As we proceed into the next year, we face a lot of open questions. The threat of war and terrorist attacks stare us in the face; the economy continues in the doldrums; the travel industry, especially car rental, continues to be plagued by all the negatives that surround us.
Many rental car firms have disappeared, and the shakeout will continue until credit lines ease up, the insurance climate improves and the car resale market recovers so holding costs become more palatable. Despite the negatives, there is a silver lining. We are certainly at, or near, the bottom of the economic cycle.”
This was written by ACTIF President James Shapiro in 2003. As Yogi Berra would put it, “It’s déjà-vu all over again.”
But are we at or near the bottom? Though there are signs to the positive, it’s hard to know. This prompted me to dig back in the Auto Rental News archives. I wanted to understand the then-current realities, the cycles and the predictions to see what, if anything can be gained from them.
From ARN’s inaugural issue, January/February 1988: “The U.S. customer has been spoiled by low prices. While the price of an average new car passed the $10,000 mark a while back, you can still get a rental car for under $40 a day in most cities.”
In 1997, the daily average rate was $42. In 2008 it was just over $40, when the average price of a new car was $28,000.
From the October 1989 issue: “Presently, there is a great deal of over capacity in the automobile industry, and this trend is expected to continue for the next few years.”
In a profile from June/July 1993, Dollar’s Gary Paxton had the moxie to call for guaranteed reservations.
In a June 1994 article, one funder proclaimed, “More attention must be paid to retained earnings in the company, now. Companies have to develop healthier equity distribution to get funding.”
Rate increases, right-sizing of fleets, guaranteed reservations and better debt-to-equity ratios: Does it feel like we’re banging our heads against the wall and it’s nothing but headaches?
Count the Wins
While some things never seem to change, other industry bugaboos have been defeated or weakened through the hard work of industry advocates.
In 1988, a “plucky” 1,000-member ACRA was victorious in defeating the all-mighty National Automobile Dealers Association’s proposal to put an end to discounts for fleet sales to auto rental dealers.
Throughout the late 80s and early 90s, the “CDW mess” dominated ARN coverage when an onslaught of state and national legislation tried to ban selling it. “CDW is turning into the blob that ate the car rental business,” read one editorial in 1989.
Whether you were for or against CDW, it’s still here and an important source of revenue for many operators.
For years, a coalition of vehicle renting and leasing companies worked to defeat unlimited vicarious liability in several states, a policy that had cost the industry more than $100 million each year in jury awards and settlements. In 2005, the federal highway bill eradicated it.
For the past 12-15 years, the excise tax fight has been the cause célèbre of the industry.
Though it’s clear we may be stuck in the mud on some issues, we do know this: The car rental industry—along with the economy—runs in cycles. Yet throughout this roller coaster, the foundations of a car rental operation are the same.
At the Car Rental Show, the Tennant Group presented an analysis of financial results from 40 different companies to understand which revenue and expense metrics are predictors of profits.
Of the 16 metrics analyzed, those relating to fleet expense—as a percentage of revenue and per vehicle, time and mileage and revenue per unit/day—were correlated the highest to profits by far. Personnel expense as a percentage of revenue was at the bottom of the list. I’m sure this hasn’t changed much in the 21 years of ARN’s publication.
What does that mean? Manage your fleet well, or else. And don’t think you’re putting money back in your pocket by scrimping on payroll.
Though editorials written in dark times always seem to proclaim the good times are just ahead, I’ll end on a note of optimism. We’re finally, painfully, getting a handle on capacity. Rates are actually up. Better technology has continued to hone fleet utilization and yield. But surely understand these things could swing downward eventually.
To use another baseball phrase, “Hit for the cycle.” Cycles happen, so plan for them.