Corporate Buyers Seek Multiyear Car-Rental Contracts
By Michael B. Baker
Monday, April 2 2007
Monday, April 2 2007
Published on AllBusiness.com
Car rental companies are noting higher corporate travel buyer interest in multiyear contracts and other negotiating strategies as buyers successfully seek ways to hold down rental car company attempts to raise prices.
Consultants warn that a multiyear strategy dilutes negotiating power and could result in unnecessary price increases, yet some buyers have found value in fixed rates for long-term budgeting and fewer renegotiations.
Cathy Funderburk, executive director of corporate sales for Dollar Thrifty Automotive Group, said her company has noticed the requested length of contracts has been inching upward, and competitors and some buyers concurred that it was an option under consideration. Kevin Maguire, director of global travel for Austin, Texas-based Applied Materials, said that although his company currently uses one-year contracts for car rental, he was weighing the possibility of moving to a longer-term contract.
"You lock in more negotiable rates," Applied Materials' Maguire said. "It also eliminates the cost of having to go back through the request-for-proposals process every year."
Consultants and buyers agreed that car rental contracts, as compared with other contracts in the travel realm, are particularly complex, and the contracts' terms and conditions, including liability issues, are laborious to have to negotiate year after year. "There are a lot of moving parts, so it's very difficult to assess one contract with another just on the face of it," said David Balfour, car rental senior practice leader for American Express Business Travel Advisory Services.
Moves by Amex clients to extend contracts have been more muted, Balfour said. "We're seeing a little bit of interest in longer contracts, but not a great deal," he said. "A lot of companies have purchasing or procurement departments that determine what suits the company, and if a one-year agreement suits their needs, it's fine."
Some buyers cited shifting fleet strategies within car rental companies as further impetus to consider longer-term contracts with vendors. All car rental companies are under pressure from struggling auto manufacturers and face escalating fleet costs, and the companies have vowed to push for further increases both in rack rates and negotiated corporate rates.
Therein, however, lies the rub with multiyear contracts, consultants said. Rose Stratford, senior vice president of industry relations for BCD Travel, said that with those mounting fleet costs, car rental companies would not consider multi-year contracts without some sort of price escalation clause in it. While knowing what prices will do over the course of several years can be helpful in terms of long-term
Consultants warn that a multiyear strategy dilutes negotiating power and could result in unnecessary price increases, yet some buyers have found value in fixed rates for long-term budgeting and fewer renegotiations.
Cathy Funderburk, executive director of corporate sales for Dollar Thrifty Automotive Group, said her company has noticed the requested length of contracts has been inching upward, and competitors and some buyers concurred that it was an option under consideration. Kevin Maguire, director of global travel for Austin, Texas-based Applied Materials, said that although his company currently uses one-year contracts for car rental, he was weighing the possibility of moving to a longer-term contract.
"You lock in more negotiable rates," Applied Materials' Maguire said. "It also eliminates the cost of having to go back through the request-for-proposals process every year."
Consultants and buyers agreed that car rental contracts, as compared with other contracts in the travel realm, are particularly complex, and the contracts' terms and conditions, including liability issues, are laborious to have to negotiate year after year. "There are a lot of moving parts, so it's very difficult to assess one contract with another just on the face of it," said David Balfour, car rental senior practice leader for American Express Business Travel Advisory Services.
Moves by Amex clients to extend contracts have been more muted, Balfour said. "We're seeing a little bit of interest in longer contracts, but not a great deal," he said. "A lot of companies have purchasing or procurement departments that determine what suits the company, and if a one-year agreement suits their needs, it's fine."
Some buyers cited shifting fleet strategies within car rental companies as further impetus to consider longer-term contracts with vendors. All car rental companies are under pressure from struggling auto manufacturers and face escalating fleet costs, and the companies have vowed to push for further increases both in rack rates and negotiated corporate rates.
Therein, however, lies the rub with multiyear contracts, consultants said. Rose Stratford, senior vice president of industry relations for BCD Travel, said that with those mounting fleet costs, car rental companies would not consider multi-year contracts without some sort of price escalation clause in it. While knowing what prices will do over the course of several years can be helpful in terms of long-term