Despite More Rental Business, Prices Remain Stable

As an overall increase in business travel continues to fuel demand for car rentals, corporate rates will rise throughout 1997, industry analysts predict. But the increase, estimated at 4 to 5 percent in American Express's 1997 Trends and Forecasts for the Business Travel Industry survey, is not expected to affect corporate travel budgets significantly.

Harold Seligman, CEO of Management Alternatives, a Stamford, Conn.-based travel management consultancy, said the increases he has seen in recent car rental bids amount to about 5 percent, or $2 on a $40 rate. "We might see greater increases in the latter half of the year, assuming this growth continues," he said.

Tom Wilkinson, president of the Travel Management Group, an Alexandria, Va.-based consultancy, also has seen increases of $2-$3. "I expect vendors will try to consolidate these rate gains," he said.

But other consultants said that prices were remaining competitive and might even decrease in certain instances. "Car rental suppliers are trying to do everything possible to keep prices where they are," said Jennifer Czerniak, director of industry relations at Carlson Wagonlit Travel. "They'd like to see them higher, but they're concerned they'll go down."

According to American Express, car rental industry revenues are expected to reach $14.6 billion in 1996, up 12 percent from the year before. Fleet cost increases in 1996 continued to be relatively low, ranging from 3 to 7 percent.

In addition to the continued stabilization of its costs, the industry recently received a shot in the arm with the acquisition of Avis Inc., Alamo Rent A Car and National Car Rental by car rental outsiders-Avis Inc. by HFS Inc., the hotel and real estate franchising giant, and Alamo and National by Republic Industries, which is focusing its growth on used-car superstores. More change is likely as Ford puts Budget Rent a Car on the block and HFS announces its intention to purchase another car rental company-possibly Thrifty Car Rental or Dollar Rent A Car, both of which have been offered for sale by Chrysler Corp.

One effect of the ownership changes could be a renewed emphasis on profitability. "This business is different than it was three years ago, and a year or two from now it may be different from today," said Neil Abrams, president of Neil Abrams Associates, a car rental consultancy in Purchase, N.Y. "Corporate travel managers are going to see a change. They'll be looked at from the standpoint of, 'can we make money at this?' "

Corporate customers are more expendable in the car rental business than in other segments of the travel industry because of the flexibility of managing their fleets, Abrams said. "If the car rental companies lose a customer that's not profitable, they may be losing volume, but they can make up for that loss by adjusting their fleets," he said.

The upshot is that "travel managers need to be more diligent in evaluating their rental needs," Abrams said. "They must guarantee volumes that the deal is predicated on and work closer with the rental company in terms of information gathering."

Eric Altschul, director of client travel purchasing at American Express, agreed that there's more pressure on corporate travel managers than ever before to meet their volume targets. The reason for the pressure, Altschul said, is that demand in the industry exceeds supply. "Demand is steady or growing, but supply is not growing," he said. "The car rental industry is coming out of a very bad time, and the companies are recouping their losses. They're not offering as big of a discount."

Car rental firms also are more inclined to drop certain freebies, such as upgrades to a bigger car, said Rolfe Shellenberger, a senior consultant at Runzheimer International, a travel management research firm based in Rochester, Wis. Therefore, one way cost-conscious travel managers can save money is to consider switching from a midsize vehicle to a compact as their preferred car class, Shellenberger said.

Conversely, the items that will be most negotiable are those that cost the car rental companies the least, such as Hertz #1 Club Gold service for all travelers or, in some markets, a waiver of one-way drop-off charges, Shellenberger said.

To get the best deal and avoid problems with availability, travel managers need to practice more hands-on management of their car rental programs than in the past, Altschul said. And the car rental companies' movement toward a pricing structure that's more flexible and attuned to the actual cost of renting a car, leading to higher corporate rates in certain cities and days of the week, makes it imperative for corporate travel managers to be familiar with their firms' travel patterns-not only overall volume but average daily mileage, length of rental, and on which days of the week and in which cities employees most frequently rent cars. "If you know that Detroit is one of your top five cities and it has a surcharge, you should get it thrown out during negotiations," said Joy Jolliff, manager of supplier partnership for car support at Maritz Travel.

But according to Gerard Smith, senior partner at The T&E Group, a travel management consultancy in Newport Beach, Calif., some corporate travel managers have had problems getting their account data from the car rental company. Smith said that one firm in particular was notorious for withholding data from clients when they wanted to go out to bid. He advises his clients to specify in the contract that the data is the company's property and that the corporation is entitled to receive the data within a certain time period-usually 30 days-upon request.

Companies also should consider going out to bid when their car rental contract comes up for renewal, provided they are prepared to switch companies should a better offer become available, according to Smith. Travel managers should ask questions about the car rental company's fleet utilization, because tighter fleets have meant problems with availability in some markets, Smith said. "Some corporate organizations have negotiated their preferred rate based on availability," he said.

Travel managers also might face less availability this year in certain markets. The trend of lower fares, and thus more air travel, out of secondary airports such as Newark, Colorado Springs and Chicago's Midway Airport could lead to more demand for cars in those areas, noted Jon LeSage, executive editor of <I>Auto Rental News</I> in Redondo Beach, Calif. Similarly, an increase in short business trips this year could lead to a dearth of cars in some cities, LeSage said.

Older vehicles are becoming more common as well. Seligman said he recently rented a car in San Francisco with an odometer reading of 27,000 miles.

One issue that is particularly contentious for travel managers is the one-day midweek surcharge, which Hertz in particular has been pushing with its corporate accounts. "I've seen a company sway to another company because of the midweek surcharge," Smith said.

However, so far it's questionable whether the charge will stick. Wilkinson said that all the major car rental companies were introducing the surcharge into their renegotiated contracts and that they were "fairly firm" about including it.

But Czerniak at Carlson Wagonlit said that she had seen only a handful of contracts that included the midweek one-day surcharge, and that it was being levied mainly by Hertz.

At least one corporate travel manager said he wouldn't even consider discussing such a charge-or a rate increase, for that matter. Instead, his company emphasizes cutting the cost of car rentals.

Khalil Urfali, corporate group manager of travel and transportation at Honeywell Inc. in Minneapolis, said, "we jointly have teams whose purpose is to look at our business and find ways to reduce our costs.