Small Car Demand: How the Majors Are Coping

When gas moved above $4 a gallon in May, the industry felt an accelerated shift in demand toward smaller, more fuel-efficient vehicles. In their second-quarter earnings calls, the public car rental companies—Hertz, Avis Budget and Dollar Thrifty—provided analysis into how they are coping with this new reality.

Switching to Small
Hertz, Avis Budget and Dollar Thrifty say they have all been negotiating with the manufacturers to obtain more fuel-efficient, smaller vehicles.

Although there is a reported lack of availability at retail level for compact cars, Hertz reports it is not having any issue with supply. “If we wanted to find more compacts, we could,” CEO Mark Frissora said in the company’s earnings call.

Hertz also plans to reduce the number of models and configurations to help reduce its fleet and operating costs.

Avis Budget reported similarly: Access to cars is very good.

About two-thirds of Avis Budget’s current risk fleet is mid-size or smaller, and that percentage will increase, the company says.

In the U.S., about 14 percent of Hertz’s fleet is made up of compacts, 32 percent are mid-size, 16 percent are full-size, 13 percent are regular and large-sized SUVs and about 15 percent are smaller SUVs, crossovers and vans.

Though Hertz says it will continue to drop its SUV mix, Frissora calls the shift to subcompacts and compacts “relatively small.” The company will keep some large and luxury SUVs and minivans on a seasonal basis to satisfy customers who need them for vacations.

RPD Declines
A consequence of the industry shift to smaller car bookings is the decline in revenue per day, as smaller vehicles tend to have lower time and mileage rates. All three experienced decreases in RPD.

This decline was offset somewhat by an increase in rental length.

Program vs. Risk
The move toward risk fleets continues, though at smaller percentage increases than previous years.

As of June 13, Hertz had increased its non-program cars in the U.S. year over year, from 62 percent to 65 percent. The average age of Hertz cars sold jumped from 14.5 months to 15.6 months.

Avis Budget’s risk fleet will remain flat this year at about 50 percent. About 60 percent of Dollar Thrifty’s fleet is risk; the company plans on increasing that percentage and lengthening hold times.

CONTINUED:  Small Car Demand: How the Majors Are Coping
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