Small Car Reality

Gas tops $4 a gallon. The economy teeters on recession. Americans are flying and driving less while millions more Chinese can now afford cars. The hallowed SUV, that particularly American institution, is now the wallflower on car sales lots. The subcompact car—the rattletrap you once whizzed by on the highway with a smirk on your face—is the belle of the ball. The auto industry is in the midst of a painful yet lightning-fast transformation the likes of which we’ve never seen in its 100-plus year history.

Hey car rental, are you feeling it?

ARN went into the field to find out from you what’s going on. We asked licensees, independents and the majors, in local markets and on airports, from mom and pops to the corporate stores: How are you dealing with the new economy and the demand shift to smaller cars?

Let’s Get Small
“This economy is slowing us down. You’d think with fewer people flying, they’d drive, but fewer people are driving too,” says Jim Westmar, who works for an Avis licensee in Toledo, Ohio.

“There’s a downturn in business as well as a shift in demand to smaller cars,” says Steve Badilla, CFO of Budget Rental and Sales, a licensee serving Las Vegas. Badilla has seen small car reservations grow by 15 percent this year over last. “The Las Vegas market has been hit a little harder. The burst of the housing bubble was bigger here; gaming is down, occupancy is down and deplaning passengers were down 7 percent in June.”

“Everybody is asking for smaller cars, like 9 out of 10 customers,” says Josh Ali of Fox Rent A Car in Seattle, serving Sea-Tac Airport.

“With $3 gas we really didn’t see a lot of people having a problem with it, but when gas hit $4 that was definitely the tipping point,” says Chris Payne, spokesperson for Dollar Thrifty Group.

“This year we noticed the demand shift,” says Eileen Kelly of U-Save in Ames, Iowa. “We’re just trying to get as many into the compact cars as we can.”

“We’re located on car rental row here. I just looked out at everyone’s lots and we’re all in the same boat,” says Ben Cord, an Avis independent operator in Palo Alto, Calif.

Cord refers to the fact that sometimes there are not enough smaller cars to satisfy this shift in demand.

Your Free “Upgrade”
Customers once booked economy cars looking forward to a bump in car class at the counter. Yet, “The days of people being excited about free upgrades are pretty much over,” says Cord.

Most upgrades are from a compact or economy to a midsize, and operators say the customer is for the most part satisfied. “But the tone starts to change when we give them an SUV,” Badilla says. “They’re not as happy as they used to be.”

These “extreme” upgrades are rare, but they happen. “A customer had a reservation for a compact car; we were out, and I tried to give him an upgrade to a Toyota Tundra,” says Ayub Dhar, an Avis operator in Ridgecrest, Calif. “He was mad and wondering how he would tell the boss about the gas bill. But that upgrade is out of the norm.”

Ayub ended up not charging the customer for one day to make him happy. “It’s just something you have to do,” he says.

“It’s happened where someone doesn’t want that full-size and wants to walk next door,” says Cord. “Chances are the competition doesn’t have it and it’s a higher rate. We try not to have situations like that, but usually they end up coming back.”

CONTINUED:  Small Car Reality
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