Car rental firms push extras in drive to sustain profits
While a lot of attention has been paid in recent weeks to the fees that struggling airlines are adding to ticket prices, car rental companies have been quietly doing the same thing.
Industry analysts say the cost of various optional, but heavily promoted, services like navigation units and fuel refilling are adding as much as 20 percent to the overall rental cost.
"Renting cars is not a high-margin business," said Neil Abrams, owner of a consulting company that focuses on the rental car industry. "Items such as GPS, satellite radio, and E-ZPass have taken on a significant force in the rental industry, and companies are being more aggressive offering a fuel purchase option. You really have to think ahead or you could easily end up with a fuel charge of $75 for half a tank."
George Dunwoody found this out the hard way. As head of global travel for the corporate travel service provider Travelport, he said an expense report recently landed on his desk that surprised him. "We had somebody that rented a car for four hours and went a few miles," he recalled. "The refuel charge was $74 on a $40 rental. It's these fees that are killing us." Dunwoody says he changed his corporate travel policy to prohibit employees from choosing the automatic refuel option.
"The creep in pricing is causing companies to take a closer look at their ground transportation," said David Balfour, director for the ground transportation consulting arm of
Business travelers say front desk personnel at car rental counters are becoming more aggressive about pushing the option to prepay for gas at the beginning of the rental period. With this option, gas is offered at a fixed per-gallon rate, typically a bit below the current market price. "It looks like a good deal, but what they tell you in the fine print is that you fill up the whole tank at that rate, even if you bring it back half full," said Candy Adams, owner of a trade show consultancy and a frequent business traveler.
For their part, car rental companies defend the offering as a convenience for travelers unfamiliar with the area and as a hedge against rising fuel prices. Not all companies charge for a full tank. Customers at Enterprise, National, and Alamo, for example, pay a refueling fee of up to 33 percent on each gallon.
Hertz Corp. introduced a new system this month. "One of our No. 1 complaints from customers was about our refueling policy," a company spokeswoman, Paula Rivera, said. To address this, all corporate-owned Hertz rental locations in the United States will charge customers who return their cars without full tanks a $6.99 service fee and gas at the market rate, as determined by an indexing service.
According to industry specialists, rental companies are embracing high-margin extras because of a combination of challenges. The pain felt by the automotive industry in Detroit means car manufacturers have pulled back on the longstanding generous terms they used to offer rental companies.
"Car rental companies have experienced up to 20 percent increases in the cost of vehicles year over year, so they have to mitigate that," said Chris Brown, managing editor of Auto Rental News, a trade publication for the car rental industry. "They have to look elsewhere to keep profits up."
Michael J. Kane, president of the Vehicle Replacement Consulting Group, a car rental consulting firm, said the rental companies simply could not raise their base fares to cover the shortfall. "There's a herd mentality, with everybody bunched together in terms of rate," he said. "Without those add-ons to the daily rate, it's difficult to make any money."
In addition to pushing prepaid fuel, car rental companies have caught on to the appeal of time-saving devices like toll fast-lane transmitters and GPS devices among business travelers. For the leisure traveler, they also promote satellite radio and seat-back entertainment units. Rental company representatives and travelers say these extras are a kind of benign addiction: Once people get used to them, they almost never go back.
"As customers use GPS units they become almost necessary to be efficient," said Rob Hibbard, a vice president at Enterprise Rent-A-Car.
The popularity of high-tech conveniences is not going to be a panacea, however. Both analysts and car rental executives predict that within the next few years, these extras will become as standard as air conditioning or CD players and will no longer command the premiums they do today.
