USA Today – April 10, 2010
Frequent traveler Gary Bellaire says he received two rental cars from Hertz last year that each had about 50,000 miles on the odometer.
“This would have been unheard of just a few years ago,” says Bellaire, of Rowlett, Texas. Bellaire, who works in the real estate industry, would know. He rented vehicles more than 35 times during the past four years.
Aging cars with tens of thousands of miles on them — instead of around 10,000 — is just one of the effects the recession has had on Hertz and other big car rental companies. A survey of more than 1,300 business travelers who volunteer information for USA TODAY’s Road Warrior Panel finds other customer complaints: dirtier cars, less service, longer lines and fewer choices of models.
Although customers may not see it yet, car rental companies are showing signs of emerging from the worst of the economic downturn. They’ve weathered a big drop in revenue, automaker bankruptcies at General Motors and Chrysler, and a recall and grounding of some Toyota vehicles in their fleets.
“What a difference a year makes,” says Betsy Snyder, a credit analyst for Standard & Poor’s, which in recent months has raised the credit ratings of Hertz, Avis Budget Group and Dollar Thrifty Automotive Group.
It’s a reversal from the beginning of 2009, when Snyder says a “perfect storm” struck the auto rental industry.
A decline in air travel during the recession reduced demand for rental vehicles and lowered rental car rates. Auto rental fleets were too big, and prices to sell used cars were low. In addition, Standard & Poor’s believed that rental car companies would have difficulty refinancing debt “in the constrained capital markets.”
Several positive developments for the companies, though, ensued:
* They substantially cut costs, shrank fleets, reduced and successfully refinanced debt, and raised rental rates for leisure travelers, Snyder says.
Hertz cut costs $760 million last year and $1.2 billion during the past three years, the company says. Hertz also refinanced $3.2 billion of U.S. fleet debt last year.
Avis Budget Group says the average price of a rental increased about $3 a day last year.
* Prices for used cars rose, enabling car rental companies to shed older vehicles and buy newer ones.
Hertz spokeswoman Paula Rivera says the company bought 80,000 new cars in last year’s fourth quarter and continues to buy more this year. The average vehicle in Hertz’s fleet last year had 15,000 to 18,000 miles, she says.
“Our aim is to get the mileage on all cars back to pre-recession days where cars would have, on average, anywhere from 8,000 to 12,000 miles,” Rivera says.
• Earnings improved last year. Dollar Thrifty Automotive Group reported a profit of $11.5 million in the fourth quarter, compared with a $72.2 million loss during the same year-earlier quarter. For all of 2009, the company had a $5 million profit, compared with a $346.7 million loss in 2008.
Snyder says the company has benefited from cost reductions and price increases for leisure travelers, who provide about two-thirds of the companies’ revenue.
Avis Budget Group lost $77 million last year, compared with $1.3 billion in 2008. Hertz reduced its loss from $1.2 billion in 2008 to $126 million last year.
Hertz, Avis Budget and Dollar Thrifty stock prices have skyrocketed, says Michael Kane, an industry consultant. A share of Dollar Thrifty stock, for example, sank to a low of $1.16 during the past year and was worth about $33 last month.
“Any employee, investor or executive who was smart or lucky enough to buy stock 12 to 14 months ago has gotten rich,” Kane says.
Bankruptcies didn’t spill over
Besides bouncing back with improved financial results, auto rental companies weren’t hurt much by the GM and Chrysler bankruptcies and the recall of some Toyota vehicles.
Chrysler was the main supplier of vehicles for Dollar Thrifty. But the company was able to diversify its fleet and buy 2010 vehicles from other manufacturers, Snyder says.
Hertz says it stopped renting recalled Toyotas on Jan. 27 and made all necessary repairs by mid-February. The recalls have not affected used car sales, Rivera says.
“Overall, the impact of the Toyota recall was minimal,” she says. “However, in some areas of the country, especially in leisure destinations, our fleet was tight due to the reduced number of cars we had available to rent.”
Enterprise Holdings, which owns the Enterprise, National and Alamo car rental brands, says it “refreshed” its fleet with new vehicles and held onto some other models longer than expected until the recalled Toyota vehicles were repaired.
Enterprise Holdings, a private company, doesn’t disclose its financial results, but company spokeswoman Laura Bryant says it has “the strongest balance sheet” and is the “only investment-grade company” in the industry.
Standard & Poor’s has also raised Enterprise Holdings’ credit rating.
“We expect the company to continue to generate strong cash flow,” Snyder said in a February report. “With expected improving demand, we anticipate the company will ramp up capital spending to meet added demand and to replace older vehicles.”
The average mileage of vehicles in the Enterprise, National and Alamo’s fleets is 17,140, compared with 13,800 in March 2008, Bryant says.
During the recession, the average mileage of all auto rental companies’ vehicles may have risen to at least 25,000 miles, compared with at least 16,000 miles four years ago, says car rental consultant Neil Abrams.
The recession “definitely hindered the car rental industry,” Bryant says, but Enterprise Holdings reacted quickly to the contracting economy and resized its business “appropriately and thoughtfully.”
The company is the largest North American car rental company in revenue, locations and fleet size, Bryant says, so its network of neighborhood and airport locations “provides tremendous financial stability and agility in the marketplace.”
The recession, though, caused Enterprise Holdings to have its first “companywide layoffs.” About 2,500 of 50,000 full-time employees were laid off in late 2008 and early 2009, but “almost none” of those laid off interacted with customers, Bryant says.
Early last year, Hertz said that it was eliminating 4,000 full- and part-time jobs, about 12% of its total workforce.
Avis Budget, which has seen year-over-year revenue declines for six consecutive quarters since the 2008 second quarter, eliminated 8,000 positions during the past two years, says spokesman John Barrows.
About half were eliminated to align the size of the workforce with lower rental volumes, and the rest were eliminated to reduce costs and improve efficiency, Barrows says.
According to Department of Labor statistics, more than 25,000 employees of car rental and leasing companies have lost their jobs since 2006, when the industry employed 139,000 workers.
Customers notice cutbacks
Several Road Warriors say staff reductions have increased the time to check in or made it difficult to find an employee when returning a car at some airports.
Karen Carpenter, a health care executive in Pilot Mountain, N.C., says waits have been longer when returning cars, and fewer upgrades are available for preferred customers.
Carpenter says she rented 36 times from Hertz and Avis last year, and some cars had not been cleaned, including several that had trash inside.
John Hales, president of a consulting company in Sunrise, Fla., says he rented from Enterprise and National about 10 times last year.
The condition of rental cars has gotten “worse,” because they’re older, less clean and have “more dents and dings,” he says.
Consumers rated Enterprise Rent-A-Car No. 1 in overall customer satisfaction, Bryant says, in a November 2009 study of airport car rentals by J.D. Power and Associates. National ranked second, and Hertz third.
After two consecutive years of “considerable declines,” overall customer satisfaction with renting cars at airports has stabilized, the study said.
Some of the customer dissatisfaction might have resulted from “a double whammy” that hit the industry during the past two years, says Chris Brown, executive editor of Auto Rental News, a trade publication.
High fuel prices in summer 2008 caused customers to request the most fuel-efficient cars, but car rental companies couldn’t always satisfy demand with their traditional mix of large and small vehicles.
Fuel prices dropped, but leisure and business travel demand during the recession “dropped off the cliff,” Brown says. Rental companies, unable to upgrade their fleets because of lack of credit, “ran tighter fleets in survival mode.”
Customers sometimes could not get their desired car class, or no cars were available, Brown says.
Frequent traveler Dean Burri of Clearwater, Fla., says he’s fed up with booking a premium car and winding up with a subcompact. He says he’s waited up to 45 minutes at Hertz counters to get a car or showed up at counters that are no longer staffed in the early morning.
“I used to rent 365 days a year and did not own a car,” says the insurance industry executive. “Now the hassle is so great I bought a car and take a lot of taxis.”
Hertz has added more new cars and staff and has taken, during the past year, “many steps to refine the rental process with the customer in mind,” Rivera says. “Aside from the highest peak periods, the frequency of incidents involving waits and car availability has decreased.”
Brown says rental car customers “had it pretty easy before the recession — great rates, brand new cars and plenty of choices” — and need to be patient.
“As the economy gets better and rental companies add more vehicles to their fleets,” he says, “there will be less issues with meeting customer demand.”