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Travelers could be squeezed by merger

Hertz, Avis vying for Dollar Thrifty

Hertz bid about $1.56 billion for Dollar Thrifty, topping Avis’s offer of more than $1.3 billion for a chain known for low rates. Hertz bid about $1.56 billion for Dollar Thrifty, topping Avis’s offer of more than $1.3 billion for a chain known for low rates. (Steve Hockstein/ Bloomberg News)
By David Koenig
Associated Press / September 14, 2010

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DALLAS — While corporate travelers have been grounded by the slow economy, a lot of vacationers have still been renting cars. That says a lot about why Hertz and Avis are fighting over Dollar Thrifty, a chain known for lower rates that appeal to leisure travelers.

Dollar Thrifty Automotive Group Inc. has accepted Hertz’s latest bid of about $1.56 billion for the chain. That would top Avis’s latest offer of more than $1.3 billion.

Whoever wins the fight for Dollar Thrifty, renting a car or sport utility vehicle on vacation might cost a bit more.

Fred Lowrance, an analyst with Avondale Partners, said the number of cars offered by a combined Hertz and Dollar Thrifty would be smaller than the two companies’ current fleets. That could lead to higher prices for renters.

“You’ll have some fleet coming out of the system, kind of like what we see with the airlines,’’ Lowrance said. “And as travel demand comes back, you’ll probably see some increases.’’

Jonathan Weinberg of AutoSlash.com, which tracks the rental business, says car renters have been suffering sticker shock because the recession forced the companies to cut back on fleet upgrades and keep cars longer.

“So you end up paying more and you get a car that’s older,’’ he said.

The rental business peaked in 2007 at $30 billion in revenue. It struggled after air travel — a primary source of rental-car customers — slowed significantly the following year. Revenue should reach roughly $25 billion this year, according to research firm IBISWorld.

Enterprise controls about 37 percent of the US market, followed by Hertz at 20 percent, Avis Budget at 17 percent, and Dollar Thrifty at under 7 percent, says IBISWorld.

“The Dollar Thrifty value segment perfectly complements Hertz’s business, which is premium business and leisure,’’ said Neil Abrams, a former Hertz executive and now a rental car consultant in Purchase, N.Y.

For Avis, the strategy is simple, Abrams said: “They don’t want Hertz to get Dollar Thrifty,’’ which competes against Avis’s Budget Rent A Car brand.