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Management.travelthis month talked with Neil Abrams, president of Abrams Consulting Group, about various topics related to the rental car industry, including preferred relationships with corporate customers. An excerpt follows.
What are the major themes you are expecting this year?
The industry for the past three years has taken on significant fleet cost increases as a result of the manufacturers shifting their own business models. Obviously, these two industries are connected at the hip ... Because of these cost increases, and the transitioning of fleet programs, they have experienced significant increases, which have to be laid off on their consumers, both leisure and corporate. There is a lot of elasticity in pricing [on the leisure side]; that is not true on the corporate side. As a result, rental companies have to lock in whatever they can. You are probably looking at low single-digit [percentage] increases that have been passed onto their largest customers.
Given the cost increases, would you recommend that companies pursue flat rates or percentage-off discounts as the more effective negotiating approach?
I would tend to track to discounts off prevailing rates. We don't see significant increases this year, overall. I would think that discounting off the prevailing rate, given what we see with trends through 2008, may be more cost effective. But the volume you are doing is not the only important thing; where you are going is also important. For example, if a travel management company is sending its customers' travelers 75 percent of the time to New York, Chicago, Dallas and Boston, that is different, and has a different cost impact, as opposed to going to Ft. Wayne, Ind., and Topeka, Kan., or even Orlando, Fla..
Is there any further appetite on the supplier side--or success on the buyer side--in terms of adding extras into the rental rate, such as unlimited mileage, loss damage waivers and other components?
Unlimited mileage has become a standard, as has, for the larger companies, LDW. But GPS [global positioning system] is a very significant growth segment in the industry. All the major companies are offering it. In fact, Avis just announced the second generation of GPS offering. They average around $10 per day. If you are in a low-price marketplace and you are renting a compact car, you may not be paying more than $30 a day for the car. GPS is growing at a geometrical rate, in terms of acceptance and willingness to pay. It is such a user-friendly device that, for $10 a day, is just worth it. Maybe that is a new, innovative product that has real value to the consumer and could be something that comes into play when you are negotiating with suppliers.
Has chauffeured service been something that has been moved up on the radar screen?
Right now, Avis is the only one doing it. The [partial] acquisition of Carey Internationalwas a great long-term move because of the ability to bundle services under one brand, one structure, one reservations capability and one marketing organization. Any time you can put more goodies in the basket to offer your customers--goodies that your competitors don't have--that is always a plus. [Competitors can respond] perhaps through an alliance, but, right now, Avis is the first one on the beach and no one can offer what it is offering, in terms of a three-pronged approach: Avis, the higher brand with bells and whistles; Budget, the lower brand, with less bells and whistles but more value-oriented; and now a private car service. And they are doing that at the airport and off-airport. They are covering a lot of bases there. Some people will take exception to my perspective on this, saying that it is not that synergistic. But I think it absolutely is--the ability to leverage your investment in technology and in people to offer multiple parallel services and bundle them in a broader, potentially global program. And nobody else is doing it. I think that is great. That is what business is all about today.
Is there any tangible movement on the environmental front in terms of preferred supplier arrangements, or will it still be primarily just talk in the United States?
The green movement in the rental industry will be more dictated on the buyer side than the supplier side. If travel management companies say, "Our clients want it, need it, expect it," then you will see it being much more prolific. Enterprise [Rent-A-Car] is on this major green kick--both hybrids and ethanol--although, compared with the size of their fleet, it is just a fraction of a percent. Enterprise, especially with its acquisition of National/Alamo, is buying over 1 million cars a year. For them to say, "We have 5,000 or 10,000 hybrid or ethanol vehicles ...," while it is certainly a lot of cars, in terms of percent of their fleet, it is diminutive. Some of the companies charge more because it is more expensive. So it is a combination of customers demanding them and manufacturers building more of them. For a number of years, it was a matter of supply: They just hadn't been available to rental fleets because the manufacturers make more money on the retail side. Now, they are making more, and every day a different [manufacturer] is announcing a new initiative with a new model, whether electric or hybrid, whether big or small or even SUV hybrids. The price will be coming down, and they will be more available to rental fleets. But if the consumer--the business or leisure traveler--does not demand it, or does not care, or is not willing to pay a small premium ... For the most part, they are more expensive and rental car companies are trying to mitigate the significant cost increases by buying fewer cars and charging more for rentals.
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