RACs in recent weeks have undercut non-negotiated rates from even last year to compete with low-cost RAC’s that have been pushing rates downward in response to flatlined demand.

Business Travel News found that January-February car rental averaged nearly $20 cheaper this year than last year.

This year threatens to mimic the depressed demand economists saw in 2002. Optimistic RACs caught unaware have found themselves with an overfleet of vehicles. If rentals do not improve in the upcoming weeks, car rental firms could correct that situation by returning the vehicles to the manufacturers.

The Howell Group a Boston-based economic forecasting consultancy says the daily rental rates have held firmer during this travel downturn than during the recession of 1990-1991. But that recession also did not see the same corporate budget pressures recently imposed on travel programs.

The industry has been fretting about rate stagnancy during the past several years. Hertz, which instigated a failed price increase late last year, also is concerned about what Broome called "serious" tax and fee proposals stemming from state and municipal budget deficits that the rental companies will be forced to add to the traveler's final bill. The industry also expects increases in fuel and property rental costs.

"There's no question in my mind that in the whole of transportation the margin has been severely squeezed," Howell said. "Margins will always be under stress during periods of cyclical downturns, and any business you're able to retain is because you cut margins."

Avis, Budget, Enterprise, Hertz Waive Drop-Off Fees

Four major car rental companies announced they are waiving drop-off surcharges, should travelers' flights be canceled as a result of the war with Iraq.

Avis Rent a Car, Budget Rent a Car, Enterprise Rent a Car and Hertz Corp. said the special policy will take effect once the U.S. Department of Transportation formally suspends air travel. One-way surcharges can range from $20 to more than $100.