by http://online.wsj.com/article/SB123318870746326703.html
a.. JANUARY 28, 2009, 11:19 P.M. ET
Rental-Car Firms Seek a Bailout
Ripple Effects From Auto-Sector Woes Include Credit Crunch, Fewer Customers
By PAULO PRADA
Add rental-car companies to the list of those seeking a federal bailout.
Stagnant credit markets, slumping demand for travel and the automobile
industry's hardships are hobbling rental-car companies like no other
downturn since the modern industry emerged in the 1970s. Fewer travelers are
renting cars. And rental-car companies are struggling to find buyers for
their used automobiles -- an important source of revenue -- and secure
financing to purchase new ones to replace them.
Now, Avis Budget Group Inc., Hertz Global Holdings Inc. and other rental-car
companies are lobbying Congress to allow them to use Troubled Asset Relief
Program funds to finance new auto purchases. The House of Representatives
included a clause in a TARP reform bill that it passed last week to give the
government authority to back loans to rental-car companies and other fleet
purchasers. The bill has now moved on to the Senate.
The industry's plight illustrates the domino effect the financial crisis is
having on the broader economy. Legislators added the clause to the bill
because the rental-car industry, which buys as many as 1.8 million new
vehicles a year, is the U.S. auto industry's biggest customer. "If our
desire is to get car buying and credit flowing again, enabling people who
buy hundreds of cars at a time is a good way to do it," said Steven Adamske,
a spokesman for Rep. Barney Frank (D., Mass.), chairman of the House
Financial Services Committee.
In addition to rental-car companies, trucking companies, limousine services
and other big fleet purchasers could benefit from the clause.
Federal aid wouldn't help the industry with its other big problem: fewer
customers renting cars. A decline in airline travel means rentals have
plunged, because many rental-car outlets are at airports, the companies and
analysts say.
Still, the companies say it would bring significant relief. Access to fresh
capital would help grease overall auto sales and purchases, they contend.
"The whole system needs to get moving again," says Pat Farrell, a spokesman
for privately held Enterprise Rent-A-Car Co., which also operates the
National and Alamo brands.
Last month, the chief executives of Enterprise, Avis, Hertz and Dollar
Thrifty Automotive Group Inc. sent a letter to House leaders pressing them
to help the industry. "The impact of the declining economy on our business
has already resulted in significant cost reductions, staff cutbacks and
facility closures," they wrote. "In addition, our industry faces significant
near term financing challenges...We therefore believe that government action
is necessary to help restore access to capital."
Enterprise laid off 2,000 employees, about 3% of its work force, in November
to trim about $200 million from its overall cost structure.
Earlier this month, Hertz said it would lay off more than 4,000 people as
part of a two-year effort to pare its work force by 32% from a peak of
31,500 employees in 2006. In November, Hertz said the downturn had already
caused earnings in the third quarter to fall to 33 cents a share, compared
with 65 cents a year earlier. Because of the closure of 80 branches and its
moves to cut its work force, the company posted an $85 million charge in the
quarter.
In December, Standard & Poor's cut the credit ratings of Avis and Dollar
Thrifty because of doubts over the companies' ability to meet debt
obligations.
Representatives at Hertz, Avis and Dollar Thrifty declined to comment.
Most major rental-car companies rarely kept a vehicle for more than nine
months before the downturn, but many are now holding them for more than a
year, getting more use out of cars that will no longer fetch what they once
did on the secondhand market.
"It just makes sense to hold onto them longer and let them depreciate until
the value is more in line with what the market is willing to pay," said Neil
Abrams, president of Abrams Consulting Group Inc. in Purchase, N.Y., which
for decades has advised rental-car companies.