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The New Economics of Renting a Car
The Wall Street Journal Online
By Avery Johnson

Compacts Can Now Cost More Than SUVs As High Gas Prices Damp Demand for Large Vehicles

Rising gas prices are leading to some funky economics at the rental-car counter: Prices are dropping on SUVs and big luxury cars, and increasing for the cramped, compact models that are now in greater demand.

In some cases, it's becoming cheaper this spring to rent a Jeep than a Taurus. In Boston, for example, Avis, owned by Cendant Corp., is renting SUVs for less than a subcompact: For pickup today and return tomorrow, a subcompact (like a Chevrolet Aveo) is $70.99, while an intermediate SUV (like a Pontiac Vibe) is $62.99 (not including taxes and fees). At Vanguard Car Rental USA Inc.'s Alamo brand, a search for cars at the Washington, D.C., Union Station location to pick up today and return tomorrow finds that a compact (like the Chevrolet Cobalt) costs $82.90 per day, while a midsize SUV (like the Chevrolet Equinox) is $71.90 (not including tax). At Enterprise Rent-A-Car Co.'s Los Angeles Airport location, it costs less to rent an SUV like a Chevrolet Trailblazer ($37.24) tomorrow and return it Thursday than it does to take out a sedan like a Pontiac G6 ($41).

Historically, the situation has been just the opposite. Rental car companies have been able to command significant premiums on SUVs, often up to twice the daily charge for a sedan. But now that gas prices have reached $3 a gallon, consumers are increasingly shunning the gas guzzlers. Demand has soared for smaller fuel-efficient cars, leading some rental agencies to raise prices. Edith Mancilla, the area manager Anaheim and Orange, Calif., branches of Dollar Rent A Car, says she's renting 40% fewer SUVs this spring than she did previously. It's caused her to drop the price of her standard SUVs $49, from an average of $64 last year, and raise the price of her compact cars, from $25.99 last year to about $34 now.

"We have a lot of SUVs just sitting here, and we're running out of compact cars because no one wants to pay the gas for a large car," says Ms. Mancilla. "We have to put customers in SUVs even if they don't want them."

Don Himelfarb, chief administrative officer at Dollar Thrifty Automotive Group Inc., which owns the Dollar and Thrifty brands, says that fleet availability and rates in each city are unique and are based on capacity and competition, but no program exists to price SUVs less than cars that are comparable in cost.

Ken Buja, a 42-year-old computer programmer from Washington, D.C., took a trip to San Francisco and the Yosemite area earlier this month, and booked a Dodge Neon compact. He wanted a small, fuel-efficient car because he would be driving more than 600 miles and wanted to be able to park easily when he completed his trip in San Francisco. But when he got to the Dollar location to pick up the car, he was handed the keys to a Jeep Wrangler -- for the same price ($100 for six days, before tax) as the Neon. Even though he was getting more car for his money, he says, the offer "was unacceptable."

"I would be driving long distances and needed something that would be fuel-efficient," he explains. After protesting, he eventually got the keys to a smaller Chrysler Sebring.

The glut in big rental cars is being exacerbated this spring by the traditional decision by many rental-car companies to fill their lots with family-friendly cars like SUVs and minivans in advance of the summer travel season. Those cars aren't yet being greeted by heavy high-season demand. Hertz Corp., for example, has about 5% more vehicles for rent now than it did a couple months ago, but is seeing weaker demand growth than it did this time last year.