Consumers may want to buckle up for a bumpy ride as consolidation hits a new level in the car rental industry.
Analysts predict that the $1.2 billion merger of Hertz Global Holdings (HTZ) and Dollar Thrifty Automotive Group (DTG), No. 3 and 4 respectively based on revenue, may ultimately lead to fewer rental locations in an industry that has already raised prices. While counterintuitive, such a theory isn't far-fetched.
In 2007 when Enterprise Rent-A-Car, the largest industry player, acquired Vanguard Car Rental Group, operator of the Alamo and National rental agencies, the combined companies operated 10,800 locations worldwide. But today, the combined Enterprise Holdings operates a total of 7,600 locations -- down a third from the number three years ago.
"Hertz and Dollar need to maximize their efficiencies and probably don't want to carry as many branches," said Karl Brauer, a senior analyst with automotive site Edmunds.com. "So an office that used to be five minutes away is closed, and the nearest one is now 20 minutes away."
Customers Still Satisfied With Enterprise
But that hasn't hurt the reputation of car rental agencies, particularly Enterprise. Last year, Enterprise snared the top ranking for customer satisfaction for the sixth-consecutive year, according to a survey by J.D. Power.
While consumers may lose branches after the Hertz-Dollar merger, announced Monday, Brauer doesn't believe Hertz will raise its rates once the deal closes. Currently, it's anticipated to wrap up sometime in the fourth quarter.
"I don't expect the prices to go up after the merger because there's already price sensitivity where they currently are," said Brauer, noting that Hertz's rates have risen since 2008 as the size of its rental fleet declined in the face of lower rental demand.
After the merger, Hertz will jump over Avis Budget Group (CAR) to secure the No. 2 spot and snag 23% market share, up from its previous level of 16%, according to data from Auto Rental News presented in a Hertz chart. Enterprise is expected to retain its 53% market share and Avis will hold onto 20% share.
The Hertz-Dollar deal is likely to serve as the last major consolidation in the shrinking car rental industry, leaving only smaller deals to be had among the smattering of independent car rental agencies, which represent a mere 2% slice of the industry pie.
Consumers Eye Branch Reductions in Car Rental Consolidation