Business Travel: Hertz Shakes Up Rental Industry with Acquisition
With the Federal Trade Commission’s restricted permission to acquire budget car rental competitor Dollar Thrifty, Hertz is pressing forward with its purchase as corporations nervously eye the bottom line numbers for their business travel. The acquisition (which comes with stipulations that Hertz must divest itself of its Advantage Rent a Car line and more than two dozen Dollar Thrifty airport locations) will bring the number of top rental car companies down from four to three. Obviously, the primary concern is that this could drive up corporate rental car pricing, due to reduced competition, but some industry watchers say that is unlikely to be the case.
As it stands, Hertz, along with Enterprise, Avis and Dollar Thrifty, account for approximately 97 percent of the U.S. rental car market share, which is why the FTC felt the need to scrutinize the deal before giving the go ahead. However, some experts believe there are a few reasons why the deal could actually assist in making those expense reports a little easier on the corporate wallet:
- With the economy’s health still in question, rental car companies continue to aggressively pursue corporate accounts, meaning that the bulk of negotiating power will remain on the buyer’s side for the foreseeable future. Travel numbers aren’t expected to spike in 2013, so jostling for position amongst customers is still a top priority for Hertz and its competitors. According to Business Travel News, corporate pricing fell by 3 percent in 2012, following a similar drop in 2011.
- BTN also makes the case that this deal is less about reducing the competition and more about bringing another option into the corporate pricing structure. Currently, Dollar Thrifty has little presence in the corporate rental car market. The Hertz-Dollar Thrifty deal will give Hertz the ability to target premium business and leisure markets while allowing it to position the Dollar Thrifty brand as a value option for corporate and leisure travelers. This plan will provide another budget-friendly pricing layer for corporations, rather than simply eliminating an option.
Abrams Consulting Group added, “The only significant movement we’ll see here is not pricing pressure on the Hertz side, but Dollar entering the corporate world. If you talk to Dollar Thrifty management, they would probably tell you they’ve always marketed to the corporate sector, but they’ve never been able to support the corporate world the way they needed. They didn’t have the money, processes and systems to support the corporate community.”
Overall, the deal looks like a potential bonus for corporate rentals and less of an expense management headache than was initially expected.