The world of car driving would change a great deal if vehicle manufacturers began to compete against rental companies, which are the auto companies’ largest customers.
BMW will begin to rent cars in Germany. The luxury manufacturer knows that not everyone can afford an expensive car and that other people do not need to own a car because they drive too infrequently.
Detroit will be tempted to follow BMW’s lead. Car sales in the US have barely recovered from last year, which means that they are at terribly depressed levels compared to 2005 and 2006. American manufactures have slashed their employees and factory operations, but the US market is crowded and new competitors such as Hyundai occasionally are successful at their expense.
Fleet sales, most of which are to rental firms like Avis (NYSE: CAR) and Hertz (NYSE: HTZ), are more than 25% of total U.S. car sales. Detroit may begin direct rentals, but that would undercut the business prospects of a key customer base. But, it needs to be kept in mind that fleet sales are not highly profitable.
Detroit cannot compete with the car rental companies at high volume locations like airports. The large rental companies already own most of the parking lot space around those locations. Detroit could, however, use its dealer networks for car rentals. Many dealers are hungry to make money with their sales down. They would have to be ambivalent about rental programs, though. A person who rents a car might be a person who will not buy one.
Detroit is still caught in a vise that makes it more likely the big car companies will take chances with both enterprise and individual customers even if the actions may cannibalize existing sales. People still keep cars longer than they used to on average and car loans are harder to get than they were a few years ago because of tougher credit standards by banks. The rental route could be a chance for Detroit to lift sales, although it has never been forced to do anything like this in the past. Desperation is often the father of new enterprises.
Douglas A. McIntyre
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