The evergreen car rental agreement
Historically, companies tended to sign car rental agreements for a year, renegotiated and renewed annually. This evolved into three-year agreements that are usually limited to an annual base rate increase that’s tied to a fixed percentage. The caveat was that if the price of vehicles increased during the agreement by more than x%, the supplier could increase rates mid-agreement.
Recently, suppliers have started offering car rental agreements with an infinite term that automatically renews each year unless cancelled by either party. These new agreements include similar annual rate increases with no need for you to take action each year.
Initially, this may seem like good news for you. But with one less area to negotiate each year, it’s still important to pay close attention to the details. A three- to five-percent annual increase may not appear significant enough to justify going out to bid, but these annual increases quickly add up over time.
During the recent economic downturn, car rental rates actually decreased due to lower demand, a strong used vehicle resale market, and increased supplier competition. Yet many corporations, locked into infinite-term agreements, ended up automatically accepting increases in their rates and overall car rental costs.
Today, we’re seeing that many clients who haven’t put their car rental program out to bid in more than two years are paying 10 percent or more over market rates. What’s more, since they haven’t been involved in a recent sourcing process, these clients are often missing out on a number of additional program benefits they may well have been able to negotiate. So it’s more critical than ever to understand which components within your car rental program are negotiable and what impact they have on costs, program efficiency and traveler satisfaction.
Our proprietary car rental benchmarking analysis lets you easily see how your overall program costs compare to the market. The analysis also allows you to drill down and quantify the cost position of individual components to major car rental cost factors. With this data, you have the knowledge you need to decide if it’s time for a car rental RFP, how much you can save, and how you’ll achieve those savings.