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Car rentals getting more expensive

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Renting a car is getting pricier
As Big 3 cut fleet sales, agencies keep cars longer, pass increases on to consumers
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Sharon Terlep | Link to Original Article @ The Detroit News

Rental cars in lots across America are becoming more expensive even as the loaner rides are getting older and harder to come by -- a trend for which perturbed travelers can blame Detroit's automakers.

Detroit's automakers are selling fewer cars and trucks to daily rental companies, a strategy designed to help boost resale values and cut back on profit-killing rental fleet sales.

The tactic is popular on Wall Street and appears to be producing results for carmakers. But it's causing headaches in the rental car industry, where companies are being forced to pay more for vehicles, and passing the added costs on to consumers.

"It's a price increase in our single largest cost item," said John Barrows, spokesman for Avis Budget Group Inc. "It's a very significant challenge and it affects everyone in our industry."

The cost of renting a car jumped more than 20 percent in the past two years and could rise another 5 percent this year, according to a report from New York-based Abrams Consulting Group, which tracks the rental car industry. At the same time, rental companies are keeping vehicles in their fleets slightly longer and buying more vehicles from foreign automakers to help offset the rising costs.

Last month, investment firm Morgan Stanley downgraded its ratings for Avis Budget, Hertz and Dollar Thrifty Automotive, citing the automakers' rental rollback as a chief concern.

Meanwhile, other car makers are moving in to fill the gap. Kia Motors Co. has already moved up production of vehicles slated for rental companies by a few months. Other Asian automakers such as Toyota Motor Corp., Nissan Motor Co. and Hyundai Motor Co. also are picking up the slack from domestic automakers, analysts say.

Only a lucky last-minute cancellation made it possible for Detroit's Kevin Ransom to snap up a Chrysler minivan to rent for a recent family vacation.

"We were lucky," said Ransom, who returned his rental van to L & S Car Rental in Warren last week after taking his wife and their two daughters on a trip to New Orleans.

L & S buys used vehicles from auctions rather than new models from dealers or automakers. Even so, the rental crunch is affecting the company's business.

"Price-wise, they're up quite a bit," supervisor Sandra Gabryel said. Minivans have been especially hard to come by. "There's not much we can do -- we just have to go with it."

In the first half of 2007, General Motors Corp. pared back sales to daily rental companies by 96,000 vehicles. Ford Motor Co. made an 89,000-vehicle cut. Both companies cut back in 2006 as well.

Chrysler's reductions have been less steep so far, but the automaker said in April that it plans to reduce fleet sales by 70,000 a year through 2009.

U.S. automakers have long used fleets to boost monthly sales numbers and keep plant lines running even as demand in the retail market dwindled. But too many sales to rental fleets can tarnish a vehicle's reputation and cuts its worth on the resale market.

"If you go to an airport and every time you go, you're given a Taurus, you have a certain impression of what kind of a company Ford Motor Co. is," Ford sales analyst George Pipas said. "It's that they make rental cars.

"You don't want to be America's rental car company."

GM says its strategy to cut back is working. Marketing Chief Mark LaNeve told reporters earlier this year that residual, or resale, values have improved in every segment for GM. The average transaction price for a GM vehicle is up 4.8 percent since 2004, he said, compared to an industry average 3.8 percent.

Not only are automakers trying to sell fewer cars to rental companies, they're trying to sell better equipped models with such features as high-end stereo systems, leather interiors and chrome wheels.

Such perks not only drive up the price of vehicles, they also help make the vehicles more attractive to consumers whose rental experience could influence their next new car or truck purchase.

"Our goal is to remain a competitively priced value provider," said Christy Conrad, spokeswoman for Enterprise Rent-A-Car, the nation's largest rental company. "We are paying more than we like."

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Call it a Tiger it will eat, call it a Big Cat it will eat.

AKA, three years ago when Detroit was dumping vehicles in fleet the media was berserk about their strategy, now when Detroit atrophies the fleet vehicles, they are to blame again!!

See media the importance of having Detroit motor vehicles?? You would not be paying off the ying-yang if you stop Detroit bashing.

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Weren't there several people on C&G stating GM's "cut-backs" to fleet were just smoke and mirrors?

GM's fleet sales are down, GM's transaction prices are increasing along with resale, import fleet sales are increasing.

How is this just smoke & mirrors by GM? Oh yeah... it's still business as usual in Detroit, and nothing has changed down at the tubes. :rolleyes:

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I also remember an article about a year ago wherein rental agencies were bitching and moaning about domestic cars having low resale value. Got what they asked for now, eh?

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There is absolutely no end to the sheer audacity and magnitude of the negative press aimed at Detroit.

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