Big 3 cut production of rentals
DETROIT — As the nation's Big Three automakers remake themselves into smaller, leaner companies, the rental car business is suffering collateral damage.
All three have cut production this year to bring supply in line with lower demand for their products, and further cuts are inevitable next year. They're also trying to wean themselves of rebates and other incentives to bring sales prices closer to the sticker.
That means fewer cars available for low-profit bulk sales to rental companies, and some industry analysts and rental company officials say that already has led to price increases at the airport service counter.
General Motors Corp., the nation's largest automaker, said last week its sales to rental car companies and other fleet buyers in October were down by 10,000 vehicles compared to the same month last year. Company officials have predicted a reduction of 80,000 to 90,000 for the full calendar year, with the decline continuing into next year.
Ford Motor Co. won't give specific fleet sales numbers until later in the year, but said they are up 9 percent in 2006 mainly to the phase-out of the Taurus model, which in its final year of production was sold primarily to rental companies. Ford expects fleet sales to drop next year without 175,000 Taurus models on the market.
DaimlerChrysler AG's Chrysler Group also won't give out fleet numbers but said it had reduced them in October in line with a strategy to focus more on retail sales.
At Dollar Thrifty Automotive Group, President and Chief Executive Gary Paxton said the company has finished negotiations on its 2007 purchases and likely will need per-day rental price increases of 7 percent next year to cover increased costs.
The Big Three's production cuts likely will force every rental company to raise prices, he said. To handle the higher prices, most rental companies will hold onto their fleets a little longer, meaning that you're likely to see slightly older rental cars in the coming year, said Michael Gallo, an analyst who tracks rental companies for C.L. King & Associates in New York.
At Enterprise Rent-A-Car, Chairman and CEO Andy Taylor said the company increased prices this year by 0.1 percent, and he doesn't see a large increase in 2007 because of cost cuts and the way the company buys cars.
Enterprise buys from manufacturers outright, reselling the cars itself. Many rental companies do the same, but also buy a higher percentage of their fleet with the automakers guaranteeing to buy them back after a certain time period.
Taylor said Enterprise, the nation's largest rental car company, may have to pay more for cars in the beginning but also will benefit from higher resale values.