Friday, January 30, 2009

Rental Car Firms Caught in between Two Tough Realities

Original Article: Rental-Car Firms Seek a Bailout www.Online.wsj.com (Read Original Article)

Implications:

1) The Public is traveling less in the current economic climate

2) Auto values and lack of credit are freezing used car market values

3) Holding onto rental fleet cars longer only short-term fix

Commentary:


The Automobile rental business is getting hit on both sides, a demand reduction as leisure travelers and now, even "Road Warrior" businesspeople travel less in the current economic climate.
This is affecting top-line revenues a these firms in a direct and negative way.

Then, the automobile market has essentially imploded, leaving the steady stream of new autos, financed with help from the automakers like Ford, GM, Chrysler and Toyota in doubt, and the ability to make money when disposing of the favorably purchased vehicles disappearing as demand in both the new and used auto markets slow down.

The are caught in between declining revenues from rental demand, and declining used car values. Also, the automakers may not be a position to give te large volume discounts the rental car firms are used to running their revenue models from.

Hertz, Avis, Dollar, Enterprise, are all actively discounting rental rates, but as the fleets age and demand stays down for the foreseeable future, they are locked into expensive arrangements in airports, when the entire rental customer model may be switching away from that for now.

It's going to be a tough few years for the rental firms, I think a program to help them weather this is in order, and will also give an indirect boost to the automakers.

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