European Stars and Stripes (Newspaper) - October 14, 1990, Darmstadt, Hesse Page 14 the stars and stripes sunday october 14, 1990 business Neto Gulf crisis jolts car rental Industry filter Down Ain me woes by a i a f a s a i Toa Quot or Niin Yurs of rapid p.if1i in in i a it in i i car Cru companies have i a pull it Ile. The air travel Boom that propelled car rentals for most of the 19<s0s contracted slightly late in the decade anti is now seriously threatened by the rising air fares resulting from increasing fuel costs. And analysts say that air traffic could slip further if the nation slides into a recession casting a further pall on car rental fortunes. A a there a no question that this is a vulnerable Industry a said Charles h. Finnic an analyst with Alex. Brown amp sons inc. In Baltimore. A i Rule out a shakeout in the next two to Cope he predicts rental companies May be forced to reduce their fleets or lower their rates to keep customers coming in their doors. Profitability in the Industry Afler All has already been squeezed and a decline in vacation travel would inflict just another Bruise. There Are already too Many cars chasing too few customers. Drawn by the Industry a growth a crop of new companies has sprouted Over the last decade driving Down profit growth. What is More airports have recently increased the Lees they charge rental companies for Access to travellers. And new Laws requiring rental companies to break out insurance rates have also Cut into the profits of some renters. Now most rental companies Are bracing for a drop in what has been their most profitable business Leisure rentals. While the business set rarely postpones travel plans because of rising fares Leisure travellers Are very Price sensitive and May be further discouraged from renting cars by soaring gasoline prices. Among the companies considered most vulnerable Are Alamo rent a car and Thrifty rent a car which have loomed by concentrating on the Leisure Market Only recently turning to the business traveler to Cushion against Tough times. Most of the leading rental companies will also be Afi cited because of their concerted forays into the Leisure business in the last five years. The two leaders Hertz and Avis for instance now derive roughly 40 percent of their sales from vacationers up from 15 percent in 1985. The attraction of the Leisure sector although it is Only half the size of the commercial segment the Leisure business has been growing twice As fast. Furthermore its profit margins Are plumper because or v Day pay higher dad rate and rent for longer no a Quot ids. J lie vacationer rents for an average of four Days compared wish two Lor the business customer. Before the iraqi invasion caused Oil prices to soar the car rental Industry was relatively fit. The american Market topped $8.7 billion in 1989, with the Leisure sector contributing $3 billion. Overseas markets were Worth an additional $5 billion. A slowdown in travel has caused growth to narrow in the last two years to about 10 percent a year from a robust 13 percent annually in the mid-1980s. But Industry executives and analysts say the trends Hal drove the Industry upward Are still forceful cheap air fares surging business travel and a Rise in two income families who travel More than single income households. Rental car companies have also continued to enjoy the sizable discounts on new cars that have resulted from the overcapacity in the Auto Industry. As the automakers largest customers the major rent so there s no question that this is a vulnerable Industry. I would t Rule out a shakeout in the next two a Charles h. Finnie Al companies have Long received preferred treatment Low rate financing advertising benefits and agreements from car companies to buy Back their cars after six months. But the vitality of the rental business has opened it up to a spate of acquisitions. The most Active buyers the major american automakers which have sought these investments to protect an important sales outlet for their new cars. In 1988, for instance budget rent a car corp., the no. 4 rental company is said to have bought $1 billion Worth of new cars from Ford motor co. So when a management group offered to buy out budget in 1989, Ford agreed to provide $300 million of the financing. Analysts say that in return budget agreed to continue buying vehicles from Ford for 10 years. In addition Ford owns 49 percent of Hertz corp., the no. 1 rental company. General motors corp. Holds a minority interest in Avis inc., the no. 2 corp and. National car rental system inc., the it Pany. A Chrysler corp. Owns Thrifty rent a car system and Snappy car rental inc. And this Spring Mitsubishi motors corp. Purchase-1 controlling interest in value rent a car inc., becom Hur the first japanese automaker to buy into an american car rental company. Because of these ties rental companies May be reluctant to Cut their fleets in the event of a slowdown. The growth has also made Competition brisker with smaller companies rising up to Challenge the Industry Hierarchy. Today the top four companies control 75 percent of the Market Down from 90 percent in 1985, Hertz has Long led the Industry in size with worldwide revenues of $3.1 billion. But analysts say the company a share of the United states Market has dropped sharply to 25 percent from 37 percent in 1982. A leveraged buyout saddled the company with debt encumbering expansion and giving competitors i opening. Hertz apparently has also been weakened by a second rate computer system which affects the efficiency of everything from Billing to Fleet management. Avis has been Able to Edge closer to Hertz in the last three years. And its Fleet of 300,000 vehicles is lamer than Hertz a 286,000. G for its part National has been viewed by some analysts As stodgy because of its unwavering dedication to the business traveler. But the company is now Likely to be better insulated than its rivals from the anticipated downturn in Leisure rentals. Budget has done a better Job of maintaining its Market share than either Hertz or Avis. The company has spent heavily to buy franchise outlets and convert them to company stores which has added debt but improved profits and Quality control. In a bid for More commercial business budget Dollar Thrifty and Alamo have relocated some of their outlets to the nations airports from off Airport Sites. Historically rental companies with mostly off Airport locations enjoyed higher profit margins than those on the premises. Although they missed the High volume Revenue building opportunities that Airport locations afford these companies kept their overhead Down by avoiding the High leasing fees at the Airport shuttling customers Between their off premises locations and the Airport in buses. But the advantages of off Airport outlets Are dwindling promising even stiffer Competition for Hertz and Avis As More challengers move onto the Airport campuses. Stars / in do o and stripes bookstores stars and stripes bookstores in o o cd in la q. Cd h co o z it in cult h in t j i 1 i a it i Ltd i a -1 j. \ it 7 a a a in i a a Quot i lit it is 1 old / let i it hot f i i a win i a a 1 l \ h a 1 a a a a a 1 a it 1 t m v 4 of # i it it i la a u t save $7 on this new Book by Stephen King past Midnight something happens to time that fragile concept we employ to order our sense of reality. 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