CAR RENTALS Companies hope to speed up business

A New York hedge fund has been approved to purchase two major rental companies.
KNIGHT RIDDER NEWSPAPERS
MIAMI -- A New York hedge fund is in line to gain control of Alamo Rent A Car and National Car Rental System, a move that would continue the trend of car-rental companies ending up in some very deep pockets.
Approved by the Delaware bankruptcy judge last week, Cerberus Capital Management's purchase of ANC Rental Corp. -- parent company of Alamo and National -- is slated to close by the end of September. The deal by Cerberus, which has $9 billion under management, would mark the second time in less than 10 months that a top-five car-rental company has been sold. Budget Rent A Corp. was acquired out of bankruptcy by hotel and real estate conglomerate Cendant Corp., the parent company of Avis Rent A Car System, in November.
The sale of ANC's assets would leave Enterprise Rent A Car as the only remaining standalone company among the five largest car-rental brands. Hertz Corp. is a subsidiary of Ford Motor Co.
The deals are expected to bring some stability to an $18 billion industry that has been wracked by a slowdown in travel. That was exacerbated by the Sept. 11, 2001, terrorist attacks, and prolonged by a frail economy, the Iraqi war and the outbreak of Severe Acute Respiratory Syndrome, or SARS.
With the national terrorism index periodically ratcheted up and down a notch, many remain skittish about traveling.
Rental downturn
All this has the travel industry wondering when travelers -- particularly those on business -- will return to the highways and skies as they did just a few years ago amid robust economic growth.
Still, some observers say the car-rental industry may be heading for a rebound after more than two years of upheaval.
"I would say the worst is probably over," said Betsy Snyder, an analyst with Standard & amp; Poor's in New York.
Car-rental companies have coped with fewer travelers in the latest slump by reducing their fleet size. And the industry -- not known for its pricing discipline -- lately has been raising rates, albeit slowly.
The car-rental industry has always been a difficult business, and not just because it's at the mercy of the traveling public, said Michael S. Egan, ANC's chairman.
Egan built Alamo from a small, regional player into a national brand. He sold his 93 percent stake in Alamo to what is now AutoNation for $580 million in 1996.
"First of all, it's a low-margin business," Egan said.
"Secondly, it's a business that oftentimes has oversupply problems, due to car manufacturers putting deals out that seem too good to pass up."
That means too many cars relative to demand.
Car-rental companies may be wising up. After peaking at 1.83 million vehicles in 2000, U.S. car-rental fleets fell to 1.64 million vehicles last year, Auto Rental News reports.
"They have a lot more flexibility than the airlines because they can reduce their fleet purchases and turn vehicles back to the manufacturers," Snyder said. Airlines also are struggling to adjust to fewer travelers.
When customer demand slackens, so do prices. Industry revenues were $17.9 billion last year vs. $19.4 billion in 2000, according to Auto Rental News.
Hopeful
The industry may have reason to be hopeful, though. Average rates for vehicles rented at airports have steadily climbed since April, according to figures from Abrams Travel Data Services, a Long Beach, Calif., market-research firm that tracks the car-rental industry. At one point in July, rates topped an average of $56 a day.
Rates for rentals at locations other than airports, known as the "local" market, also are rising. They still trail last year's pace, however. The latest figures from Abrams put the average at just under $41 a day, or about $3 less a day than the same period a year ago.
However, a critical question hanging over the industry is whether commercial travel will return to previous levels.
Fifty-eight percent of 204 travel managers surveyed by the National Business Travel Association in July said their companies were spending less on travel compared with 2002.