By on August 8, 2007

avis22.jpgAs predicted, car rental companies' balance sheets have taken a ding, thanks to Detroit's determination to trim the fleets. Dollar Thrifty reports today that second quarter net income was $15.3 million, compared to $26.7m in '06. Prez and CEO Gary L. Paxton was quick to finger The Big 2.8's cutbacks, and reveal the inevitable result: "Vehicle manufacturers have been reducing the number of vehicles sold to the rental car industry and increasing our fleet costs. We are also absorbing higher vehicle financing costs as a result of lower credit ratings in the auto industry… raising rental rates is the key to offset these vehicle related increases." Meanwhile, the Avis Budget Group is on its way to recovery– reporting a $24m profit compared to a loss of $1.1b in '06. Still, their per-unit car fleet costs increased six percent year-over-year, "reflecting industry-wide increases for model-year 2007 vehicles." Both companies are responding to rising car costs by aggressively cutting their own.

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7 Comments on “Car Rental Companies’ Profits Hit by Detroit’s Fleet Reduction...”

  • avatar

    Since Detroit claims their cars are so much better now (as good as or better than Japanese), wouldn’t it make sense for the rental companies to keep their Detroit cars in service longer? Then they wouldn’t need to buy as many new cars.

  • avatar

    You’d think so, wouldn’t you. But after working at a small Hertz franchise in Laramie while I was in college, I can assure you that a 2 year old Explorer with 30K on it is ready to be put out to pasture after its time in the rental fleet. The longer a car stays in a rental fleet, the lower the resale value. Wow, this post is really making me think back to how much I loathed that job.

  • avatar

    They’ve definitely been doing this as I recently drove a Ford Freestyle with 30,000 miles from Avis! That’s ancient in mainline rental car terms (you can certainly get older rentals from discount places).

    There is a balance between cost of maintenance (these cars get destroyed by rental drivers) and appearances (more drivers, more spills and dents) and the need to provide a quality product and the resale of the vehicle.

    The balance is now to run them a bit longer to offset the higher prices they are paying (lower supply). Luckily, they are also benefiting from slightly better residuals (Toyota’s residuals are better, for example, but Ford’s are much better on cars like the Fusion than the Taurus was) and improved quality. So, it’s not a one-to-one increase. However, they don’t have fewer renters, and in fact the rental market has been pretty hot recently. So, they still need similar or greater volumes. Recently, they’ve been buying lots of Toyotas, Kias and Nissans (and even Hondas!) to fill the gap left by the more than 200k units that Ford and GM have cut in supply this year alone. Just running the Ford and GM products longer wouldn’t cover their needs and work out financially positive.

    And while Detroit is claiming some victories in quality (especially Ford), those victories are being delivered by JD Power, Strategic Vision, Consumer Reports, etc. There’s certainly no random proclamation of success here.

  • avatar
    Sajeev Mehta

    It doesn’t matter how long the cars are in service, the buying and selling price of the vehicle is the concern. That’s probably why I see more Camrys in service: strong residuals mean they can be sold quickly at auctions (dealers love them used Camrys) and with minimal depreciation.

  • avatar

    I’ve rented cars several times and have never had a rental with more that 10k km (6k miles) on it. Maybe they shuffle the cars to smaller centers (like Laramie) after they get a few miles on ’em?

  • avatar

    How about if the tables are turned… cars coming off a 2 or 3-year lease could do a 2-year stint in a rental fleet.

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