Car rental companies are noting higher corporate travel buyer interest in multiyear contracts and other negotiating strategies as buyers successfully seek ways to hold down rental car company attempts to raise prices.
Consultants warn that a multiyear strategy dilutes negotiating power and could result in unnecessary price increases, yet some buyers have found value in fixed rates for long-term budgeting and fewer renegotiations.
Cathy Funderburk, executive director of corporate sales for Dollar Thrifty Automotive Group, said her company has noticed the requested length of contracts has been inching upward, and competitors and some buyers concurred that it was an option under consideration. Kevin Maguire, director of global travel for Austin, Texas-based Applied Materials, said that although his company currently uses one-year contracts for car rental, he was weighing the possibility of moving to a longer-term contract.
"You lock in more negotiable rates," Applied Materials' Maguire said. "It also eliminates the cost of having to go back through the request-for-proposals process every year."
Consultants and buyers agreed that car rental contracts, as compared with other contracts in the travel realm, are particularly complex, and the contracts' terms and conditions, including liability issues, are laborious to have to negotiate year after year. "There are a lot of moving parts, so it's very difficult to assess one contract with another just on the face of it," said David Balfour, car rental senior practice leader for American Express Business Travel Advisory Services.
Moves by Amex clients to extend contracts have been more muted, Balfour said. "We're seeing a little bit of interest in longer contracts, but not a great deal," he said. "A lot of companies have purchasing or procurement departments that determine what suits the company, and if a one-year agreement suits their needs, it's fine."
Some buyers cited shifting fleet strategies within car rental companies as further impetus to consider longer-term contracts with vendors. All car rental companies are under pressure from struggling auto manufacturers and face escalating fleet costs, and the companies have vowed to push for further increases both in rack rates and negotiated corporate rates.
Therein, however, lies the rub with multiyear contracts, consultants said. Rose Stratford, senior vice president of industry relations for BCD Travel, said that with those mounting fleet costs, car rental companies would not consider multi-year contracts without some sort of price escalation clause in it. While knowing what prices will do over the course of several years can be helpful in terms of long-term budgeting, it also leaves buyers at the mercy of current market forces even if they eventually shift more in their favor.
"They're not protected from price," Stratford said. "You don't know what the market is going to do from one year to the next. If you sign a multiyear contract, you're automatically going to be subjected to those price increases."
For that reason, Stratford said she's seen little renewed interest in multiyear contracts. Buyers who are using or considering the practice, however, also said it's important to keep in mind the relative size of a car rental program, generally the smallest slice of a travel program pie.
"You don't see the rates move like you do with hotels," Applied Materials' Maguire said.
BCD reported average negotiated corporate car rental rates increased in the 4 percent to 7 percent range, Stratford said, and Amex reported a 4.5 percent rate increase. In terms of daily car rental rates, that translates into only a few dollars, while a daily hotel rate could fluctuate $40 to $50 during the course of a year, buyers said.
Travel buyers largely have been successful in keeping their own rate increases well below the non-negotiated rate increases, particularly those with well-managed car rental programs, Amex's Balfour said
(see story). Another solution is for buyers to negotiate pricing annually while maintaining the body of a car rental agreement that contains the terms and conditions. BCD's Stratford said car rental firms also might be open to renegotiating a multiyear contract should pricing change significantly change during its lifetime, although that would circumvent the purpose of a multiyear contract.
Outside of contract length, Stratford said one of the key trends she was seeing car rental negotiations was a greater corporate use of off-airport rental locations. As such major corporate suppliers as Avis and Hertz focus more on adding off-airport locations, businesses with those locations in their headquarters cities are using them to avoid the higher taxes at airport locations, she said.
Dollar Thrifty's Funderburk said another trend in car rental negotiations was a bigger push for such VIP perks as automatic upgrades or meet-and-greet services. BCD's Stratford said they have always been a key part of negotiations, but they might be taking a more central role as vendors push for higher prices. "As rates increase, people are always looking for other value-adds," she said.
The biggest amenity currently in negotiations, according to Amex's Balfour, is elite status in the frequent renter programs. If corporate traveler buyers are mulling a contract with a new car rental vendor—a move that, because of the contracts' complexity, is not something many buyers do often—they use negotiations to ensure they do not lose the status they have built over the years, he said.
"If you are, say, in the top level of the Hertz Gold program and have made the determination to switch vendors, that's an important consideration when renegotiating the agreement," Balfour said. "It's somewhat of a soft-dollar value that makes life easier."
Amenity negotiations have not, however, extended to some of the bells and whistles added by car rental companies in the past year, according to consultants. Corporate travel buyers are not putting such tools—electronic toll payment tools or sophisticated in-car navigational devices, for example—into their contracts, they said.