June 26, 2008 - Adjusting for higher fuel prices, car rental firms are scrutinizing corporate contract performance and altering some negotiated fixed fuel rates, sources said. Some travel managers, meanwhile, are more carefully monitoring progress in meeting contractual volume commitments and advising employees to rent cheaper cars and refuel them before returning to rental locations.
Refueling has drawn particular attention in the car rental industry. This month, the Maryland attorney general announced deals with rental firms that "drastically reduce refueling fees" in the state. Those deals followed a report by the attorney general which found that "rental car companies had increased their refueling charges drastically in recent months, far in excess of gas prices found in the Baltimore/Washington/Philadelphia area." According to the
Baltimore Sun, most car rental companies operating at Baltimore-Washington International Airport had been charging "in the $7 range," with Hertz using the highest refueling charges at $7.99 per gallon.
Pressed by the attorney general, car rental companies agreed to charge customers in Maryland no more than 142 percent of prevailing local per gallon prices for refueling, or average local rates plus a flat rate of no more than $10.
"We have made it easier to visit and do business in Maryland, and these agreements can be a national model for states that want fair pricing," said Attorney General Douglas F. Gansler.
According to
The News Journal, Maryland's action drew attention in neighboring Delaware, whose Attorney General Beau Biden said: "This kind of price gouging will not be tolerated."
Neil Abrams of Abrams Consulting suggested Maryland set "a dangerous precedent." Refueling fees, he said, are neither unlawful nor mandatory (since renters can fill up themselves before returning vehicles), and are always fully disclosed to customers. Moreover, they are used to cover rental firms' costs not only for fuel, but also the labor needed to refuel cars and other considerations for managing a large fuel program--which can include fuel storage expenses, insurance risk, financial exposure and adherence to federal environmental regulations. "Many [car rental] counter agents are trained to encourage customers to refuel on their own before they come back because of the significant premium they pay," Abrams added.
Around the same time it reached an agreement with the state of Maryland, Hertz said it would adjust fuel policies for rentals across the United States and Canada that "reflect new, lower pricing" based on per-gallon averages. Effective July 1, customers opting to pre-pay would be charged "local market fuel prices, minus a small discount of approximately 15 cents per gallon." Those opting not to refuel rental vehicles before returning them would pay "local market fuel prices," plus a $6.99 fee.
Also a party to the Maryland agreement, Avis Budget Group is "taking a close look at our options in this area, but have not come to a conclusion," said senior vice president of commercial sales Robert Lambert. Similarly, Dollar Thrifty Automotive Group "has made no decisions on a nationwide basis and will monitor the situation," according to a company representative.
The Maryland attorney general noted that Enterprise Rent A Car (including its Alamo Rent A Car and National Car Rental subsidiaries) already had been charging refueling fees "consistent" with the new agreements. Dave Kilduff, CWT Solutions Group managing director of ground transportation, noted that Enterprise/National "has lowered its refueling rate at the counter, which will help companies without a corporate contract, or those without specific terms around refueling charges.
"Across the board," Kilduff continued, "car rental companies are revisiting those corporate contracts that include a fixed price for fuel that is too low by today's standards. They are raising these contracted fixed prices to accommodate the ever-rising prices at the pumps."
Avis Budget's Lambert confirmed that the company is adjusting fixed fuel rates in contracts that have such provisions.
Rental firms' reviews of business travel contracts coincides with closer examination of corporate account performance in other supplier segments, including
airlines and
lodging.
The "policing and auditing" by car rental companies isn't prompting them to drop accounts, Abrams said, but "they are monitoring on a real-time basis. It becomes a significant point in contract management and contract renewals." He added that the four primary car rental firms--three of which are publicly traded (Avis Budget, Dollar Thrifty and Hertz) "are not any longer turning a blind eye to practices that eat into already thin margins in the business.
"Compliance in the rental industry has been somewhat lax," Abrams continued. "In the old days, [the car rental firms] maybe looked the other way [on underperforming accounts], but those days are long gone."
Meanwhile, a May survey by Orbitz for Business and
Business Traveler Magazine found that 47 percent of 610 respondents indicated that car rental policies had changed at their companies. Twenty percent said their companies are requiring travelers to return rental cars with full tanks and 38 percent said their companies now require employees to rent the smallest, least-expensive car available.
While hybrid vehicles minimize gas consumption and, therefore, could lower total car rental costs, they are comparatively expensive to rent and not widely available within car rental fleets,
according to Abrams.
Gas prices, of course, also affect organizations that reimburse travelers using personal vehicles for business purposes. For those following Internal Revenue Service standards, the reimbursement rate for the second half of 2008 will be 58.5 cents per business mile driven, eight cents higher than the current standard. The unusual midyear move by the IRS--which normally sets rates once for a calendar year--is "in recognition of recent gasoline price increases."
