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Detroit loses its edge in rental car market

Rental car companies, once reliable customers of the Big Three, are buying more imports than domestic models.

July 22, 2009|Ken Bensinger

"Residual value experience and expectations are definitely important," said David Wyshner, chief financial officer of Avis Budget Group, which has increasingly turned away from American cars. In 2005, just 7% of Avis Budget's U.S. fleet was foreign; this year it expects that number to reach 32%.

Better residuals please lenders because it diminishes the risk that the rental agencies will default on loans.

That's a key reason that Hertz now maintains a U.S. fleet with "well over half" the cars bearing foreign badges, said spokesman Richard Broome. This year, Hertz, which Ford spun off in 2005, even began stocking Mercedes-Benzes.

"We're able to tell the bankers that we're more diverse than anybody," Broome said.

Consumer expectations also play a role.

Drivers now buy more imports than American cars, so it's not surprising that they seek them on rental lots as well, said Mark Norman, president and chief operating officer of car sharing company Zipcar.

"We ask people what they'd want to drive, and it's typically a mix of vehicles like you'd see in cities like San Francisco," Norman said. He said that not one of the 6,000 cars in his fleet is made by GM or Chrysler, and "less than 5%" are Fords.

Smaller automakers also view rental fleets as a cheap way to market their vehicles to customers who might never have given their brands a look.

Darren Fox liked the Hyundai Sonata he rented from Enterprise on a business trip last summer so much that he ended up buying one.

"It was the first time I'd ever been in an Hyundai," said Fox, a video technician for Voice of America who lives in Crofton, Md. "I had it for two weeks and hated to give it back."

When it comes to rentals, however, too much exposure can hurt.

Industry experts say some brands could be making the same rental mistakes the domestics once did. Through May, Hyundai said that more than 30% of its U.S. sales have gone to rental fleets. Kia declined to provide an updated number, but through the first quarter of the year, more than a third of Kia and Hyundai sales went to rental companies, according to Automotive News. For its part, Nissan sent 29% of its total sales volume that way in the first quarter.

"I think a couple of our competitors have jumped in the deep end," said Mike Michels, a spokesman for Toyota, which has shown more discipline, selling only 13% to rental companies in the first quarter.

Not every opportunity to get customers behind the wheel of your car proves to be a good one. Last month, Lorna Marino of Studio City paid $17.50 a day to rent an economy car for a weekend trip. She got a Kia Rondo, an oddly shaped compact crossover vehicle that she said reminded her of an AMC Pacer.

"I felt like there was nothing remarkable about it," said Marino, a hairstylist who normally drives a Mini. "Nobody should ever own a Rondo."


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