Car-rental companies drive to raise market share with mileage breaks
A price war has broken out in the rental car business. The Hertz Corporation, the nation's largest car-rental company, has eliminated the mileage charge. Avis, No. 2 in the business, has done the same for some of its corporate customers. And National Car Rental, No. 3, on April 1 adopted a flat-rate charge with 100 free miles.
The dropping of rates, which Hertz says can pare some 33 percent off its rental charges, is part of the continuing battle to gain market share in the highly competitive business. In 1977-79, a similar war was waged, finally ending when Hertz began time and mileage charges. Avis followed suit quickly, but National Car Rental, based in Minneapolis, stuck to its flat rate for corporate customers.
"That was the start of National as a major factor in the car rental business, " a Hertz executive says. National captured the IBM account, for example, which accounts for nearly $25 million a year in rentals.
In announcing the new rates, Craig R. Koch, Hertz vice-president and Rent A Car general manager, said the flat-rate charges will simplify the rate structure. In recent years, car rental rates have become as complex as airline fares.
"Under our new guaranteed-pricing policy," Mr. Koch said, "the customer knows the cost of the rental when he or she picks up the car.There are not surprises."
Aside from trying to simplify the schedule, Hertz was interested in maintaining its share of the rental car market. Two years ago, Hertz's share of the airport market was about 41.5 percent. But that has shrunk to between 37 and 40 percent, industry sources say. Hertz has been pressured by aggressive pricing tactics by National and Budget Rent A Car, a subsidiary of Transamerica Corporation. Both National and Budget have been offering corporate customeres flat rates. Since 75 to 80 percent of all rental car business is from business travelers, these tactics have eaten into Hertz's and Avis's business. In the case of National, the 100 free miles covers most of its business customers, a spokeswoman says.
Tom Jans, another Hertz vice-president, said the average flat rate for Hertz should be about $30 a day for a subcompact, such as a Ford Escort; $37 a day for a compact; $43 a day for an intermediate-size car; and $46 to $48 a day for a full-size cars. The rates will vary according to location.
Hertz stressed that the new rates will also cover one-way travel, with drivers paying a dropoff charged based on distance. In the past, most unlimited mileage rates applied only to round-trip usage. Since more than 90 percent of Hertz's locations are participating in the rate program, however, the company feels comfortable offering and guaranteeing the new rate. If the customer renting a car asks for a written guarantee on the rate, Hertz will issue a tag with such a guarantee. Hertz is using this feature as a marketing gimmick in its advertising campaign.
Hertz indicated that rates for such runs as New York to Boston would drop from a current price of $98 to $82 under the new fares, and from Dallas to Oklahoma City from $78 to $66.
Mr. Jans said the company was expecting to lose some revenue at first under the new plan but expected ultimately to increase its volume. It can do this either by recapturing a share of the market or kindling new interest in car renting. In the past year, car rentals have declined as air travel has slumped.
A spokesman at Avis said the company had no announcements to make, but added, "No one will fall off their chairs if there is some variation announced."
Avis, Hertz, and other car-rental companies have been offering flat rates to weekened customers for most of the year. Mr. Jans said this competition is likely to continue. On weekends the companies have a surplus of cars as business travelers return them to the rental companies.
The rental companies have had profits squeezed over the past year as interest rates have soared, increasing their cost of buying cars while the prices of their used cars have dropped. In some instances they have resorted to using their cars longer before selling them. When consumers were enticed by rebate programs into buying cars this past spring, the activity on used-car lots also increased, with prices firming somewhat.