Auto Rental News September/October 2011 by Kelly Bracken

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table of contents SEPTEMBER / OCTOBER 2011 • Volume 24, No. 6

12 FEATURES 12 GPS Tracking: Rights, Issues and the Law With little legal precedent regarding GPS tracking of rental cars, operators share best practices regarding disclosure, assessing penalties for contract violations and vehicle recovery.

16 Capturing Opaque Rentals Last year, Priceline.com brokered more than 15 million rental days to the global car and truck rental industry. Are you increasing your share?

22 DEPARTMENTS 4 6 8 10

Budget licensee uses like-kind exchange program to avoid a tax burden for 2012 as a result of the discontinuation of bonus depreciation.

Association reports state tax wins and recall legislation remains a top priority.

Rate Survey New! Industry News Avis Europe Acquisition to Deliver $30 Million in Synergies ● Donlen Acquisition Expands Hertz’s Transpo Solutions ●

Worst Cities to Visit

22 2012 Tax Hit: Are You Prepared?

Who says all rental cars are beaters?

ACRA Legislative Update ●

20 Travel Taxes in the U.S.: The Best and In the fourth incarnation of the Global Business Travel Association’s travel tax study, the average overall effective tax rate on car rentals has gone down for the first time — but don’t call it a trend.

Editor’s Corner ●

Car Rental Q&A ●

26 28 30 32

Why is fleet still limited and prices so high?

Product and Vendor News Used Car Prices Ad Index RentAlert ●

Profits Solid in Q2 in Face of Japan Crisis, Merger

On the Cover: ©istockphoto.com/ hadynyah AUTO RENTAL NEWS (ISSN 1075-9409) (USPS 011-305) (CDN IPM# 40013413) is published bimonthly with additional issues in February and December, by Bobit Business Media, 3520 Challenger Street,Torrance, California 90503-1640. PERIODICALS POSTAGE PAID at Torrance, California 90503-9998 and additional mailing offices. POSTMASTER: Send address changes to Auto Rental News, P.O. Box 1068, Skokie, IL 60076-8068. Please allow 6 to 8 weeks for address changes to take effect. Subscription Prices - United States $25 per year; Canada $30 per year; Foreign $75 per year. Single copy price - $10; Fact Book - $30. Please allow 6 to 8 weeks to receive your first issue. Bobit Business Media reserves the right to refuse non-qualified subscriptions. Please address Editorial and Advertising correspondence to the Executive Offices at 3520 Challenger Street, Torrance, California 90503-1640.The contents of this publication may not be reproduced either in whole or in part without consent of Bobit Business Media. All statements made, although based on information believed to be reliable and accurate, cannot be guaranteed and no fault or liability can be accepted for error or omission. Printed in USA

ARN • SEPTEMBER / OCTOBER 2011

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editor’s corner In Defense of Rental Cars Getting people to consider buying a used rental car requires dispelling the “beater” myth. And that ain’t easy.

had a conversation while driving with a friend the other day that really got my dander up. I found myself supporting the sanctity of a rental car. We never know what paths our lives take, do we? HIM: I need to buy a car. I’m going used. ME: So you’re finally going to sell this thing. Have you thought about a used rental car? HIM: Are you kidding me? I would never buy a used rental car. Do you know what they do to those things? Haven’t you seen Jackass, or Planes, Trains and Automobiles? ME: Those are movies. HIM: You get these 19-year-old kids out on a Saturday night doing burnouts and brake torqueing to impress their friends. No way, Jose. ME: A smoke show in a rented Toyota Camry — that’s impressive. HIM: I’ve seen the YouTube videos. ME: The major companies don’t even rent to 19-yearolds for insurance reasons. Most cars are rented by people 25 to 65. They’re better educated and make more money than the overall population. They’re business travelers, air travel vacationers and people that need a replacement when their car is in the shop. HIM: But if you can get rental insurance for $10 a day, you can run the car off a cliff! ME: Get real. Renters that take the collision damage waiver are protecting themselves, not abusing the car. They also want to be able to rent again. The ones that abuse rental cars aren’t welcome back — ever. HIM: If it’s not your car, you’re not going to take care of it. ME: You’re right, maintenance is the rental company’s job, and they’re pretty strict on that. Cars are rented on average seven times a month. When cars are returned, they wash and vacuum them, check tires for wear and proper inflation and check the fluid levels. They know those cars inside and out. They’ll spot any service issues, like if the alignment is off. Like maybe in this car.

BY CHRIS BROWN

HIM: I’ve dealt with those guys at the car rental places. They’re like hawks. Trying to pin some dent or squeaky brakes on me! ME: The last thing a car rental agency wants is the next customer coming back complaining about a problem with the car, or worse yet, ending up stranded on the side of a dark road. It’s bad for business. HIM: Too many random people in rental cars. I want one owner — someone who pampers the car, like a corporate executive who just got out of a lease. ME: If that corporate executive is giving the car back in 36 months, what’s motivating him to change the oil regularly? HIM: Okay, but what’s motivating the rental company to do any of that stuff? ME: Actually, major rental companies track and schedule maintenance automatically. That’s because a lot of the time, the rental company will need to return the car back to the manufacturer when they’re done with it. Those are called “program cars,” and the manufacturers want pristine units for their dealers to sell. The manufacturers will reject a program car for even minor slipups in scheduled maintenance. Ask any car rental company — a rejected program car is an expensive proposition. HIM: I’m not buying a rental. ME: Hey, you’re vice president. Doesn’t that make you a “corporate executive?” HIM: So? ME: Would you trust a car you sold to yourself? [Silence.] ME: Listen, there are always risks when buying any used car. It’s just that rental companies actually work pretty hard to keep their vehicles in tip-top condition. HIM [miffed]: Oh, and I don’t? ME [Pulling hand away from seat]: Do you have a handy wipe? I think I just felt peanut butter. HIM: That’s probably … eh, it could be peanut butter.

ARN • SEPTEMBER / OCTOBER 2011

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MORE VINCENTRIC AWARDS THAN ANYONE ELSE FOR THE SECOND YEAR IN A ROW.

You could say we’re doing lots of things right. Toyota vehicles have won ten Vincentric awards, which is more than any other fleet automaker. With low maintenance costs and high resale value, choosing Toyota for your fleet vehicle means you’re making the right decision. Call 1-800-732-2798 or visit fleet.toyota.com

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Legislative Update Association Engages State, Federal Policy Issues ACRA reports tax wins in Wisconsin and Washington State and defeat of bills that would increase minimum financial responsibility limits and regulate collision damage waivers. Recall legislation remains a top priority.

ere is a brief summary of the American Car Rental Association’s engagement in the diverse state and federal legislative issues over the past year.

Recalls The industry faces legislation at the state and federal levels that would intentionally distinguish auto rental fleets from other vehicle owners and layer on additional regulations regarding how we handle recalled vehicles. Pending in the California Legislature, AB 753 would require car rental companies to ground all vehicles subject to a recall regardless of the notice’s nature, and with only limited exceptions. While the bill poses operational challenges, the industry is working to modify or defeat the bill. At the federal level, Sen. Chuck Schumer (D-NY) and four cosponsors introduced legislation (S. 1445) that would impose new regulations on car and truck rental companies, long-term leasing companies and used car dealers. Meanwhile, the Consumer Protection, Product Safety and Insurance subcommittee held a hearing on July 27 regarding motor vehicle safety. During the hearing David Strickland, the administrator of the National Highway Traffic Safety Administration (NHTSA), strongly supported new regulations on our industry. ACRA posted its response on its website, www.acraorg.com. Many members are signing on to underscore our industry’s commitment to safety and repair our vehicles in a timely manner.

Taxes This year we more than held our own in fighting against the efforts of state and local governments to add layer upon layer of discriminatory taxes on car rental customers. ACRA successfully fought back against taxes in Wisconsin — a tax that would have jumped from $2 per transaction to a whopping $18. Other taxes that failed: Florida (commuter rail), Alabama (Birmingham Civic Center), Minnesota (stadium), Michigan (tourism tax), Oregon (general revenue), Virginia (transportation) and Washington (King County civic projects). In Washington, a 2 percent tax imposed nearly 15 years ago to build Safeco Field for the Seattle Mariners was heading for sunset this fall when the bonds were expected to be fully paid. Elected officials instead want to extend the tax to fund several civic projects in King County. The bill has reached a vote three times — and three times it failed to pass, typically by one vote.

ACRA is pursuing a federal solution to this local tax problem. H.R. 2469 was introduced by Rep. Steve Cohen (D-TN) and Rep. Sam Graves (R-MO), along with other bipartisan co-sponsors. This bill would prohibit future discriminatory taxes imposed upon car rental customers by state and local governments. The principles of the legislation are similar to other federal laws that protect the railroad, airline, commercial bus and commercial trucking industries from state and local discriminatory taxes. The bill has been referred to the House Judiciary Committee, and we anticipate a hearing in early October.

Minimum Financial Responsibility The industry enjoyed tremendous success this year on MFR (minimum financial responsibility) limits. In Wisconsin, the MFR was reduced to 25/50 from 50/100. In Maine, the Legislature reduced our MFR requirement from $350,000 and put us at 50/100 — the same level as other vehicle owners. In New York and Florida, we successfully fought back on efforts to arbitrarily increase MFR requirements for rental and leasing companies. Both bills attempted to negate the Graves Amendment, the federal vicarious liability law passed in 2005.

Toll Fees In Florida, ACRA dissuaded the Legislature from imposing an arbitrary cap on administrative fees for toll violations, which would have regulated the fee auto rental companies could charge for processing toll violations by our customers.

Damage Waiver In Texas, the industry defeated legislation that would have regulated collision damage waiver as an insurance product, which would have included pricing controls and strict underwriting policies.

Primary Liability ACRA actively supported legislation to re-order the priority of payment in third-party claims in Arizona and Maryland. Under the bills in each state, the renter’s insurance policy — not the rental company — would pay out first, which is customary in the vast majority of states. The insurance lobby weighed in heavily against the legislation, which led to its ultimate defeat. We will likely pursue legislation again next year.

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rate survey ICAR AVERAGE MONTHLY RATE SURVEY 2009 – 2011 (THROUGH AUG. 17)

SIX-CITY RATE ANALYSIS, 2009 - 2011 We are introducing a new feature in this issue. With the help of Michael Meyer of Rate-Highway Inc. and Jim Tennant of The Tennant Group, Auto Rental News will publish a monthly rate survey and analysis in our online newsletter and a more comprehensive, historical look in print. For this edition we have pulled rate quotes for airport rentals in six selected cities (Miami, Boston, Orlando, Houston, Seattle, Los Angeles) for 2009, 2010 and 2011 to date. First a note about the rates: The rates are an average of aggregator/OTA rate quotes for all vendors present in the markets listed. The rates are an average daily rate for one-, two-, five- and seven-day ICAR (midsize/intermediate) rentals at the airport, booked about two weeks out. They are base rates only and do not include taxes or other charges. Average rates fell from 2009 to 2010 as the industry re-fleeted to near normal levels following OEM bankruptcies and the recession. We would have expected rates in 2011 to be higher than 2010, reflecting the difficulty with vehicle supply. However, rates nosedived in late Spring when rental companies were forced to hold fleet through the threat of supply disruptions brought on by the Japan crisis. A period of over-fleeting ensued. Through mid-August of this year rates were holding at 2010 levels. Recently, we noticed a significant falloff of rates in our weekly survey, but we expect a partial recovery as we approach the long Labor Day weekend. However, rates may fall off further than normal post Labor Day, reflecting better vehicle availability and continuing soft demand.

51.24 41.93 46.50 59.81 46.91 53.50

60.16 93.71 60.79 71.70 65.54 72.41

60.91 58.82 59.23 68.99 62.56 72.96

51.27 60.66 52.05 56.05 55.06 70.57

54.37 55.32 52.22 60.56 51.82 66.63

50.45 54.84 64.41 55.47 65.34 71.07

73.55 62.02 84.16 56.14 57.72 71.46

65.46 63.57 58.33 54.30 58.22 69.27

63.47 63.30 61.06 58.41 65.71 68.93

63.47 63.40 67.41 54.36 65.41 68.93

59.40 58.24 72.91 68.19 67.92 69.38

54.95 57.13 81.45 77.41 82.91 74.64

8 MO. AVG. 58.43 61.36 59.71 60.38 57.90 68.48

49.98

70.72

63.91

57.61

56.82

60.26

67.51

61.52

63.48

63.83

66.01

71.42

61.04

62.76

33.27 55.08 43.24 28.79 43.38 41.77

27.05 162.69 37.08 51.58 44.84 49.01

46.45 77.70 70.09 55.84 46.81 44.82

41.71 59.21 66.05 56.98 43.06 38.47

42.18 30.66 60.99 44.48 63.68 33.16

48.50 35.99 58.47 50.11 78.29 30.66

63.15 77.33 66.33 55.50 77.48 43.43

70.29 68.72 69.66 54.10 55.42 44.94

46.12 54.53 75.43 67.50 62.12 45.01

51.88 62.13 77.79 72.90 61.01 57.16

60.09 80.55 82.92 71.40 65.66 58.54

62.03 77.86 86.67 81.41 81.40 66.34

46.58 70.92 58.99 49.67 56.62 40.78

49.39 70.20 66.23 57.55 60.26 46.11

40.92

62.04

56.95

50.92

45.86

50.34

63.87

60.52

58.45

63.81

69.86

75.95

53.93

58.29

35.17 35.13 49.20 28.79 59.78 41.35

29.87 84.84 98.30 43.65 69.25 70.64

51.34 54.00 59.05 38.14 77.70 63.83

32.60 56.09 54.72 40.77 59.21 49.34

35.60 28.19 45.01 34.35 46.54 38.56

62.15 56.92 59.71 45.17 60.67 51.30

80.80 65.51 60.46 41.91 74.80 44.33

70.29 56.30 69.65 54.09 55.42 44.94

49.73 54.62 62.01 40.86 62.92 50.54

41.57

66.09

57.34

48.79

38.04

55.99

61.30

58.45

53.45

JAN BOS 2009 MIA 2009 ORD 2009 HOU 2009 SEA 2009 LAX 2009 2006 6 CITY AVERAGE BOS 2010 MIA 2010 ORD 2010 HOU 2010 SEA 2010 LAX 2010 2010 6 CITY AVERAGE BOS 2010 MIA 2010 ORD 2010 HOU 2010 SEA 2010 LAX 2010 2011 6 CITY AVERAGE

FEB MAR APR MAY JUN

JUL

AUG

SEP

OCT NOV DEC

12 MO. AVG. 59.06 61.08 63.38 61.78 62.09 69.15

Rate data provided by Rate-Highway, a leading provider of revenue management services for the auto rental industry. Rates are an average of aggregator/OTA rates for all vendors present in the markets listed. Rates were collected from major aggregators during each of the first four days of each month for rental dates starting fourteen days later.Two daily lengths of rent plus two weekly lengths of rent were collected then converted to a daily rate amount and averaged to yield the monthly averages using ICAR exclusively.

ICAR RATE SURVEY 2009 – 2011, SIX-CITY AVERAGE 80.00 70.00 60.00 50.00 40.00 30.00

2009 6 CITY AVERAGE 2010 6 CITY AVERAGE 2011 6 CITY AVERAGE

20.00 10.00 0.00

JAN

FEB

MAR

APR

MAY

Looking at individual cities, Los Angeles (LAX) was very strong in 2009, fell to the lowest average of the six cities in 2010, and has recovered somewhat in 2011 to date. Boston was last in 2009 and

JUN

JUL

AUG

SEP

OCT

NOV

DEC

continues in second-to-last spot since. Seattle and Chicago are strong this year. To keep an eye on current rates, watch for the monthly quotes in our e-newsletter.

ARN • SEPTEMBER / OCTOBER 2011

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industry news Nelson: Avis Europe Acquisition to Deliver $30 Million in Synergies crease the company’s footing in growing international marAfter several recent attempts to reacquire Avis Europe kets such as Eastern Europe, Africa and Asia, including Chiplc, Avis Budget Group announced an agreement in June to na and India. recombine the Avis and Budget brands globally. On Aug. 3 In addition, the company will look to capture a higher the shareholders of Avis Europe overwhelmingly voted to share of the global car rental spend of multinational compaapprove the proposed $1.8 billion acquisition. The acquisinies. The company will expand Budget, which currently retion is expected to close in early October — subject to regtains less than a 2 percent share of the European car rentulatory clearances and final court approvals. al market. Avis Europe operates the Avis and Budget brands across The $30 million in synergies is conservative, NelEurope, the Middle East, Africa and parts of Asia. son said, as it assumes very little for inbound-outThe two companies were split in 1986 when the pribound revenue growth, consolidation of contracts vate equity owners of Avis spun off the European aswith global service providers such as credit card sets on the London Stock Exchange. companies, tax and capital optimization, and backIn the company’s quarterly conference call Aug. office synergies with its customer relationship plat4, Avis Budget Group Chairman and CEO Ronald form and loyalty programs. L. Nelson said the acquisition is expected to delivWith its budget and premium brands, “The acquier $30 million in synergies. This amount represents Ronald L. Nelson, sition of Avis Europe will make us the only company more than 40 percent of Avis Europe’s 2010 pre-tax Avis Budget income and will directly add to the combined com- Group Chairman to truly be able to offer all customers a differentiated choice on a global scale,” Nelson said. pany’s bottom-line earnings, he said. and CEO Nelson expects the reunion of the brands to in-

Frissora: Donlen Acquisition Expands Hertz’s Transpo Solutions Hertz Global Holdings Inc. and Donlen Corporation announced July 17 that they have signed a definitive agreement for Hertz to acquire Donlen, a major fleet leasing and management company serving North America and 15 European countries. Hertz announced it will purchase Donlen for $250 million and will assume approximately $680 million of Donlen’s outstanding fleet debt. Approved by the boards of directors at both companies and by Donlen stockholders, the transaction should be complete in the third quarter of 2011 — subject to regulatory approvals. “The acquisition of Donlen expands our portfolio of transportation solutions by giving Hertz an immediate leadership position in long-term car, truck and equipment leasing and fleet management for corporate customers who need scale and sophisticated fleet manage-

ment services,” said Mark P. Frissora, chairman and CEO of Hertz. “This range of solutions from a single provider will make Hertz unique among its peers.” Frissora added, “The integration of Donlen gives Hertz a yearly and multi-year offering that complements our hourly, daily and monthly car sharing and car rental options for customers — giving us a more sta-

Mark P. Frissora, Hertz chairman and CEO; and Gary Rappeport, Donlen Corp. CEO

ble revenue stream and new adjacent markets to leverage our existing business model.” Hertz said that with Donlen’s existing relationships, the company will now be able to expand its fleet management capability to Europe and other international markets. Additionally, Hertz said the Donlen acquisition provides it with a strategic consulting practice in asset and fleet management. “There are a number of synergies between the two businesses that will allow us to expand and accelerate Donlen’s offerings and continue our passionate focus on customer service and technology,” said Gary Rappeport, Donlen CEO. “Together, Hertz and Donlen have a unique opportunity to explore and create new and innovative products to bring to market.” Based in Northbrook, Ill., Donlen leases and manages more than 144,000 vehicles across the United States, Canada and Mexico.

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industry news Rental Car Surcharge Might Get ‘Chilly Reception’ Florida’s Orange County Commissioner Ted Edwards is seeking a $2 rental car surcharge to help pay for future transit needs. Edwards cites looming operating costs tied to the $1.2 billion SunRail commuter train and long-standing funding Orange County challenges with the Lynx bus system in his desire for the Commissioner Ted Edwards surcharge. Anti-tax legislators, who now control the House and Senate, are against the rental car surcharge to pay for transit with one claiming that tax increases will find a “chilly reception” in the Florida House. Commissioner Fred Brummer opposes a rental car surcharge to pay for transit and suspects Tallahassee politicians would oppose it too, as long as Orange leaders fail to enact higher gas taxes for transit. A $2.50 per rental car charge that airport leaders enacted in 2008 is scheduled to expire in a few years when it pays off Orlando International Airport upgrades, including rental car parking spaces and fueling stations.

ADESA to Acquire OPENLANE for $210 Million KAR Auction Services Inc. announced Aug. 15 that its subsidiary, ADESA Inc., has signed a definitive agreement to acquire the equity of OPENLANE Inc., an Internet-based business-tobusiness automotive remarketing company. Peter Kelly will continue as OPENLANE’s CEO and will report directly to KAR’s CEO, Jim Hallett. OPENLANE will be acquired for $210 million in cash, plus an increase for excess cash on OPENLANE’s balance sheet at closing. In 2011, KAR expects that OPENLANE will generate approximately $100 million in revenue and sell more than 300,000 vehicles to automotive dealers through its online auction services platform. PHOTO: ©ISTOCKPHOTO.COM/PAGADESIGN

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DISCLOSURE JUST ONE ISSUE AS GPS TRACKING OF RENTAL CARS GROWS

There is little legal precedent regarding the use of GPS tracking systems to monitor rental cars.This unexposed area results in a wide variation in how car rental operators go about disclosure, assess penalties for contract violations and recover vehicles. BY DARYL LUBINSKY

om Thayer believes in full disclosure. Thayer’s company, Allstate Auto Rentals in Baltimore, Md., displays a sign at the front counter and on stickers in the vehicles that state his company’s rental vehicles may be tracked using a Global Positioning System (GPS). “Full disclosure hasn’t hampered us,” Thayer says. “If people don’t want to be tracked, guess what? They don’t rent from us.” Although auto rental agencies have used GPS tracking systems for years, issues involving their use can still cause challenges for operators. Disclosure is only one issue. Some rental companies assess penalties when the GPS system finds that the renter violated the terms of the rental contract. Recovery is another: Although the operator has every legal right to recover a vehicle from a driver who is not abiding by the rental contract, the act of actually recovering the vehicle can bring additional challenges.

To Disclose, or Not? Phil Mooar, a Dollar Thrifty franchisee in Buffalo, N.Y., is another advocate of disclosure. Like Allstate Auto Rentals, Mooar posts signs at the front counter and inside the vehicles stating that the vehicles contain

GPS units. “I’d rather have them know, and that if they do something, we’ll know where they are,” he says. A sign at the front desk of City Auto Rental in Cleveland, Ohio reads “Car Rental Special. If you rent a car and give the keys to someone who is not on the rental contract, they will receive a free room downtown courtesy of the local police.” Owner Matt Rawlings says the sign has caused some customers to leave because they did not want to be tracked by GPS. However, some companies don’t disclose it at all. Dustin Valenti, a Dollar Thrifty franchisee who serves the central areas of New Jersey and Albany, N.Y., doesn’t mention the tracking units to customers, although he believes disclosure might be required by law eventually. “My concern is if you tell the customer they may be tracked, they may try to pull the car apart to locate the device,” Valenti says. While an auto rental company might worry about some customers trying to find and tamper with the GPS device, Thayer maintains that this has yet to surface as an issue for his company. “Surprisingly, in the seven years we’ve had GPS trackers, we have had zero units disappear from the vehicles,” he says.

Contact and Disable When a renter breaches the rental contract, grounds for recovery include unauthorized use, violation of geographic restrictions or simply neglecting to return the car at the end of the contract. “[Unauthorized users] are the ones who don’t bring the cars back on time; they smoke in them, trash them and drive excessive miles,” says Rawlings of City Auto Rental. When Rawlings suspects unauthorized use, he or his employees compare where the customer lives and works to the actual location of the car. “If we don’t see the car at those two addresses, we know they’re not the one driving it all the time,” Rawlings says. The first step to recovering the car is to contact the renter as soon as a problem arises and then locate it. “If the vehicle is due at 11 a.m., we’ll ping it at 11:05 a.m.,” Rawlings says. If the renter doesn’t respond, these operators don’t waste time before taking the next step, which is to disable the vehicle. Al Llanes of Global Rental Car of South Florida Inc. restricts his renters to the state of Florida. He uses his tracking system to set up a virtual perimeter (or “geofence”) that alerts him when the state line is crossed. After disabling the vehicle, Llanes will often receive a call from the customer to complain

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PHOTOS: ©ISTOCKPHOTO.COM/HADYNYAH ©ISTOCKPHOTO.COM/HKPNC

GPS PROVIDERS FOR CAR RENTAL AirIQ Inc. Karen Wilson (888) 606-6444 kwilson@airiq.com www.airiq.com

●

that the car is inoperable. “At that point we say, ‘We’ll restart the car for you, but you’re going to be charged for the miles,’” Llanes says. “They’ll say they’re sorry, and you’ll hear a lot of stories, like ‘I didn’t read the contract.’” Llanes will offer to negotiate a new contract with the renter, or “recover the vehicle at the renter’s expense,” he says.

Retrieving the Vehicle “Most of the time they know they got caught, and there’s not a big problem,” Rawlings says. “Not every time. Sometimes they’ll put up a dispute.” He even carries a copy of the vehicle’s title and registration to prove ownership. He stresses that the term “recovery” should be used rather than “repossession” because the auto rental company is retrieving its own property.Thayer once got into a car he thought was empty, only to find someone in the front seat. The person left after retrieving belongings — of dubious origins, Thayer says — from the trunk. Valenti describes a recovery in which the customer blocked the rental car with another vehicle. “There was a big ar-

gument,” Valenti notes. “They said, ‘You can’t take it; I have to work.’” Some operators employ a service to recover the vehicle, while most recover themselves. Operators generally don’t contact police to help with recoveries. However, Thayer files a criminal complaint before a recovery, so if the police do get involved, they can reference the complaint’s verification number on file. When a recovery is necessary, operators take safety precautions, such as waiting until the vehicle is on public property and after the renter has left the vehicle area. The rental agency uses the spare key to retrieve the empty vehicle. This avoids confrontations but could hinder the retrieval of the primary key, an added expense. Renters have been known to leave a car running so the vehicle cannot be disabled. Two operators say they have located vehicles that contained dead bodies. Others have tracked renters in the commission of a crime, such as drug running across the U.S. border, and have reported the activity to the Department of Homeland Security. GPS also helps operators recover im-

Enfotrace Anne Taylor (800) 815-3639 ataylor@enfotrace.com www.enfotrace.com

●

Skypatrol - GPS Kathy W. Stein (786) 210-7423 kstein@skypatrol.com www.skypatrol.com

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RCI Wireless Control Ben Langlais (514) 670-5299 ben@rciwirelesscontrol.com www.rciwirelesscontrol.com

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Nextraq Ashley Jones 678-762-6832 ashley.jones@nextraq.com www.nextraq.com

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Morse GPS Tracking www.morsecorp.com

●

SEPTEMBER / OCTOBER 2011 • ARN

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GPS TRACKING OF RENTAL CARS AND THE LAW By Jessica Carrick

Two signs at Allstate Auto Rentals clearly state company policy. One states that “vehicles may be tracked with GPS.”The other clearly defines travel boundaries and fees for violating them. Thayer uses his GPS tracking system to monitor a “geofence” around his approved travel area. pounded vehicles by using a tracking system’s geofence capabilities, which save on impound fees and lost revenue from the inactive vehicle. “We can get down there, get it out, clean it up and start renting it before we would have gotten a letter from the city of Cleveland,” Rawlings says.

Penalties Do rental car companies penalize drivers with fines when they break the rules? Fees range from a penalty for every mile driven outside of the contract’s geographic boundaries or in excess of the mileage limit, to overdue charges, to vehicle recovery fees and missing key fees. Rawlings charges $125 for a missing key; Thayer charges $250. Penalties for boundary violations or mileage limits can rack up pretty quickly, though collection can be difficult. Often, the operator ends up holding the rental deposit. Thayer went further and sued a customer for the mileage fee for going to Florida. The customer countersued. Thayer brought his signage and contract to court, which clearly state the penalties. The countersuit was dismissed and the customer was ordered to pay the charges. The operators interviewed for this story, however, draw the line at speed violations. “We can’t. We’re not police,” says Mooar, though he’ll sometimes call the police and tell them where the speeders are. In one of the few public cases relating to GPS tracking and car rentals, an inde-

pendent car rental company was sued by a renter in 2001. Acme Rent-A-Car of New Haven, Conn. automatically debited customers’ bank accounts or credit cards $150 for each speeding occurrence exceeding 79 miles per hour that lasted a minimum of two straight minutes. Though the front page of Acme’s rental agreement included a box for renters to initial regarding tracking and the fee, the Connecticut Consumer Protection Department stepped in to halt the practice and to provide past renters with full restitution. The department contended that the rental company failed to provide renters the opportunity to refute the surcharges and failed to notify renters that the surcharges would be automatically withdrawn. The department also took issue with the fact that the rental agreement provided for a penalty when the company had sustained no damage. Noah Lehmann-Haupt of Gotham Dream Cars in New York tracks his exotic rentals, but does not remotely disable vehicles or monitor speed. He was legally advised against it to avoid claims of negligence. “If in one case we tracked a speed but in another ignored it and the latter customer got into an accident,” Lehmann-Haupt says, “someone could claim we should have disabled the car and prevented the speeding.” While these operators have varying internal policies governing their use, they all agree that in their business, use of a tracking system is essential.

No state forbids car rental companies from installing “locator devices” in their vehicles for the purpose of tracking them. However, California and New York have laws restricting the use of locator devices to impose surcharges or additional fees on a renter, even if the renter breaches the rental agreement. The California law emerged from a case involving a family of international visitors that drove out of the state and were subject to a substantial fee for the total mileage of the rental. Although the rental agreement contained language stating that leaving the state constituted a breach of the contract, the warning wasn’t sufficient for the California Attorney General. Neither the California nor the New York statutes address the use of a kill switch to disable the starter.

Default to Disclosure Although disclosure is not covered in any legislative mandate, Michael LaPlaca of LaPlaca Law advises car rental companies to disclose the use of a GPS tracking device to renters. He takes no position on assessing fees for breach of the rental agreement, but LaPlaca recommends that the disclosure notice be placed on the face of the rental agreement as well as in the terms and conditions section. “There is already so much information in the terms and conditions it can get lost in there,” LaPlaca says. “I think it should be in both places, and there is no reason not to disclose it.” For companies using tracking devices, “The rental agreements that we draft state that the vehicle may be equipped with an electronic locator device that allows us to find the vehicle and disable it if it is abandoned or used in violation of law or this agreement,” LaPlaca says.

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8/19/11 9:23:33 AM 6/17/11 9:00:23 AM

OPAQUE RENTALS: IS THE OPPORTUNITY CLEAR?

Last year, Priceline.com brokered more than 15 million rental days to the global car and truck rental industry. Are you increasing your share? BY KEN STELLON o you remember the days when your team only had to focus on three or four different customer segments? In today’s competitive marketplace, car rental firms go to great lengths to discover, court and win new customer segments. As a result, the “opaque” customer segment will have the greatest impact on the landscape of the industry and ultimately the renter’s impression of the value of your product. An opaque rental is defined as a reservation that allows online customers the opportunity to bid the price they want to pay for a specific travel-related product or service and location without knowing the brand. The brand is revealed after the customer makes the online purchase. For airlines, hotels and car rental firms, this customer segment allows operators an opportunity to increase their market share and utilization. Understanding the opaque rental’s impact on the industry will better prepare your team for additional service-based sales opportunities and will improve the customer’s overall rental experience. Although there are many discounted travel websites out there, the most popular opaque travel websites are Priceline.com and Hotwire.com.

toward the opaque booking channel. The following statistics highlight the impact of the opaque trend on the car rental industry: ● According to Quantcast, Priceline.com and Hotwire.com had 86,000,000 visitors in 2010. ● PhoCusWright projects that online travel agency websites generate 39 percent of online travel bookings. ● In an internal study, Travelocity states that 71 percent of travelers consider travel supplier cost and value the most important influencer of their future travel. ● Forrester Research estimates that opaque booking channels have a 90-95 percent customer retention rate. Additional research shows that during fiscal year 2010, Priceline.com brokered more than 15 million rental days to the global car and truck rental industry. Since 2008, Priceline.com is up 97 percent on booked car rental days. Compared to hotels, airlines and cruise lines, opaque car rental bookings have the highest growth trend. Assuming a conservative 1.2 percent annual growth rate, the global opaque car rental market space will eclipse $1.2 billion in annual rental revenue by 2015.

Changing Landscape and Industry Impact

Operational Management Support

Today, your customers have more options, are cost-driven, better informed and equipped to make fast buying decisions and are becoming less brand loyal. These characteristics are magnified tenfold for the average opaque customer. Advances in smartphone and tablet technologies coupled with the growing influence of social media will only strengthen the opaque customer’s position and draw more cost-driven customers

Understanding the opaque customer segment and its impact will allow your management team to believe in its importance. The following management support actions have to be in place if the opaque customer is going to be well received by your frontline associates: Management Counter Presence – Managers have to be at the counters when opaque volume comes to the location. One of the benefits of the opaque channel is that it can be turned on, off and on like a faucet. The oper-

ator knows when volume will spike; it is critical that support managers are positioned at the counter to assist with high-volume swings. Having managers interact with customers waiting in line or establishing separate kiosks for this wave of business will take a tremendous amount of pressure off your frontline associates and customers. Fair Incentives – Establish a fair incentive plan that sets a realistic selling opportunity to opaque customers. Adjusting incentive tiers for your frontline associates to accommodate an influx in this new business will lead to enhanced sales and a better customer experience. Establishing fair incentives will allow the management team to hold frontline associates accountable for complaints and service. Establishing a market share bonus for the entire team will provide additional motivation and allow the entire team to see the big picture. Advanced Service-based Sales Program & Training – Just as the role of the frontline associate in the car rental industry has changed, so has its customer base. Effective service-based sales techniques in traditional retail or with corporate customers are no longer as valuable with opaque customers. Implementing an advanced training program for your team is critical, such as communicating the makeup and worth of the customer segment and instilling the belief in the service-based sales opportunity. In the training, build your team’s confidence by focusing on the following items: ● Opaque customers are not “broke” or cheap. ● They are not evil. ● They’re appreciative of the rental and rate. ● They are willing to purchase additional products and services.

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Providing your team with a detailed look of the opaque customer demographic with advanced sales and service techniques will provide your frontline team with new tools to engage this customer base.

Customer Types

PHOTOS: ©ISTOCKPHOTO.COM/AYZEK

Sales management experts focus on customer typing to prepare their sales teams to drive higher sales and improve customer retention. The following four customer types are present within your opaque customer base. The Controllers – These c customers are comfortable with the opaque rental prow ccess because they can control tthe time of booking; they like tthe ease of booking and undersstand established price points. They want and need speed of service and concise sales options. Centering associates’ qualifying questions based on previous opaque bookings will help the Controllers feel as if they are experts in the process. Use the Controllers’ names multiple times in the rental procedure and allow them to take control of the initial aspects of the upsell process. You can recognize the Controllers by their always-present smartphone or tablet. In many cases they will not have their itinerary or reservation number handy.

The Savers – These cust tomers are motivated by the ssavings off-rack rate and impulsively desire to continue to p ssave. They want and need valiidation and thrive on the feeliing of exclusivity in potentially ssaving more on nicer vehicles. Centering the initial rapport of the rental on the Savers’ ability to get a great rate will open them up to additional upsell or coverage presentations. Communicating scarcity within your fleet during the upsell presentation will enhance their impulse buying. You can recognize the Savers by the fact that they will immediately say the rental was prepaid. In many cases they will share with the frontline team what the discounted rate was. They openly discuss their use of opaque booking channels for hotels and airfares as well. The Minimalists – These c customers are well-acquainteed with the opaque process, tthe surrounding area of the rrental location and traditionaal rate structure. They want aand need efficiency during the rrental process and appreciate a concise sales presentation. Asking additional qualifying questions pertaining to anything unique about the trip may prompt them to re-

ONLINE TRAVEL STATISTICS ●

Since 2008, Priceline.com is up 97% on booked rental car days. Compared to hotel nights and air fares, car rental has the highest growth trend.

SOURCE: QUANTCAST ●

Online travelers spent an average of $1,145 on online travel in 2011. Online travel sales are predicted to reach $102.8 billion in 2011. ● 52% of online travelers are under the age of 45. ●

SOURCE: FORRESTER RESEARCH ●

90%-95% of opaque bookers stay with the opaque channel every year.

SOURCE: FORRESTER RESEARCH ● 71% of survey respondents (2009-2010) consider travel costs the most important influencer of future travel. Job security, stock market performance and home values were listed lower in decision making hierarchy. SOURCE: TRAVELOCITY, INTERNAL SURVEY ●

52% of survey respondents said that they were most likely to access travel information on their mobile devices in 2011 when traveling, compared to 27% in 2010. Respondents aged between 18 and 34 are the biggest advocates, with 72% of this age group accessing mobile travel content on holidays, compared to only 48% in 2010.

SOURCE: FROMMER’S UNLIMITED TRAVEL RESEARCH (CONSUMER TRAVELER – MAY 2011)

quest more products like the coverage or GPS unit. Since the Minimalists are least appreciative of the specific brand, it is critical to mention other affiliated specials or promotions on your company’s website. You can recognize the Minimalists by their familiarity with the process and location. They understand that the very nature of the low-opaque prices will increase customer demand, which may create car waits or longer customer lines than normal. The Newcomers – These c customers are trying opaque for the first time; they may fo bbe skeptical of the discounteed rate and process. They want and need accuracy, w reassurance and further inre formation. Communicating that you have the reservation and return date within the first 20 seconds of the rental will put the Newcomers at ease. In many cases, the Newcomers will be so surprised at the low rate that they will have the itinerary available. Securing the itinerary within 20 seconds will demonstrate your appreciation of their preparation and removes any additional distractions. Reviewing the terms and conditions thoroughly and confirming the return time and date will assure the Newcomers they won’t have any problems upon return. It is critical your frontline associates also promote your pre-established website and discounted web promotions.

Calls to Action Approaching the fourth quarter is a great time to reflect on how the year is shaping up and to begin setting an action plan or forecast for the coming year. Providing clarity to the unique characteristics of the opaque segment and establishing an action plan centered on management support at the counters with advanced service-based sales training for your frontline team will ensure your operation has the strongest results and highest levels of service. Ken Stellon is a managing partner for the Frontline Performance Group – A Khoury Group Company. Ken and his team have been contributing to Auto Rental News since 1993. For more information on the topic of opaque rentals and other advanced service-based selling techniques, attend the October Auto Rental News Profit Boost advanced webinar series. Ken can be reached at 630-788-2879 or via email at kstellon@frontlinepg.com.

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TRAVEL TAXES IN THE U.S.:

THE BEST AND WORST CITIES TO VISIT In the fourth incarnation of the Global Business Travel Association’s travel tax study, the average overall effective tax rate on car rentals has gone down for the first time — but don’t call it a trend.

ST. LOUIS, MO

BOSTON, MA

St. Louis is ranked within the top 10 in all four categories while Boston is among the worst cities, falling to the bottom 10 for each category.

merican businesses, and therefore business travelers, continue to face two forces that combine to strain company budgets. Weak sectors throughout the economy have placed a considerable burden on business revenues and the budgets that those revenues must support. And ongoing fiscal difficulties have governments at all levels searching for additional revenue of their own. Despite these challenges, however, business travel remains an indispensible part of American business life and an important source of economic activity in its own right. In order to more clearly understand the tax burden imposed on business travel throughout the country, the GBTA Foundation — the education and research arm of the Global Business Travel Association (GBTA) — engaged ERS Group to collect and report up-to-date travel tax data on 50 top U.S. business travel destinations. This is the fourth incarnation of the study that began in 2008. ERS Group calculated the amount of taxes paid by travelers who stay at a hotel, rent a car and eat restaurant meals for one day and one night and for a longer stay of three days and two nights. The average prices used in this study take the 2010 study prices as a base and increase them by the appropriate component of the Consumer Price Index. Each of the 50 cities examined in this report is represented by both a central city and airport location. Within each of the two locations, taxes are presented for hotels, restaurant

meals, and rental car transactions — individually and as a combined expense. Finally, these breakouts are provided for both a one-day and three-day scenario. Tax calculations begin with general sales taxes at the state, county, city and special tax district level. Next, discriminatory travel taxes and fees are added in. These taxes often include a bewildering combination of charges such as excise, occupancy, transportation, tourism, special, facility and capital improvement taxes, plus a long list of other taxes and fees frequently imposed by overlapping jurisdictions. Continued from last year’s study, the base cost of rental cars is discounted to reflect the negotiated car rental discount among GBTA members, at an average daily car rental rate of $55.22. The study offers several different sets of travel tax data condensed for this article. Charts 1 and 2 list car rental taxes for the top 10 and bottom 10 airports and central city locations. Charts 3 and 4 show the burden imposed by discriminatory car rental taxes above and beyond general sales taxes. For a ranking of all 50 locations in the study for each chart, visit www.autorentalnews.com.

Taxes Drop? The tax rate on car rentals has been increasing steadily since the mid-90s, owing to increases in sales taxes as well as a series of politically expedient excise taxes to fund non-car rental

specific projects such as stadiums, light-rail systems or city capital improvements. The first three years of the GBTA tax study reflect this. The average overall effective tax rate on car rentals (excise taxes plus sales taxes) in 2008 was 13.04 percent across the 50 destinations in the study. That figure climbed to 13.39 percent in 2009 and then to 13.73 percent in 2010. However, in 2011, the average tax rate has gone down to 13.21 percent. “From 2008 to 2010 we saw a fairly steady increase in the tax rate on car rentals,” says Joe Bates, director of research, GBTA Foundation. “This year is the first of the four years that we’ve seen a decline in that average tax rate.” However, the study contends that these changes do not represent an affirmative decision to actually lower tax rates. They all came about because previously enacted taxes were legislatively mandated to expire — and there simply wasn’t the political support to keep them in place. The most significant was the cut in California’s state sales tax by a full percentage point. Eight of the 50 cities in the 2011 study are in California, and in past studies California cities have appeared among the top 10 highest taxed locations in the hotel and restaurant categories. Similarly, the North Carolina state sales tax fell by one percentage point on July 1. The changes in both California and North Carolina reflect the expiration of temporary increases that each state enacted in 2009.

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CHART 1

CHART 2

AIRPORT SINGLE DAY TAX RATES AND TAX AMOUNT CAR RENTAL TAXES TOP 50 DESTINATIONS CITY

CENTRAL CITY SINGLE DAY TAX RATES AND TAX AMOUNT CAR RENTAL TAXES TOP 50 DESTINATIONS

OVERALL TAX ON $55.22 EFFECTIVE TAX RATE ONE DAY RENTAL ON RENTAL

CITY/STATE

OVERALL TAX ON $55.22 EFFECTIVE TAX RATE ONE DAY RENTAL ON RENTAL

1 2 3 4 5 6 7 8 9 10

Columbus CMH Detroit DTW St. Louis STL Fort Lauderdale FLL Fort Myers RSW West Palm Beach PBI Washington DCA Atlanta ATL Orlando MCO Honolulu HNL

6.75% 8.00% 8.68% 9.62% 9.62% 9.62% 10.00% 10.00% 10.12% 10.14%

$3.73 $4.42 $4.79 $5.31 $5.31 $5.31 $5.52 $5.52 $5.59 $5.60

1 2 3 4 5 6 7 8 9 10

Columbus, OH Ontario, CA Orange County, CA Sacramento, CA San Diego, CA Detroit, MI San Jose, CA St. Louis, MO San Francisco, CA Burbank, CA

6.75% 7.75% 7.75% 7.75% 7.75% 8.00% 8.25% 8.49% 8.50% 8.75%

$3.73 $4.28 $4.28 $4.28 $4.28 $4.42 $4.56 $4.69 $4.69 $4.83

41 42 43 44 45 46 47 48 49 50

Salt Lake City SLC Portland PDX Minneapolis MSP Cleveland CLE Phoenix PHX Seattle SEA New York JFK Las Vegas LAS Boston BOS Chicago ORD

16.35% 17.00% 18.48% 18.62% 19.08% 19.20% 19.88% 20.10% 24.36% 24.98%

$9.03 $9.39 $10.20 $10.28 $10.53 $10.60 $10.97 $11.10 $13.45 $13.79

41 42 43 44 45 46 47 48 49 50

Salt Lake City, UT Portland, OR Cleveland, OH Minneapolis, MN Phoenix, AZ Seattle, WA New York, NY Las Vegas, NV Boston, MA Chicago, IL

16.35% 17.00% 18.62% 18.98% 19.08% 19.20% 19.88% 20.10% 24.36% 24.98%

$9.03 $9.39 $10.28 $10.48 $10.53 $10.60 $10.97 $11.10 $13.45 $13.79

Average rate

13.77%

$7.60

Average rate

13.21%

$7.30

*Combined state, county, city and taxing districts. Airport may be in different state than center city. Note: Top ten and bottom ten.

*Combined state, county, city and taxing districts. Note: Top ten and bottom ten.

CHART 3

CHART 4

AIRPORTS WITH HIGHEST DISCRIMINATORY CAR RENTAL TAXES General Sales Tax Versus Discriminatory Travel Taxes, Top 50 Destinations CITY

GENERAL SALES TAX IF APPLIED TO $55.22 RENTAL

ACTUAL TAXES ON $55.22 RENTAL

DISCRIMNATORY INCREASE OVER GENERAL SALES TAX

1 2 3 4 5 6 7 8 9 10

St. Louis STL Columbus CMH Detroit DTW Atlanta ATL Burbank BUR Los Angeles LAX Oakland OAK Ontario ONT Orange County SNA Sacramento SAC

$4.79 $3.73 $3.31 $3.87 $4.83 $4.83 $4.83 $4.28 $4.28 $4.28

$4.79 $3.73 $4.42 $5.52 $6.76 $6.76 $6.76 $6.21 $6.21 $6.21

$0.00 $0.00 $1.10 $1.66 $1.93 $1.93 $1.93 $1.93 $1.93 $1.93

41 42 43 44 45 46 47 48 49 50

Salt Lake City SLC Seattle SEA Phoenix PHX Cleveland CLE New York JFK Minneapolis Las Vegas LAS Chicago ORD Portland PDX Boston BOS

$3.78 $5.25 $5.14 $4.28 $4.90 $4.02 $4.47 $5.38 $0.00 $3.45

$9.03 $10.60 $10.53 $10.28 $10.97 $10.20 $11.10 $13.79 $9.39 $13.45

$5.25 $5.36 $5.40 $6.00 $6.07 $6.18 $6.63 $8.41 $9.39 $10.00

Average rate

$4.07

$7.60

$3.54

*Combined state, county, city and taxing districts. Note: Top ten and bottom ten.

CENTRAL CITY LOCATIONS HIGHEST DISCRIMINATORY CAR RENTAL TAXES General Sales Tax Versus Discriminatory Travel Taxes, Top 50 Destinations CITY/STATE

GENERAL SALES TAX IF APPLIED TO $55.22 RENTAL

ACTUAL TAXES ON $55.22 RENTAL

DISCRIMNATORY INCREASE OVER GENERAL SALES TAX

1 2 3 4 5 6 7 8 9 10

Burbank, CA Los Angeles, CA Oakland, CA Ontario, CA Orange County, CA Sacramento, CA San Diego, CA San Francisco, CA San Jose, CA St. Louis, MO

$4.83 $4.83 $4.83 $4.28 $4.28 $4.28 $4.28 $4.69 $4.56 $4.69

$0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

41 42 43 44 45 46 47 48 49 50

Salt Lake City, UT Seattle, WA Phoenix, AZ Cleveland,OH New York, NY Minneapolis, MN Las Vegas, NV Chicago, IL Portland, OR Boston, MA

$3.78 $5.25 $5.14 $4.28 $4.90 $4.02 $4.47 $5.38 $0.00 $3.45

$9.03 $10.60 $10.53 $10.28 $10.97 $10.48 $11.10 $13.79 $9.39 $13.45

$5.25 $5.36 $5.40 $6.00 $6.07 $6.46 $6.63 $8.41 $9.39 $10.00

Average rate

$4.09

$7.30

$3.21

*Combined state, county, city and taxing districts. Note: Top ten and bottom ten.

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2012 TAX HIT:

ARE YOU

PREPARED?

EL-LA

M/MOD

TO.CO

CKPHO

: ©ISTO

PHOTO

Budget licensee uses like-kind exchange program to avoid a tax burden for 2012 as a result of the discontinuation of bonus depreciation.

BY CHRIS BROWN

“

et prepared for 2012 because things are going to change,” says Victoria Yambor, controller for Budget Rent A Car and Sales, a Budget licensee serving the Las Vegas market. Yambor is referring to the end of “bonus depreciation.” To give the economy a shot in the arm, the government implemented bonus depreciation in September 2010 through the end of 2011, which allows car rental companies to write off the entire cost of a new car in the year it was purchased. As a result, many car rental companies have paid little to no tax during that time. “Bonus depreciation was wonderful; it helped small businesses like us,” Yambor says. But that’s going away. The bonus depreciation rate decreases back to 50 percent in 2012, and to 0 percent in 2013. That means American businesses — especially car rental companies — could be facing a major tax liability in years to come.

Additionally, the vehicles sold in 2012 and future years will have little to no tax basis, which means that the tax gain recognized on the sale of rental vehicles will skyrocket. This is a double whammy — less depreciation deductions when buying new cars and higher taxes paid upon selling off the old cars. “The substantial increase in taxes will begin in 2012 and drain the cash flow of many unsuspecting car rental companies,” says Ron Hodgeman, director of WTP Exchange. “The expiration of 100 percent bonus depreciation is truly a trap for the unwary.”

and purchases of their business assets as likekind exchanges to continue recognizing substantially less tax gain. An LKE program allows a car rental company to defer the tax that would otherwise be recognized when a rental vehicle is sold, as long as another vehicle is purchased within 180 days. Hundreds of companies have already implemented LKE programs, Hodgeman says. If done correctly, he adds, its implementation is seamless to current operations and will prevent a car rental company from paying substantially higher taxes starting in 2012.

What is LKE?

The Time is Right

However, businesses can reap the same type of tax benefits without bonus depreciation, Hodgeman says. A company that routinely buys and sells business assets, such as car rental fleets, can benefit from an ongoing, repetitive like-kind exchange (LKE) program. Under section 1031 of the Internal Revenue Code, companies can structure the sales

Yambor and the Mallo family, owners of the Budget franchise, had successfully used an LKE program in the past, when the company was growing. The company suspended its program when the recession hit in 2008. Lately, however, “Deplanements are up in Las Vegas,” Yambor says. “We’re seeing a good upturn.” And with the expiration of bo-

POTENTIAL TAX CONSEQUENCES ON RENTAL INCOME 2010 - 2014 Rental Income Gain on the Sale of Rental Assets

2010

2011

2012

2013

2014

$10,000,000

6,080,000

6,720,000

8,000,000

6,080,000

Total Income

16,080,000

16,720,000

18,000,000

16,080,000

Less: Tax Depreciation

(9,413,333)

(11,546,667)

(6,320,000)

(3,600,000)

(5,680,000)

Tax Gain

6,666,667

4,533,333

10,400,000

14,400,000

10,400,000

Tax (40%)

$2,666,667

$1,813,333

$4,160,000

$5,760,000

$4,160,000

The chart highlights the increased taxes starting in 2012 for an average-sized rental car company.The higher taxes are primarily attributed to the expiration of 100 percent bonus depreciation at the end of this year.The taxes to be paid in 2012 are 229 percent higher than the taxes paid in 2011, and 318 percent higher in 2013.

22 ARN • SEPTEMBER / OCTOBER 2011

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nus depreciation, the time was right to revisit an LKE program, Yambor says. In March at the Car Rental Show, the company connected with Hodgeman and WTP Exchange, a provider of LKE programs. Yambor, John Mallo, president; Joe Mallo, vice president of operations; and Tom Mallo, vice president of fleet; sat down with the company’s outside CPA and the WTP team. There are three general components to any like-kind exchange program, explains Hodgeman: LKE accounting software, tax consulting and a Qualified Intermediary to facilitate the transactions. “With WTP you don’t deal with three separate entities; they handle everything for you,” Yambor says. WTP set the franchisee up with the bank and is working with its fleet department, while training the company on its proprietary software program. “The software is like an education vehicle,” Yambor says. “It’s ‘auto likekind exchange.’” According to Yambor, WTP is very involved in bringing everyone up to speed. “It isn’t like you’re on a like-kind exchange and you’re all of a sudden not going to pay taxes again; it doesn’t work that way,” Yambor says. “It’s very complex and a big decision to make. WTP has taken that concept and put more of a hands-on, user-friendly way of running a like-kind exchange.” The franchisee expects to be up and running online by Oct. 1, the beginning of its fiscal year. And the tax savings promises to be tremendous, Yambor says. After consulting with many car rental companies, Hodgeman claims that the average car rental company is facing an added tax bill of $1 million in 2012 due the expiration of bonus depreciation. However, “Our average client will add $2 million to their cash flow in 2012 with like-kind exchange,” he says.

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SEPTEMBER / OCTOBER 2011 • ARN 23

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C A R

R E N T A L

Q & A

Why do my fleet suppliers have limited numbers of new cars available, and why are the prices so much higher? Eric Dabata, Thrifty Buffalo

When I first sat down to answer this question I had a fairly clear view of the coming fleet year. However, the stupidity in Washington has greatly reduced consumer confidence and increased the uncertainty of the future. The Japanese earthquake and following tsunami caused a deeper economic impact than most economists recognized at the time. Japanese manufacturers canceled fleet orders to be able to have cars for retail. Shortages of key parts caused other manufacturers to reduce production of certain vehicles. This economic blow not only affected the Japanese manufacturers but also suppliers, transportation companies, and thousands of dealers and their employees. With reduced selection and no incentives at Toyota and Honda dealers, consumers went to other dealers for new vehicles. This benefitted the Korean manufacturers especially, and in turn they moved cars from fleet to retail and canceled fleet deliveries. Meanwhile the price of used cars increased week after week as dealers scrambled to put vehicles on their lots. Rental fleet managers found themselves between a rock and a hard place. High prices for used cars offered instant profits, yet not enough cars to meet their rental needs meant unhappy customers. In late July, used car prices went past the

point the market could bear and the used car market seized up. These high prices — along with the fear that Toyota would return to the market with major incentives to recover market share — put dealer purchases on hold. All this comes on top of a fleet market that was disrupted by the GM and Chrysler bankruptcies and a recession. Most rental companies kept their cars and drove them much longer than normal. These high-mileage cars now need to be replaced. Yet there is a great deal of uncertainty for the manufacturers as well. They would rather sell cars to retail customers than fleet customers because they make more money and protect their residuals. Consumer confidence is low and unemployment is stagnant — yet both drive retail sales. Consumers have been and will continue to keep their cars longer because of this. There is pent-up demand at the retail level for new cars and any improvement in the economy will increase retail sales. The non-Japanese

returns as a source for used cars will be forced into the market for two- to three-year-old rental cars with higher mileage.

Q&A

PHOTO: ©ISTOCKPHOTO.COM/NLSHOP

manufacturers have increased market share and they want to maintain those increases. When Toyota and Honda have more vehicles to sell, expect a major increase in retail incentives by all the manufacturers. The manufacturers have also suffered substantial increases in the cost of materials. Foreign manufacturers have seen increased currency conversion costs. For example, the Japanese yen has risen versus the dollar by 12 percent in the last year. With Toyota expected to be back at full strength in the fall, we will still see a reduced number of fleet vehicles, and fleet prices will continue to increase. Look for limited fleet supply until the spring of 2012. Used car prices will continue to soften, though that will be mitigated by a substantial drop in lease returns this fall. Dealers who normally depend on lease

• Email your car rental operationrelated questions to Auto Rental News care of chris.brown@bobit.com. • Consultants from the Khoury Group will come up with concise, insightful answers to help you better run your car rental operation. Feel free to contact the Khoury Group directly at questions@thekhourygroup.com.

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products & vendor news Safelite Launches New Windshield Repair Solution Safelite AutoGlass, a leading vehicle glass repair and replacement company, has launched a new windshield repair solution for cracks six inches or less. The first step in the process is to apply a primer to the cracked area. The primer prepares the surface of the glass so that all the tiny micro cracks can be filled with resin. Once applied, the resin is solidified by an ultra-violet lamp. After testing the Safelite resin against 36 leading repair resins, a renowned automotive laboratory demonstrated that the Safelite adhesion is stronger, lasts longer, has less shrinkage to re-expose cracks and has better color stability to prevent the resin from yellowing. While customers can have windshields repaired at more than 450 Safelite locations, mobile technicians offer on-site servicing for about two-thirds of repairs. The entire process takes 30 minutes, including time for the resin to cure. After the process is completed, drivers are safe to use the vehicle.

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8/19/11 9:26:19 AM

$16,000 $14,000

■ SUV

$12,000

■ FULL-SIZE PICKUP

$10,000 $8,000

■ MID-SIZE CAR

$6,000

■ FULL-SIZE VAN

MODEL

P .R .

SOUTH EAST

NORTH MID WEST EAST WEST CENTRAL COAST

AUDI A4 2008 4D SDN 3.2L QUATTRO 18,400 18,300 18,550 18,700 BUICK LACROSSE 2009 4D SEDAN CXL 15,200 15,200 15,200 15,200 2008 4D SEDAN CXL 14,750 *15,750 14,600 14,600 CHEVROLET 1500 SILVERADO 2WD V-8 2008 REG CAB 4.8L 12,300 11,500 10,550 12,550 CHEVROLET COBALT 2009 4D SEDAN LS 9,050 9,500 9,150 9,250 2008 4D SEDAN LS 7,250 7,650 7,700 7,200 CHEVROLET COLORADO 2WD I5 2008 EXT CAB 3.7L LT 9,000 6,550 7,050 8,250 CHEVROLET EQUINOX AWD V-6 2008 4D SUV LT 12,650 12,850 12,200 12,900 CHEVROLET HHR 2009 4D SUV 2.2L LT 6,100 6,100 6,300 6,300 2008 4D SUV 2.2L LT *8,900 *8,950 *9,250 *8,800 CHEVROLET IMPALA V-6 2009 4D SEDAN LS 3.5L 10,050 9,500 10,000 10,650 2008 4D SEDAN LT 3.5L 9,050 9,200 9,950 9,800 CHEVROLET MALIBU V-6 2009 4D SEDAN 3.9L LT 11,150 11,150 11,800 11,150 2008 4D SEDAN 3.9L LT 8,100 8,400 9,850 8,250 CHRYSLER 300 2009 4D SEDAN 12,250 11,750 12,600 12,450 2008 4D SEDAN 11,200 *12,100 12,150 11,550 CHRYSLER SEBRING V-6 2009 4D SEDAN LTD 11,400 12,300 10,800 11,800 2008 4D SEDAN LTD *14,500 *13,400 *13,650 *12,700 DODGE RAM 2WD V-8 2008 QUAD CAB 5.7L 14,950 13,400 12,900 14,950 FORD CROWN VICTORIA 2008 4D SEDAN LX 15,250 13,950 14,350 10,150 FORD EDGE 2009 FWD 4D SE 15,350 15,800 16,700 16,550 2008 FWD 4D SE *16,100 14,850 16,000 16,250 FORD EXPEDITION EL 2WD V-8 2009 4D SUV 5.4L XLT 19,450 19,150 19,150 19,150 2008 4D SUV 5.4L XLT 18,100 18,100 18,100 18,350 FORD EXPLORER 4WD V-6 2009 4D SUV 4.0L XLT 15,350 14,950 14,800 13,450 2008 4D SUV 4.0L XLT 14,400 *16,450 *15,600 *13,700 FORD F-150 2WD V-8 2009 EXT CAB 5.4L XLT 16,850 16,100 16,050 18,000 2008 EXT CAB 5.4L XLT 14,250 11,550 13,450 14,750 FORD FOCUS 2009 4D SEDAN SE 10,950 11,050 11,450 11,050 2008 4D SEDAN SE 10,450 *11,100 11,350 9,450 FORD FUSION 4-CYL. 2009 4D SEDAN SE 12,400 11,800 13,850 12,950 2008 4D SEDAN SE *12,600 *12,750 13,250 10,900

18,400 15,200 15,050 11,700 9,700 7,150 8,300 13,000 6,150 *9,300 8,750 *9,000 9,700 9,250 12,550 11,450 11,450 *13,300 14,350 12,700 16,550 16,250 19,150 17,000 15,400 14,150 17,000 14,500 10,900 10,300 11,750 *11,750

JUNE-11

APR-11

MAY-11

FEB-11

MAR-11

JAN-11

DEC-10

OCT-10

NOV-10

AUG-10

SEPT-10

$2,000

West Central Midwest Northeast Southeast

JULY-10

$4,000

JUNE-10

used car prices

AVERAGE AUCTION SALE PRICE – COMMERCIAL FLEET VEHICLES

THE GRAPH ABOVE REFLECTS ACTUAL AUCTION PRICES RECEIVED BY SELLERS OF COMMERCIAL FLEET VEHICLES. THESE VEHICLES GENERALLY HAVE HIGH MILEAGE. THE TABLE BELOW REPRESENTS THE WHOLESALE VALUES OF MODELS REGARDLESS OF SELLER.

MODEL

SOUTH EAST

FORD RANGER 2WD V-6 2008 2D EXT CAB 3.0L XLT 13,100 FORD TAURUS 2009 4D SEDAN SEL 10,200 2008 4D SEDAN SEL 9,850 JEEP GRAND CHEROKEE 4WD V-8 2009 4D WAGON LAREDO 19,850 2008 4D WAGON LAREDO 17,000 JEEP PATRIOT 4WD V-6 2009 4D SUV SPORT 11,800 2008 4D SUV SPORT 9,850 LINCOLN MKX AWD V-6 2009 4D CROSSOVER 23,350 2008 4D CROSSOVER 22,300 LINCOLN TOWN CAR 2009 4D SIGNATURE LTD 20,700 2008 4D SIGNATURE LTD 18,200 MERCEDES-BENZ S-CLASS 2009 4D SEDAN S550 62,550 2008 4D SEDAN S550 48,000 NISSAN ALTIMA 2009 4D SEDAN 13,250 2008 4D SEDAN *13,350 PONTIAC GRAND PRIX 2008 4D SEDAN 8,950 PONTIAC VIBE 2009 4D WAGON 9,300 2008 4D WAGON *10,150 SAAB 9-3 2009 4D SEDAN SPORT AUTO 17,050 2008 4D SEDAN ARC AUTO 12,950 SUBARU OUTBACK 2008 4D WAGON 2.5L LTD 19,900 TOYOTA CAMRY V-6 2009 4D SEDAN LE 13,400 2008 4D SEDAN LE 13,300 TOYOTA PRIUS 2009 4D HATCHBACK 17,250 2008 4D HATCHBACK 16,850 TOYOTA TACOMA 2WD V-6 2009 DBLCAB 4.0L PRERUNNER 21,100 2008 DBLCAB 4.0L PRERUNNER 19,700 VOLKSWAGEN JETTA 5-CYL. 2009 4D SEDAN S 12,150 2008 4D SEDAN 10,800 VOLVO S40 2009 4D SEDAN 2.4L 13,500 2008 4D SEDAN 2.4L *14,050

NORTH MID WEST EAST WEST CENTRAL COAST 10,600

13,650

12,400

12,450

9,750 10,350 *10,150 *11,450

10,550 10,050

12,500 9,900

19,900 15,050

19,850 15,300

11,850 11,700 11,600 11,150 *11,800 *11,600

11,100 *11,100

18,650 15,200

23,350 *23,400

20,500 14,650

23,350 23,350 22,400 *23,600

23,350 20,900

20,150 18,400

20,150 20,050

20,850 18,700

20,700 19,600

56,750 46,200

59,750 47,900

56,550 47,250

63,750 49,750

12,500 12,500 *13,200 *13,550

13,250 13,100

13,000 12,200

9,700

7,800

10,950 9,550 10,150 *10,150

9,650 *10,150

10,100 9,650 *10,150

10,250

16,400 13,350

17,050 13,900

17,050 13,050

20,350

19,200

19,850

19,200

13,500 12,550

13,250 12,450 11,800 *12,600

13,200 12,600

19,100 16,800

16,850 16,200

17,650 16,400

17,350 15,700

19,500 19,400

20,900 20,000

20,950 19,500

20,900 18,650

11,350 11,150

11,800 11,350

12,200 11,500

12,250 10,850

13,500 13,500 *14,400 *13,500

13,500 11,900

13,500 *14,500

*VEHICLES NOTED HAVE HIGHER (OR EQUAL) 2008-OVER-2009 VALUES BECAUSE THE AVERAGE MILEAGE OF THE 2008 MODELS GOING THROUGH THE AUCTION IS LESS THAN THE 2009 AVERAGE MILEAGE. DATA PROVIDED BY MANHEIM MARKET REPORT, A DAILY PRICE GUIDE BASED EXCLUSIVELY ON AUCTION TRANSACTIONS. THE DATA IS BASED ON SALES AT MANHEIM’S 80 NORTH AMERICAN AUCTIONS. THE MANHEIM INDEX (MANHEIM USED VEHICLE VALUE INDEX) AT WWW.MANHEIMCONSULTING.COM PROVIDES “TREND” DATA FOR THE MOST RECENT 12 MONTHS AND IS UPDATED MONTHLY WITH COMMENTARY AND SEGMENT ANALYSIS.

28 ARN • SEPTEMBER / OCTOBER 2011

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ad index COMPANY

PHONE

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WEBSITE

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Abrams Consulting Group ..................914-696-5100 ...............abramsconsulting.com..........23 Auto Rental News Webinar: How to Increase Cash Flow in 2012 Sponsored by WTP Advisors .............autorentalnews.com/webinar/WTP.................................27 Auto Rental News Webinar: .............autorentalnews.com/webinar/WTP ..........................27 Profit Boost Webinar Series Sponsored by Frontline Performance Group ............................autorentalnews.com/webinar/FPG ............................31 Bluebird Auto Rental Systems ............800-304-5805 ...............barsnet.com.............................. 9 Courtney Leasing, Inc...........................407-438-0083 ...............courtneyleasing.com .............26 Car Rental Show 2012

Vice President & Group Publisher Sherb Brown — (310) 533-2451 Executive Editor Chris Brown — (310) 533-2499 chris.brown@bobit.com Assistant Editor Jessica Carrick — (310) 533-2490 jessica.carrick@bobit.com Web Editor Greg Basich — (310) 533-2572 greg.basich@bobit.com Art Director Armie Bautista Production Manager Brian Peach — (310) 533-2548 Subscription Inquiries (888) 239-2455

Dollar Rent A Car.................................800-555-9893 ...............dollar.com ...............................19

Chairman Edward J. Bobit

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GMI Insurance Services .......................800-722-3229 ...............GMI-Insurance.com ................ 7

Chief Financial Officer Richard E. Johnson

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PurCo Fleet Services, Inc. ...................888-PURCO 88 ...........purco.com...............................25 Sonoran National Insurance ...............866-998-1001 ...............sonorannational.com .............. 3 TML Information Services, Inc. .........800-743-7891 ...............TML.com .................................19 Total Fleet Solutions............................. 866-837-2773..............TotalFleetSolutions.com......17 Toyota .....................................................800-732-2798 ...............fleet.toyota.com ...................... 5 TSD Rental Management Software ...800-743-1200 ...............tsdweb.com ....................... C2-1 U-Save Auto Rental ..............................800-438-2300 x146.....usave.com ...............................11 WTP Advisors ......................................914-733-7715 ...............wtpadvisors.com ...................15

ADVERTISING MANAGERS Associate Publisher Joni Owens joni.owens@bobit.com (310) 533-2530 Fax: (310) 533-2503 Great Lakes Robert J. Brown 1000 W. University Dr. Ste. 209 Rochester, MI 48307 (248) 601-2005 Fax: (248) 601-2004 Printed in the USA All statements made, although based on information believed to be reliable and accurate, cannot be guaranteed and no fault or liability can be accepted for error or omission. acra

The Advertisers’ Index is provided as a courtesy to Auto Rental News advertisers. The publisher assumes no responsibility for errors or omissions.

30 ARN • SEPTEMBER / OCTOBER 2011

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ARN0911khoury_webin

PRESENTS

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Join us with an open mind to learn as we share techniques to break into new levels of sales performance by developing a new level of understanding your customer. Participants will learn specific insights about the customer’s perspective via data compiled from detailed customer surveys administered by the Frontline Performance Group and Auto Rental News. Subject matter experts from the Frontline Performance Group will show participants how to implement the following advanced techniques:

• Strategies for specific value focused customers • Discounted internet site reservations (Priceline, Hotwire, etc.) • How to incorporate empathy into the rental process • How to utilize new measurements to gauge individual sales performance

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Frontline Performance Group, A Khoury Group Company

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rent ALERT

FOR UPDATES,VISIT WWW.AUTORENTALNEWS.COM

Profits Solid in Q2 in Face of Japan Crisis, Merger In the second quarter, the crisis in Japan drove net depreciation to historic levels while over-fleeting put pressure on rates. Regarding merger, Dollar Thrifty calls the current state of uncertainty “frustrating” and “unacceptable.” BY CHRIS BROWN

ll three public car rental companies reported net income in the second quarter as the industry adapted to the effects of the Japan tsunami and earthquake in March. Hertz Global Holdings Inc. reported second quarter net income of $55 million, compared with a net loss of $25.1 million for the second quarter of 2010. The company reported worldwide revenues of $2.1 billion for the quarter, an increase of 10.3 percent yearover-year — a 5.8 percent increase without gains from currency exchange rates. Worldwide car rental revenues increased 9.8 percent year-over-year — 5 percent without foreign currency gains — to $1.8 billion. U.S. car rental adjusted pre-tax income was up 46.8 percent over the prior year period. Avis Budget Group Inc. reported that its second quarter net income doubled to $52 million compared to the second quarter of 2010. The company reported revenue of $1.4 billion for the quarter, an increase of 9 percent over 2010. Revenue increased 8 percent domestically primarily because of an 8 percent increase in volume partially offset by a 2 percent decline in pricing. Dollar Thrifty Automotive Group Inc. reported net income of $42.5 million compared with $42.3 million for the 2010 second quarter. The company’s total revenue in the second quarter stayed consistent with 2010 at $395.1 million. Vehicle rental revenue was unchanged as a 3.4 percent decrease in revenue per day offset a 3 percent increase in rental days.

Japan Disaster Affects Industry The March crisis in Japan caused new car supply chain disruptions that shrank the used car supply, which produced a strong residual market and improved net depreciation to historic levels. Hertz’s monthly depreciation dipped nearly 26 percent — $76 per unit — year-over-year to $220 per unit in the second quarter. Avis Budget Group estimated fleet costs were down 8 to 11 percent in the second half and will be down 18 to 20 percent per unit for 2011. Dollar Thrifty’s fleet cost for each vehicle was $188 per month in the quarter, compared with $193 per month in the second quarter of 2010. Facing the possibility of canceled orders and a shortage of fleet, auto rental companies were forced to defer normal dispositions and hold fleet. The supply disruptions did not materialize as expected, and the industry found itself over-fleeted moving into the beginning of summer. This setting put downward pressure on car rental rates, though volume remained strong.

Deal or No Deal? Meanwhile, merger talks drag on. Dollar Thrifty said it is working with both Avis Budget and Dollar Thrifty to support their efforts with the Federal Trade Commission; however no deal, written or verbal, is in place with either company. Hertz made an unsolicited offer for Dollar Thrifty in May and subsequently extended the offer’s deadline to Sept. 9. Avis said while it continues to “actively monitor the Dollar Thrifty situation,” its “focus remains on planning the integration and completing the acquisition of Avis Europe.” On Dollar Thrifty’s earnings conference call Aug. 8, Scott Thompson, president and CEO, expressed frustration with the merger process, calling the current state of uncertainty unacceptable. “The company is cash rich and underleveraged and needs to move forward in a way that enhances shareholder value,” he said. “We have been working on unsolicited merger issues since 2008, and they are expensive and distracting.” On questioning, Thompson reiterated the frustration level, though he said the company has not drawn “a line in the sand” in regards to a deal and continues to be “open to alternatives.”

Outlook Auto rental companies expect vehicle sales gains to moderate in the third quarter off historic peaks. However, the wholesale market is expected to remain strong through 2011 on tight supply and soften slightly in 2012. Dollar Thrifty said capitalized costs per vehicle in 2012 will be about equal to 2011 costs. The company forecasts 2011 rental revenues to be about equal to 2010, with revenue and rental day growth offset by competition on rates. Avis Budget foresees travel demand growing with relatively stable pricing in the second half of 2011, with leisure business outpacing corporate. The company said risk car costs will likely increase in 2012 over a robust 2011, though modelyear 2012 program cars may wind up costing less than model-year 2011. Hertz forsees a strong September and overall demand for the rest of the year, with mid-single digit growth in commercial travel against tough comparisons year-over-year. Hertz raised its fullyear earnings guidance by about 7 percent. “Net to net, we’re cautiously optimistic about the second half of the year,” said Mark Frissora, chairman and CEO.

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