How do rental car companies make money?
Rental cars are seen at a Budget car and truck rental franchise in Mount Prospect, Illinois.
An "I've always wondered..." two-fer: Two listener questions on the rental industry we just couldn't take apart...
1) Why do rental car companies give you two keys that can't be separated? If you lose one, you lose both. -- Brianne Halbach from Atlanta.
"We share cars between branches, and since we have more than one key set, each car comes with two sets, we just want to have both sets together when we sell the car," Ian McGrath, who works behind the counter at an Enterprise Rent-A-Car
In fact, this has nothing to do with us as consumers.
A word of advice from someone who's tried -- you really can't get the keys apart.
A few months ago, I rented a car from Hertz. A parking attendant locked both keys in the car. I called Hertz, they sent triple-A, I’m charged $130. I said to the Triple-A guy, "If these keys weren’t attached I wouldn’t have had this problem."
He offers to cut them apart, and his bolt cutter couldn't even do it—that wire is like titanium or something.
Paula Rivera at Hertz explains: "We have about a half-million cars in our fleet. So logistically, it’s very difficult for us to store the second set somewhere and then match it up with the original car."
I put it to her that it’s a real pain for renters—if they lose the keys, or lock them inside like I did.
"Hertz actually offers a premium roadside service. So for approximately an additional $6.50 a day, things such as keys locked in cars or lost keys are included in that service."
Yes, she tried to upsell me with the "premium roadside service." Which brings us to another question from a listener.
2) How do rental car companies make money? -- Barry Reeves from Portland, Ore.
One answer: They buy so many cars, the automakers cut them big discounts. And they’ve figured out the formula to make sure those cars are on the road 80 percent of the time.
Jack Gillis of the Consumer Federation of America says where they really push for profits is the add-ons. Ten percent of revenue comes from car seats, gasoline, insurance, GPS—stuff we opt for at the counter because of convenience, or a hard-sell.
"Many of us fall victim to pay for the full tank up front. And the only way that’s ever going to pay off is if you return the car and roll in running on fumes. There’s virtually no reason to buy the auto insurance, if you own your own car and have your own insurance policy."
And, finally, the companies get pretty good resale value when they unload the cars—20,000 or 25,000 miles later.
Some people buy rentals as used cars, and don't even know it. Chris Brown is with Auto Rental News. He says car renters have a scarier reputation than they deserve.
"The majority of rental cars are driven by people between the ages of 25 to 65. More than half are air travelers, they hold credit cards, so they have some financial means."
So the answer to both questions—the two identical keys, how the rental companies make money—ties in to resale value. Keep those keys together, save a few hundred bucks. Keep the car clean and in good working order, boost your revenue when it’s time to sell to a dealer or consumer.
At the end of the day, renting cars?
It’s kind of beside the point.
Featured in: Marketplace for Monday, February 10, 2014