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Warning: Auto industry breakdown could spell big trouble for car renters

November 22, 2008

There are signs that the auto industry’s troubles are spilling over into the car rental business. At this hour, several Advantage Rent A Car locations have reportedly run out of vehicles, leaving travelers without wheels. And this may be just the beginning.

The owner of Advantage, Denny Hecker, is suing Chrysler Financial for undermining his efforts to sell the company. Chrysler Financial, the financial arm of Chrysler, recently froze Hecker’s credit lines.

“Advantage Rent A Car has closed its doors in San Diego, and Chrysler is picking up their cars as I write this,” auto rental insider Sam Kenner told me.

Kenner believes the malaise has spread to other car rental companies, although I’m unable to confirm that for the moment.

Adds Kenner:

This is a nationwide problem. Advantage has closed its doors at several locations across the country.

Because travel is down, especially business travel, cars are being returned to auction facilities at an alarming rate.

Auctions are currently filled to capacity in Southern California with wholesale vehicles that no dealers want to buy.

Because they can’t sell their inventory we have car dealers that are merging just to stay alive. I know of one dealer that hasn’t sold a car in 24 days. This is a prominent GM dealer in San Diego County.

Even if the manufacturers get their bailout we are a long way away from seeing the car business turn around.

The Long Beach port and LA port are full to capacity of new cars with no buyers.

I called the San Diego Advantage location to get the details.

“All of our cars have been repossessed,” a representative told me. “We don’t have anything to rent.”

Another car rental insider I spoke with said the situation is dire, and the worst may be yet to come.

The wheels have already come off the car rental business. It’s worse than you think. We can’t get any financing. I would expect to see one or two bankruptcies, and soon.

The extent of the problem is probably best represented visually. Here’s a look at Avis’ stock price.

And here’s Hertz’ stock:


Where does that leave you? Be sure to call your car rental company to confirm your reservation at least a day in advance. If you can’t get through to the agency, make a back-up reservation.

If your car rental company is in the news (like Advantage) make an immediate back-up reservation.

Christopher Elliott is the author of Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals. Critics have called it “eye-opening” and “inspiring” — it’ll “grab your attention and won’t let go.” Order your copy now on Amazon, Barnes & Noble or iTunes.

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14 comments

  • http://www.deliciousbaby.com Debbie Dubrow

    It never feels good to see a business shut its doors, but in the case of Advantage down in San Diego, this isn’t just a matter of a poor economy. That specific location put my kids at risk with unsafe child seats and simply refused to care until it made the news

    http://www.deliciousbaby.com/journal/2007/dec/22/advantage-rent-cars-frightening-car-seats/

  • Pingback: elliott.org | Warning: Auto industry breakdown could spell big … | kozmom //

  • Phil Kipnis

    I travel extensively for business and have come to rely on Hotwire or Priceline exclusively to pre-order and pay for my car rentals. This has taken all the “sales” attempts out of my life and given me a position to “force” them to give me what I paid for. The biggest hint is to be extra nice when approaching the counter and thank them repeatedly for their “help” in getting you “your” car. I always rent a compact or economy car and most times I get an automatic upgrade as they rarely have those cars available when I arrive and I’m “always” late for an appointment. Key advice… Prepay and shower them with kindness, it makes the process easier.

  • Joe Farrell

    @Phil = being nice is always important, but the few times that I actually am late for an appointment when I am forced to the airlines, it would be nice to actually just go to the counter and conduct a transaction simply with a I’m here, can I have my car please?

    I was at an airport that I have flown into the Southeast last Christmas season. When I say flown into, as a pilot and aircraft owner. My wife’s family had flown in on the commerical side and was using a major car rental company. That company had no cars. None of the other majors had cars. I called the FBO on the general aviation side and found out that they had cars. The FBO looked me up on their records, confirmed my status as a customer, DROVE over in their van WITH the car for my family – gave them the car and took the guy who drove the car back over to the other side of the airport.

    I called the rental desk at the airport and the manager who I spoke with earlier answered – he knew were Presidents Club and did zippo for us – I asked him if he knew that he had cars over at the FBO. He said yeah, but those where ‘their cars.’ and he could not touch them. I said sure he could, just call them up and bring the cars back over – ‘too much trouble, glad you found a car for your family.’

    And these companies wonder why they are going under.

  • Jasper
  • MarkieA

    Can someone explain to my dumb self why there would be a connection between the decline of the auto companies and rental cars companies. The car companies are in trouble because no one is buying cars, right? Well, rental car companies buy cars from the automakers to rent them to the public. So, you would think that they would be helping the carmakers. Is it just a matter of supply of new cars? Do rental car companies turn over cars so fast that they are burning through the supply from the carmakers? Then get them from Honda or Toyota, I guess. Maybe I’m really just missing soemthing obvious here.

  • http://www.ffocus.org Bruce InCharlotte

    A small plug for Advantage at Burbank. When United’s flight from DEN was running an hour late with a projected arrival of 11:15, I called ahead to the station to ask if they could help me. They did, staying open late to pick me up in my car with the paperwork ready. They also opened early (5:45 instead of 6:00) so that I could make my 6:45 departure.

  • Jasper

    The longer I think about this, I care less. Rentals have been insulting my intelligence for years with bogus fees, completely random pricing and intentionally poor customer service.

    I say: time to wipe ‘m out and give a chance to a couple of new smaller companies to start on a good note, with good customer service, transparent pricing, and friendly helpful staff. Prices will increase, but so will customer satisfaction, and my peace of mind.

  • Ted – Phoenix Justice

    MarkieA,

    The automakers tend to sell vehicles to “fleets” at a greatly reduced rate, since they are buying in bulk. Also, the rental car companies need to borrow monies to pay for those vehicles on a rotating basis, normally from the financial arm of the auto company. With the Detroit 3 having financial problems, selling at a greatly reduced rate while also financing those sales is a bit of an issue.

    As far as I know though, Toyota doesn’t sell their vehicles to rental agencies, in order to keep their resell value higher.

    My guess is, Advantage has so much debt that they can’t service and with the credit markets dried up, kind of difficult to get new debt.

  • Kevin Morgan

    Ted – Perhaps Toyota only leases, not sells, vehicles to car rental companies, but I can assure you that the rental companies do carry Toyotas. I rented an RAV4 in August in Tucson.

    In fact, my family purchased several Toyotas coming off rental many years ago–cars sold through their credit union. We still have one of those Camrys.

    My guess, though, is that you’re right about the underlying financials. Fleet sales represent volume, but not high-margin sales, as the car rental agencies get discounted rates. Auto makers rely on the fleet sales to create enough volume to then sell cars to the public at a profitable price (the higher volume allows overhead to be spread thinner across more vehicles). In order to float these sales, the big 3 automakers also provide some of the financing.

    In fact, historically, the big 3 automakers and the travel industry have both owned stakes in the rental industry (GM once owned more than a quarter of the Avis-Budget group; GM once owned Hertz, as did Ford, and as did United Airlines; Ford also once owned Budget; there are probably more). So the fortunes of each are intertwined with the others.

    As business travel is sharply curtailed, car rentals no doubt follow, and business car rentals are the profitable ones, just like business air travelers. A rental agency which is deeply in debt facing a big slump in demand could easily find itself out of business in no time. If GMAC, Ford Motor Credit, etc. can’t roll over notes for the car rental companies to buy new fleets, and the car rental companies can’t pay the balloon notes due on the cars, then they could end up taking each other down.

  • Peg Jimenez

    Avis has had major layoffs.

  • Spano

    I am affected by the San Diego shut down as I had a reservation thru Advantage for a car, I was told HERTZ would be “honoring” the agreement but got some representatives talking out both sides of there mouth….”We will honor the reservation if cars are available”…”So if I reserve the car under my name and bring my receipts you’ll honor the agreement right?”..”If cars are available, yes we will”…so I guess I’m making another reservation with another company as a back up to a back up.

  • http://www.cockam.com ajaynejr

    Now why are Advantage’s customers being turned away without cars (too many customers for the supply of cars) while at the same time the cars are being repossessed (not enough customers for the supply of cars and therefore the rental agency is not making the monthly payments on the cars)?

    If the rental agency is having trouble making ends meet due to a travel downturn or whatever, that is not the fallout from an auto manufacturing industry problem.

  • JOE MATRADOTZ

    THE RENTAL CAR BUSINESS IS ON THE EDGE OF TOTAL COLAPSE AVIS AND HERTZ ARE NOW RENTING CARS WITH BODY DAMAGE AND WITH SAFETY ISSUES. I HAVE WORKED IN THIS BUSINESS FOR 22 YRS AND HAVE NEVER SEEN THINGS THIS BAD

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