. Travel buyers face a reshaped competitive landscape following Enterprise Rent-a-Car's 2007 purchase of the National and Alamo brandsand must assess such new options as chauffeured services from Avis Budget Group, an assortment of amenities and contractual benefits that can be included in negotiations, as well as vendor initiatives aimed at minimizing business travel's environmental impact.
"In 2008, costs will continue to rise for ground transportation companies, although the market will remain highly competitive," said Dave Kilduff, managing director of the CWT Solutions Group ground transportation practice, according to the latest industry newsletter published by CWT Travel Management Institute. Companies aiming to negotiate competitive terms should look "right down to the fine print of the contract," he said.
"A simple example in rental car might be ensuring that all suppliers responding to a strategic request for proposals provide rates that include a loss damage waiver and a collision damage waiver on all rate types (i.e., the company is exempt from some or all costs incurred through loss or damage to a vehicle)," Kilduff explained. "Another detail that can make a big difference is refueling rates--a lot of people do not know that these are negotiable."
In the Runzheimer survey of 43 respondents, the most cited concession received from car rental companies was unlimited mileage (85 percent), followed by upgrades (80 percent), premium club memberships (70 percent) and insurance concessions (65 percent). To obtain those benefits, 52 percent of respondents said they guaranteed an annual dollar volume, and 18 percent provided exclusivity for the vendor.
The Runzheimer survey, conducted in October 2007, collected responses from companies of all sizes and in all sectors, primarily located in the United States. The group had a median annual travel expense budget of $10.6 million and a median of 4,500 car rentals per year. Other findings included:
- The vast majority of respondents (83 percent) negotiate with vendors nationally. Seventeen percent negotiate regional deals, and 12 percent negotiate local deals.
- Nearly two-thirds contract with two vendors, with most of the remainder maintaining relationships with either one or three rental firms. "Restrict national contracts to one vendor," Runzheimer suggested. "If your supplier doesn't have to share priority, concessions will likely improve. However, if you have excessive demand in one city, consider negotiating separately with either your primary supplier or others for that market only."
- Eighty-five percent handle negotiations on their own, and 15 percent include their travel agencies. None completely hands over the task to their agency.
- Nearly three-quarters negotiate flat rates. Eighteen percent established combination deals with flat rates and discounts off published rates. Just 5 percent use only percentage discounts. "Flat rates are easy for travelers to remember and therefore obtain," Runzheimer said. "They do not fluctuate with changing base rates, making it easier for travelers and, therefore, travel managers to ensure the contract is being upheld on both ends. In addition, flat rates are generally easier to negotiate. A percentage-off approach assures at least some savings in all markets, whereas a flat fee approach can mean significant savings in select markets but little or no savings in others."
- For standard cars, 44 percent said their domestic flat rate is between $36 and $40, with 28 percent reporting flat rates between $41 and $45, and 15 percent reporting flat rates between $46 and $50.
- About four in 10 respondents reported contract lengths of one year, with nearly as many reporting two-year deals. Runzheimer commended the 15 percent that had secured deals of three years or longer.
- Half of Runzheimer survey respondents said it is important to work with car rental vendors that are implementing green initiatives. Seventeen percent deemed such initiatives as "very important."
- Most respondents use free or discounted insurance available through rental firms, but 26 percent said they "self-insure" car rentals. Ten percent rely on travelers to obtain insurance, and 7 percent insure rentals "through their regular business policy."
- Negotiations generated an average annual savings of more than $582,000 and a median annual savings of $55,000.
To extract the most value from car rental deals, companies need at least $100,000 in annual volume, according to CWT's Kilduff. "The main benefit is cost avoidance and savings: not just better rates upfront, but the ability to stabilize prices and reap benefits over the duration of the contract to avoid major price hikes as the market evolves," he said. "An effectively managed ground transportation program can also provide 'soft' benefits," including pre-printed contracts, meet-and-greet services and class-of-service upgrades. "Ground transportation [including rail and chauffeured car services] will grab travel managers' attention more and more as they realize the potential to create value," Kilduff concluded.
Meanwhile, Enterprise Rent-A-Car on Tuesday announced a new carbon-offset program covering the Enterprise, National Car Rental and Alamo Rent A Car brands. Customers reserving cars through the company's call centers or Web sites can opt to pay $1.25 per rental, which "represents the cost of offsetting the CO2 impact of the average rental vehicle operating in the company's fleet," according to Enterprise. As part of the program--developed with carbon-offset provider TerraPass, launched in the United States and Canada, and planned for Europe--Enterprise pledged to match customer contributions, up to $1 million.