Car-rental firms on overdrive to stave off crisis
BANGALORE (Reuters) - As falling travel rates and rising fuel prices wallop the U.S. car-rental industry, companies such as Hertz Global (HTZ.N), Avis Budget (CAR.N) and Dollar Thrifty Automotive (DTG.N) are pulling out all the stops to steer clear of a quagmire.
They are looking to better manage their car fleets, operate more fuel-efficient vehicles, tie up with airlines and hotels, and improve their services and offerings as growth sputters in a slowing U.S. economy.
And that's not all.
Companies are also cutting jobs, scaling back research and development, and reducing car purchases, according to Michael Kane, president of Southfield, Michigan-based Vehicle Replacement Consultant Group.
The sheer number of options being explored by the companies stand testimony to the intensity of the crisis plaguing the car-rental industry as air travel volumes drop.
As customers increasingly cut their discretionary spending on travel, companies in the car-rental industry -- which is tied to tourism, airline and hotel industries -- have seen a sharp fall in their share price.
Over the past year, Dollar Thrifty's stock has lost about 87 percent of its value, while Avis Budget's market value has plummeted almost 71 percent. Shares of Hertz have shed more than half their value during the period.
Whatever the contingency measures adopted by the companies, analysts do not predict a smooth ride over the next year.
"There is going to be a lot more pain in this industry before there is any pleasure," Vehicle Replacement Consultant Group's Kane said.
UBS analyst William Truelove said in a note published in August, "Combined with a more moderate forecast for GDP growth in 2009, a very difficult housing environment, higher gasoline prices and likely a major increase in airfares, we don't see leisure customer demand picking up the slack in 2009."
Privately held Enterprise Rent-A-Car Co, Hertz, Avis Budget and Dollar Thrifty are the top four players in the car-rental industry. Together they hold close to two-thirds of the market, according to analyst George Van Horn of Los Angeles-based industry intelligence firm IbisWorld.
BETTER FLEET
The companies are pruning operating costs -- a major drag on earnings -- by reducing their fleet strength, IbisWorld's Van Horn said.
"Dollar Thrifty operated a much tighter fleet during the second quarter -- we expect this trend to continue through the back half of the year," Goldman Sachs' Christopher Agnew wrote in a note to clients in August.
Hertz has demonstrated its ability to better manage its fleet, with costs related to fleet depreciation declining in the second quarter, Agnew said. Continued...
