Hertz recently tightened terms and conditions in its rental agreements with frequent renters, and experts in the increasingly cost-challenged industry said Hertz soon would be joined by Cendant in adopting policies already in place at Vanguard and Dollar Thrifty, thus creating an industry standard. Corporate agreements override these terms and conditions.
Among other new restrictions, members of the company's Club Gold who aren't covered by corporate agreements in January became responsible for any damage to rented vehicles caused by fire or acts of nature, whereas the agreement previously had absolved them of such responsibility.
Other changes centered on the company's return policy. The grace period for returns was shortened from one hour to 30 minutes. The company now has the right to continue charging customers if a car is dropped off after business hours until the location is back open for business. Customers not in the frequent rental program already have had a year to get used to such changes. Hertz adopted the same changes in its standard terms and conditions in February 2005, said Richard Broome, Hertz vice president of corporate affairs.
"We are conforming our practices to those of the industry," Broome said, "and affirming the longstanding principle that the renter is responsible for damage to the vehicle while the vehicle is on rent."
Both Dollar Thrifty and Vanguard Car Rental USA, the parent company of the National and Alamo car rental brands, said holding renters responsible for damage by acts of nature has been policy at their companies for years.
Meanwhile, Cendant Car Rental Group, parent company of the Avis and Budget brands, is preparing for a possible overhaul in its terms and conditions. The company now is comparing its policies on damage liability, drop-offs and other terms to those of the rest of the industry to determine what changes need to be made, said Chuck Fallon, the company's executive vice president of revenue generation.
In its damage policy, Avis excludes "accidental fire or explosion or natural causes" from a customer's liability. Budget's terms are similar.
"We feel our policies have been relatively liberal and generous," Fallon said. "Our competitors are much more strict on their terms and conditions."
Neil Abrams, president of Purchase, N.Y.-based Abrams Consulting Group, said such policy changes are not surprising. Rental car companies are facing higher costs for their fleets, which already have several companies seeking corporate rate increases
(BTN, Aug. 15). Making the terms and conditions more strict is just another cost-cutting measure for the companies in an industry that does not carry large profit margins, he said.
While they may seem like another inconvenience for customers, the rule changes should ultimately prevent the companies from having to raise rates even more, he said.
"Customers have been given a benefit over many decades. Rental companies agreed to look the other way," Abrams said. "They can no longer afford to do that. What you're seeing is a response to changing conditions and economics in the marketplace."
In its published terms and conditions, for example, Avis still offers a 59-minute grace period for customers who return a vehicle late. Yet, every extra minute that the car is still out on the road is potentially lost revenue for the company, he said. When reviewing its policies, Cendant will be looking for any such ways that it might be giving its competitors an edge, Fallon said.
"We have to remain competitive while also remaining a profitable organization," he said. "If there are competitors out there that have stricter policies that could allow them to operate at a margin that could give them a competitive advantage, we can't just sit by and let that happen."
Liability changes will not be a major concern for travel buyers who are operating under a corporate agreement. Rental companies' offer for a loss-damage waiver can be included in the contracts, although Broome said companies increasingly are electing not to include the waiver. Companies also often secure coverage from their corporate credit card or their own policies, said Rose Stratford, vice president of industry relations for WorldTravel BTI, which manages travel for such companies as Pfizer and Time Warner.
For those companies that are renting cars on a per-use basis, the current and upcoming policy changes might be the impetus for them to look into getting a corporate agreement, she said. "If you're a smaller corporation, and don't perhaps have a corporate deal," Stratford said, "it may be an additional cost, but that may be a cost you'll have to incur."
Even so, smaller items from the terms and conditions, such as drop-off times, rarely come up when negotiating a corporate agreement, Fallon said.
"These areas that we're discussing are not typical negotiated components of a contract," he said. "Our rental agreement terms are our rental agreement terms."
That impetus is more than just changes to terms and conditions, however. It's another indication of the rate unbundling that has been going on for years in the industry, said David Kilduff, head of rental car procurement for Eclipse Advisors, a division of American Express Business Travel, and a former Hertz executive. As standard rentals get less inclusive, and outside factors—such as growing state and local taxes at airport car rental locations
(BTN, April 18)—force up prices, it might be time for some corporations to revisit their agreements too.
"Everybody should be using someone who's an expert to help them tighten up their agreements," Kilduff said. "If the industry goes forward and is unable to recoup the cost of doing business, they're going to have to look to other areas for relief."