Add-ons raise car-rental revenue

While a lot of attention has been paid in recent weeks to the fees that struggling airlines are adding to ticket prices, car rental companies have been quietly doing the same thing. Industry analysts say the cost of various optional but heavily promoted services such as navigation units and fuel refilling are adding as much as 20 percent to the overall rental cost.

"Renting cars is not a high-margin business," said Neil Abrams, owner of a consulting company that focuses on the rental-car industry. "Items such as GPS, satellite radio and EZ Pass have taken on a significant force in the rental industry, and companies are being more aggressive offering a fuel purchase option. You really have to think ahead or you could easily end up with a fuel charge of $75 for half a tank."

George Dunwoody found this out the hard way. As head of global travel for a corporate travel service provider, Travelport, an expense report recently landed on his desk that surprised him.

"We had somebody that rented a car for four hours and went a few miles," he said. "The refuel charge was $74 on a $40 rental. It's these fees that are killing us." As a result, Dunwoody said, he changed his corporate travel policy to prohibit employees from choosing the automatic refuel option.

"The creep in pricing is causing companies to take a closer look at their ground transportation," said David Balfour, director of the ground transportation consulting arm of American Express Business Travel. "For years, car rental was kind of overlooked because it's a smaller part, typically about 10 percent of air spend."

Business travelers say front desk personnel at car rental counters are becoming more aggressive about pushing the option to prepay for gas at the beginning of the rental period. With this option, gas is offered at a fixed per-gallon rate, typically a bit below the current market price.

"It looks like a good deal, but what they tell you in the fine print is that you fill up the whole tank at that rate, even if you bring it back half full," said Candy Adams, a trade show consultant and frequent business traveler.

For their part, car-rental companies defend the offering as a convenience for travelers unfamiliar with the area and as a hedge against rising fuel prices. Not all companies charge for a full tank; customers at Enterprise, National and Alamo, for example, pay a refueling fee up to 33 percent on each gallon.

Another dissenter is Hertz Corp., which will introduce a new system starting July 1. "One of our No. 1 complaints from customers was about our refueling policy," said company spokeswoman Paula Rivera.

To address this, all corporate-owned Hertz rental locations in the United States will charge customers who return their cars without full tanks a $6.99 service fee and gas at the market rate, as determined by an indexing service.

According to industry experts, rental companies are embracing various high-margin extras because of a combination of challenges. The pain felt by the automotive industry in Detroit means car manufacturers have pulled back on the longstanding generous terms they used to offer rental companies.

"Car rental companies have experienced up to 20 percent increases in the cost of vehicles year over year, so they have to mitigate that," said Chris Brown, managing editor of Auto Rental News, a trade publication. "They have to look elsewhere to keep profits up."

Michael J. Kane, president of car-rental consulting firm Vehicle Replacement Consulting Group, said the rental companies simply could not raise their base fares to cover the shortfall.

"There's a herd mentality, with everybody bunched together in terms of rate," he said. "Without those add-ons to the daily rate, it's difficult to make any money in the business."

In addition to pushing prepaid fuel, car-rental companies have caught on to the appeal among business travelers of time-saving devices such as toll fast-lane transmitters and GPS devices.