Industry Forecast 2008

First, a disclaimer: Auto Rental News cautions that these statements are based on the current economic environment and are inherently subject to significant economic, competitive and other uncertainties and contingencies.

Sound familiar? It’s a public company’s way of telling its shareholders that no one really knows what the heck the future holds. That includes the world of auto rental, where the only certainties are annual seismic shifts in ownership and market share, increasing competition and never-ending rate wars.

This year was no exception. Enterprise bought Vanguard and got an instant presence on airports and in the corporate and leisure sectors. Hertz transitioned back onto the public stage and looks to grow its online leisure business. Avis Budget is opening more than 200 neighborhood locations. Dollar Thrifty continues to convert franchises to corporate stores.

On the supply side, the domestic automakers are making good on their promise to reduce rental fleet sales. The RACs are taking the medicine—and it doesn’t taste that bad.

We’ll try to decipher how these reverberations will be felt in 2008. But remember: “Actual results may differ materially from those expressed or implied in these forward-looking statements.” Got it?

Tempering the Cost of Tin

Vehicle depreciation costs ballooned in the past two years as the domestic manufacturers stopped giving away the store to rental fleets to keep factories open. Cost increases will be more manageable in 2008, according to statements Avis Budget Group and Dollar Thrifty Automotive Group made in second quarter earnings calls. Hertz information reflects its third quarter earnings call, made before this issue’s deadline.

While Dollar Thrifty’s vehicle depreciation costs increased by 25 percent in 2007 over the prior model year, 2008 increases “will moderate substantially,” Dollar Thrifty Automotive Group’s President and CEO Gary Paxton said.

Avis Budget estimates fleet costs will rise between 4 percent and 6 percent on a per-unit basis for 2008, which is higher than inflation but lower than previous years’ double-digit percentage increases.

Hertz’s fleet costs are expected to rise in the 3 to 5 percent range, and ameliorate to a net 2 to 3 percent increase by improving fleet efficiency. Hertz reported no problems in obtaining fleet from the manufacturers.

The majors are compensating for higher fleet costs by increasing holding periods.

“We view the increase in our average hold period—to a bit over 10 months—as the pendulum swinging back to a more normal level by historical standards,” Avis Budget Group President and COO Bob Salerno said.

“We could increase holding periods, but for no more than a month on average,” Pam Nicholson, COO of Enterprise, told ARN.

Dollar Thrifty will increase its holding period from seven and a half months to nine months for 2008. Yet the reduction in fleet sales does not seem to be impacting the ability to obtain supply.

“So far, we see nothing for model year 08 and nothing in the future that would tell us that we’re going to have a problem in obtaining enough cars to run our business,” Salerno said.

CONTINUED:  Industry Forecast 2008
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