Key Interest Rates Bond Current Previous Change Change %
*Prices as of 7/2/2009 5:01 PM. Source: S&P Comstock
3 Month Bill 0.16 0.17 -0.01 -5.88
6 Month Bill 0.29 0.32 -0.03 -9.38
2 Year Note 0.98 1.04 -0.06 -5.77
5 Year Note 2.42 2.51 -0.09 -3.59
10 Year Note 3.49 3.53 -0.04 -1.13
30 Year Bond 4.32 4.33 -0.01 -0.23
By Deborah Levine, MarketWatch
Last Update: 2:32 PM ET Jul 2, 2009
NEW YORK (MarketWatch) -- Treasury prices rose Thursday, pushing 2-year note yields to the lowest in about a month, after the Labor Department said the U.S. economy shed many more jobs than expected, raising concerns that continued weakness in consumer spending will slow the economy's recovery.
"This tells us that employment is still under huge stresses," said William Bellamy, who manages about $1 billion as director of fixed income at Thompson Siegel & Walmsley. "Given the lack of improvement in the employment picture, yields should move lower."
Yields on 2-year notes (UST2YR) fell 7 basis points to 0.97%, falling below 1% for the first time since June 4. A basis point is 0.01%.
Ten-year note yields (UST10Y) also declined, down 6 basis points to 3.48%, the lowest since May 29.
Bond prices move inversely to their yields.
Two-year yields have fallen from 1.11% a week ago, heading to a fourth week of declines as investors readjust hopes for a robust recovery from the recession.
Ten-year yields are down slightly from 3.50% from last Friday, helding onto gains from last week's big drop in yields.
Traders expect volume to thin ahead of the Independence Day holiday, with markets closed on Friday.
The economy lost 467,000 jobs in June, and the nation's unemployment rate rose to 9.5%, with both figures looking worse than in May. Analysts surveyed by MarketWatch had forecast a loss of 325,000 for nonfarm payrolls and a jobless rate of 9.6%. See more on June jobs data.
The payrolls decline is "shockingly big relative to consensus expectations," said James Caron, head of U.S. interest-rate strategy at Morgan Stanley. "May numbers were a ray of hope that has been dimmed and markets are reacting in kind."
Separately, a weekly report on jobless claims for the week ended June 27 showed 614,000 Americans filed for first-time unemployment benefits.
Fed futures
The payrolls report may overshadow lingering concerns about inflation, which erodes the value of fixed-income holdings, as continued slack in the labor market doesn't coincide with rising prices, said William O'Donnell, head of Treasury strategy at RBS Securities.
"The two don't happen together which is a core theme here that underscores our view that real rates are very attractive at current levels," he said.
Interest-rate futures traders pared expectations that the Federal Reserve will raise benchmark rates from the current range of zero to a quarter of a percent. Fed funds futures for December indicate a 25% chance of interest rates rising a half of a percentage point by then, down from a 33% chance before the jobs data.
Auction amounts
U.S. debt remained strong after the Treasury Department said it will sell $73 billion in debt next week, less than some analysts anticipated.
The government said it will sell $8 billion in 10-year inflation-indexed debt on Monday, followed a day later by $35 billion in 3-year notes (UST3YR) .
Both amounts are unchanged from the previous sale of new securities, in January and June, respectively. Wrightson ICAP, a research firm specializing in government finance expected each to be increased by $2 billion.
Wednesday will bring $19 billion in 10-year notes, with another $11 billion in 30-year notes (UST30Y) on Thursday. Those amounts match last month's sales and Wrightson's forecasts.
The latter two auctions will be reopenings of securities sold during the government's quarterly refunding in May, meaning they carry the same coupon and maturity date as the original debt.
The Treasury is using reopenings as a way to spread out the sales of increasing amounts of debt needed to finance the government's and the Fed's programs to revive the economy and ease credit-market strains. This will be the first time the government reopens the so-called long bond for both months between refundings.
Expectations of more debt supply tend to weigh on bond prices because greater issuance reduces the value of current holdings. However, that may not happen this time, Morgan Stanley's Caron said.
"If anything, people will look at this in a welcoming sense," he said. "We're in an environment where rates will stay low based on the Fed and the economy is not going anywhere at an accelerated pace, so fixed income is a safe place to hang out."
Friday, July 3, 2009
Tempting Targets: 5 Stocks Priced for a Takeover
Companies don't seem interested in buying rivals at the moment, despite the comparatively low prices they could pay for them. That bodes poorly for stocks in general, but investors can still use the math of takeover pros to find bargains.
U.S. shares are 27% cheaper than a year ago, even after climbing 15% in the second quarter. During the first half, though, the value of announced acquisitions in the U.S. fell 45% from a year earlier, according to data provider Dealogic. TrimTabs, an investment research group, calls the second quarter the most bearish it has seen since it started tracking data in 1995, in terms of companies' zeal for selling new shares to the public and their reluctance to spend cash to buy either their shares or entire companies.
Investors should read that as a sign of stock-market pessimism among company managers, which signals poor market returns to come, according to TrimTabs. Perhaps that makes now a good time to raise cash, or at least trade pricey stocks for cheap ones. To the latter end, I've listed five companies below that corporate suitors might think are good deals right now, if they weren't so reluctant to spend. Some of the traits that can make a company a potential takeover target can also make it a promising stock. Chief among them is a modest price.
The companies have, in the parlance of merger and acquisition pros, low EV/Ebitda ratios. EV is enterprise value, which is what an investor would pay to buy a company in its entirety and repay all of its debt. Ebitda stands for earnings before interest, taxes, depreciation and amortization. It's a measure of underlying profit potential that allows for tidy comparisons of companies. A low EV/Ebitda ratio, then, means a company had a modest takeover price relative to its earnings potential. The companies on my list also generate free cash, something acquiring firms like to see.
BJ's Wholesale Club (BJ: 31.48, -0.74, -2.29%) shares have climbed 31% over the past five years, vs. an 18% decline for the S&P 500. They now sell for 13 times forward earnings, vs. more than 16 times earnings for the index. Sales and profits for BJ's are rising at the moment, as consumers forsake full-price shops for discount clubs. The company has low profit margins relative to peers like Costco (COST: 44.64, -1.15, -2.51%), but also increasing margins, which together suggest both improvement and room for more of it.
Dell (DELL: 12.97, -0.42, -3.13%) has suffered sharp sales declines of late, but it has reduced corporate expenses and still produces impressive returns on equity, the mark of an efficient company. In the absence of a global economic recovery, the chief appeal of the stock for investors is a low price. Subtracting the company's sizable cash balance from its stock price, shares go for about 10 times forward earnings.
Listed below are details on these two companies and three others.
Screen Survivors Company Ticker Industry Curr. Price EV/Ebitda Return on Equity (%) Dividend Yield (%)
Data as of July 1, 2009
Dell DELL Personal Computers 13.73 5.60 46.9 n/a
Sherwin-Williams SHW Chemicals 53.75 6.86 32.0 2.64
Eastman Chemical EMN Chemicals 37.90 5.63 14.1 4.64
BJ's Wholesale Club BJ Discount Stores 32.23 5.99 14.8 n/a
Weis Markets WMK Grocery Stores 33.52 5.93 8.2 3.46
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."
U.S. shares are 27% cheaper than a year ago, even after climbing 15% in the second quarter. During the first half, though, the value of announced acquisitions in the U.S. fell 45% from a year earlier, according to data provider Dealogic. TrimTabs, an investment research group, calls the second quarter the most bearish it has seen since it started tracking data in 1995, in terms of companies' zeal for selling new shares to the public and their reluctance to spend cash to buy either their shares or entire companies.
Investors should read that as a sign of stock-market pessimism among company managers, which signals poor market returns to come, according to TrimTabs. Perhaps that makes now a good time to raise cash, or at least trade pricey stocks for cheap ones. To the latter end, I've listed five companies below that corporate suitors might think are good deals right now, if they weren't so reluctant to spend. Some of the traits that can make a company a potential takeover target can also make it a promising stock. Chief among them is a modest price.
The companies have, in the parlance of merger and acquisition pros, low EV/Ebitda ratios. EV is enterprise value, which is what an investor would pay to buy a company in its entirety and repay all of its debt. Ebitda stands for earnings before interest, taxes, depreciation and amortization. It's a measure of underlying profit potential that allows for tidy comparisons of companies. A low EV/Ebitda ratio, then, means a company had a modest takeover price relative to its earnings potential. The companies on my list also generate free cash, something acquiring firms like to see.
BJ's Wholesale Club (BJ: 31.48, -0.74, -2.29%) shares have climbed 31% over the past five years, vs. an 18% decline for the S&P 500. They now sell for 13 times forward earnings, vs. more than 16 times earnings for the index. Sales and profits for BJ's are rising at the moment, as consumers forsake full-price shops for discount clubs. The company has low profit margins relative to peers like Costco (COST: 44.64, -1.15, -2.51%), but also increasing margins, which together suggest both improvement and room for more of it.
Dell (DELL: 12.97, -0.42, -3.13%) has suffered sharp sales declines of late, but it has reduced corporate expenses and still produces impressive returns on equity, the mark of an efficient company. In the absence of a global economic recovery, the chief appeal of the stock for investors is a low price. Subtracting the company's sizable cash balance from its stock price, shares go for about 10 times forward earnings.
Listed below are details on these two companies and three others.
Screen Survivors Company Ticker Industry Curr. Price EV/Ebitda Return on Equity (%) Dividend Yield (%)
Data as of July 1, 2009
Dell DELL Personal Computers 13.73 5.60 46.9 n/a
Sherwin-Williams SHW Chemicals 53.75 6.86 32.0 2.64
Eastman Chemical EMN Chemicals 37.90 5.63 14.1 4.64
BJ's Wholesale Club BJ Discount Stores 32.23 5.99 14.8 n/a
Weis Markets WMK Grocery Stores 33.52 5.93 8.2 3.46
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."
Big Squeeze on Ivy League Endowments
FOR YEARS, TOP UNIVERSITY ENDOWMENTS at Harvard, Yale and Princeton were the envy of the investment world, thanks to the outsized returns they generated from significant investments in nontraditional assets such as private equity, real estate, hedge funds and commodities, and low exposure to U.S. stocks and bonds.
Now that widely imitated asset- allocation strategy, dubbed the Yale model because of the enormous success of the Yale endowment under the 24-year leadership of David Swensen, is facing its sternest test amid the bear market of the past 12 months. Harvard and Princeton are assuming their endowments fell about 30% for the fiscal year ending June 30, while Yale is projecting a decline of 25%.
The outlook is challenging for the big Ivy League endowments because many of their investments are in illiquid private- equity and real-estate funds or commodity-related assets such as timberland, whose estimated value might not reflect today's steeply discounted market prices. Yale and Princeton, for instance, have invested roughly half their endowment assets in private-equity deals, real estate and commodities, a far cry from the 65%-to-35% blend of stocks and bonds favored by many individuals. If the three Ivies valued such assets at market-clearing prices, their endowment losses for fiscal 2008-09 could approach 35%.
It is tough for outsiders to assess the big university endowments, given limited public disclosure, and endowment directors at Harvard, Yale and Princeton declined to speak with Barron's. The endowments reveal their asset allocations, but not individual investments or outside managers. Most of their assets are farmed out, with endowment pros like Swensen overseeing the selection process while monitoring risk and results.
We have assumed that private-equity, real-estate and commodity investments lost about 50% in the past year, based on market benchmarks. Major commodity indexes are off 50%, as are independent oil and gas stocks. The MSCI index of real-estate investment trusts has lost 45%, and private-equity investments are trading for 50 cents on the dollar, or less. The Standard & Poor's 500 index has fallen 27%.
Timberland, for instance, looks significantly overvalued and could drop sharply as investors "race to the exits," Barron's Roundtable member Oscar Schafer said in our midyear update two weeks ago ("Too Far, Too Fast," June 15).
OTHER MAJOR ENDOWMENTS, including those of Stanford, the University of Michigan and the University of Virginia, also have allocated a significant portion of assets to so-called alternative investments. Stanford has less exposure than the biggest Ivies, however. It is projecting a 30% loss for the current year.
Barron's was among the first to identify university-endowment problems, in a cover story last fall ("Crash Course," Nov. 10, 2008), and the financial pressures on both the endowments and schools have worsened significantly since. We correctly predicted the major endowments could be down 25% or more in the current fiscal year, even as some endowment chiefs were insisting any losses would be much lower.
The endowments may end up trailing the stock market in the coming year because of the lag in marking down illiquid asset classes. As we argued last fall, it is probably time -- and now, past time -- for the big endowments to exit some of their illiquid investments and buy stocks and bonds, both to take advantage of market opportunities and gain greater financial flexibility.
In the near term, however, endowment holdings may become more skewed toward illiquid assets, as they are tapped to ease strained university budgets and fund new investment commitments to private-equity and real-estate managers that were made when the markets were stronger. Endowments normally recycle distributions from existing private-equity and real-estate funds into new investments, but the bear market has slowed such distributions to a trickle. Institutional investors who walk away from private-equity commitments usually pay a steep price, which could include forfeiting existing holdings.
Liquidity problems are affecting Harvard, which ended its 2008 fiscal year with the country's largest university endowment: $36.9 billion. Harvard lost two key internal bond managers last week amid reports the managers were unhappy that the endowment had grown more conservative in its investments, limiting their ability to buy riskier bonds. Such caution isn't surprising, however, because liquidity problems last fall, prompted by market declines and the need to post collateral to offset losses on an interest-rate swap tied to a university bond offering, nearly forced the endowment to sell private-equity interests at distressed prices.
To give themselves financial breathing room and forestall asset sales, major universities sold sizable amounts of debt last year. Harvard issued $1.5 billion; Princeton, $1 billion, and Yale, $800 million. Harvard's debt now exceeds $5 billion. Even while borrowing heavily, many big universities have been sellers of stocks, bonds and other liquid assets in the past year.
Despite their investment losses in the past year, major university endowments still have a stellar long-term record. For the 10 years ended June 30, 2008, the Yale endowment gained 16.3% annually, while Harvard rose 13.8% a year and Princeton, 14.9%. The Standard & Poor's 500 logged an average annual increase of just 2.9% in that span.
Yale's endowment grew to $22.9 billion from $6.6 billion in the decade, while Harvard's expanded to $36.9 billion from $13 billion. The Princeton endowment rose to $16.3 billion from $5.6 billion. Harvard's strong performance in the past 10 years relative to that of the average nonprofit investment pool translated into a staggering $23 billion of added value.
Now that widely imitated asset- allocation strategy, dubbed the Yale model because of the enormous success of the Yale endowment under the 24-year leadership of David Swensen, is facing its sternest test amid the bear market of the past 12 months. Harvard and Princeton are assuming their endowments fell about 30% for the fiscal year ending June 30, while Yale is projecting a decline of 25%.
The outlook is challenging for the big Ivy League endowments because many of their investments are in illiquid private- equity and real-estate funds or commodity-related assets such as timberland, whose estimated value might not reflect today's steeply discounted market prices. Yale and Princeton, for instance, have invested roughly half their endowment assets in private-equity deals, real estate and commodities, a far cry from the 65%-to-35% blend of stocks and bonds favored by many individuals. If the three Ivies valued such assets at market-clearing prices, their endowment losses for fiscal 2008-09 could approach 35%.
It is tough for outsiders to assess the big university endowments, given limited public disclosure, and endowment directors at Harvard, Yale and Princeton declined to speak with Barron's. The endowments reveal their asset allocations, but not individual investments or outside managers. Most of their assets are farmed out, with endowment pros like Swensen overseeing the selection process while monitoring risk and results.
We have assumed that private-equity, real-estate and commodity investments lost about 50% in the past year, based on market benchmarks. Major commodity indexes are off 50%, as are independent oil and gas stocks. The MSCI index of real-estate investment trusts has lost 45%, and private-equity investments are trading for 50 cents on the dollar, or less. The Standard & Poor's 500 index has fallen 27%.
Timberland, for instance, looks significantly overvalued and could drop sharply as investors "race to the exits," Barron's Roundtable member Oscar Schafer said in our midyear update two weeks ago ("Too Far, Too Fast," June 15).
OTHER MAJOR ENDOWMENTS, including those of Stanford, the University of Michigan and the University of Virginia, also have allocated a significant portion of assets to so-called alternative investments. Stanford has less exposure than the biggest Ivies, however. It is projecting a 30% loss for the current year.
Barron's was among the first to identify university-endowment problems, in a cover story last fall ("Crash Course," Nov. 10, 2008), and the financial pressures on both the endowments and schools have worsened significantly since. We correctly predicted the major endowments could be down 25% or more in the current fiscal year, even as some endowment chiefs were insisting any losses would be much lower.
The endowments may end up trailing the stock market in the coming year because of the lag in marking down illiquid asset classes. As we argued last fall, it is probably time -- and now, past time -- for the big endowments to exit some of their illiquid investments and buy stocks and bonds, both to take advantage of market opportunities and gain greater financial flexibility.
In the near term, however, endowment holdings may become more skewed toward illiquid assets, as they are tapped to ease strained university budgets and fund new investment commitments to private-equity and real-estate managers that were made when the markets were stronger. Endowments normally recycle distributions from existing private-equity and real-estate funds into new investments, but the bear market has slowed such distributions to a trickle. Institutional investors who walk away from private-equity commitments usually pay a steep price, which could include forfeiting existing holdings.
Liquidity problems are affecting Harvard, which ended its 2008 fiscal year with the country's largest university endowment: $36.9 billion. Harvard lost two key internal bond managers last week amid reports the managers were unhappy that the endowment had grown more conservative in its investments, limiting their ability to buy riskier bonds. Such caution isn't surprising, however, because liquidity problems last fall, prompted by market declines and the need to post collateral to offset losses on an interest-rate swap tied to a university bond offering, nearly forced the endowment to sell private-equity interests at distressed prices.
To give themselves financial breathing room and forestall asset sales, major universities sold sizable amounts of debt last year. Harvard issued $1.5 billion; Princeton, $1 billion, and Yale, $800 million. Harvard's debt now exceeds $5 billion. Even while borrowing heavily, many big universities have been sellers of stocks, bonds and other liquid assets in the past year.
Despite their investment losses in the past year, major university endowments still have a stellar long-term record. For the 10 years ended June 30, 2008, the Yale endowment gained 16.3% annually, while Harvard rose 13.8% a year and Princeton, 14.9%. The Standard & Poor's 500 logged an average annual increase of just 2.9% in that span.
Yale's endowment grew to $22.9 billion from $6.6 billion in the decade, while Harvard's expanded to $36.9 billion from $13 billion. The Princeton endowment rose to $16.3 billion from $5.6 billion. Harvard's strong performance in the past 10 years relative to that of the average nonprofit investment pool translated into a staggering $23 billion of added value.
The Fed's Delicate Balancing Act
The Federal Reserve kept its near-zero short-term interest rates unchanged last week, and that lack of action has our pundits wondering how long the Fed can pretend it’s not worried about inflation before that, too, becomes a factor in the complex and slow road to recovery.
After listening to Wednesday's Federal Open Markets Committee statement, market strategists and economists concluded that if Fed chairman Ben Bernanke and his colleagues had their way, we'd stop worrying about inflation. After all, the longer-term absence of inflation, kept in check so far because people just aren’t spending much money, would be ideal for getting the economy out of its current mess: 10-year Treasury yields would remain low, the modest pace of housing activity would continue, and investors would be at least mildly positive about our economic prospects.
However, such a scenario may be tenuous at best. According to our pundits, the Federal Reserve is trying to strike a delicate balance by using non-committal statements, such as "the pace of economic contraction is slowing" and "conditions in financial markets have generally improved in recent months." The goal, our pundits say, is to keep bond investors from driving up yields and derailing the low mortgage rates that are helping the recovery in housing. They also hope to stimulate enough growth in the economy that it will rely less on stimulus money.
ISI Group policy analysts, Andy LaPerriere and Tom Gallagher, explain the Fed's difficult position. The Fed, they argue, has to stay vague, offering near-term reassurance that rates aren’t in danger of going up without making the stimulus plan look open-ended.
"We don't think the Fed wanted to encourage market pricing of late '09-early '10 rate hikes; instead, it probably wanted to avoid direct longer-term guidance," they wrote. The analysts believe the Fed will rely on future testimony from Bernanke to more clearly signal that it won't hike rates for a while.
LPL Financial chief strategist Jeff Kleintop says he sees some promising signs that the markets are undergoing a healthy recovery and becoming more stable. "The fact that this process is taking place without explicit policy action demonstrates that the markets may be coming off of the Washington life support machine," he wrote.
Barry Knapp, U.S. strategist for Barclays Capital, thinks this indicates a "credit-less" recovery, meaning we’ll see smaller, less leveraged growth as investors try to steer clear of repeating the bubble and bust cycle. Such a recovery, he says, may be mild but runs less risk of being powered by cheap capital and overextended borrowing.
“The key macroeconomic question is whether the economy can recover with capital restrictions and credit contraction. There is precedent for a credit-less recovery,” he wrote on June 25. “In the case of the recession ended March 1991, bank asset growth fell 1% in 1991 and was flat for 1992; however, GDP averaged 2.7% for the four quarters following the recession and 3.2% for the subsequent four quarters.”
Ron Muhlenkamp, the founder and president of investment firm Muhlenkamp & Company, sees similar parallels to the early 1990s. He projects that, like the recession of the '90s, it could take a couple of years for consumer confidence to return.
"This time around, with the problems in our credit markets and financial institutions, it wouldn’t surprise me if consumer confidence stays modest – subdued – for a long time coming out of this recession," he wrote in his June Sign Post commentary. "But, remember, the economy may come back long before a return of consumer confidence, similar to what happened after the 1990 slowdown. Public perception lags the economist’s definition and the markets anticipate the economist’s definition. That’s just the way it works."
So how should investors play this complicated state of affairs?
According to a June 25 report by JPMorgan strategist Thomas Lee, this might be a prime time to get in early on cyclical stocks, such as consumer discretionary companies, technology, industrials and materials. He cautions, however, that rising oil prices and the recent three-month stock market rally could translate into a possible correction in September.
Brad Sorenson, the director of market and sector analysis at Charles Schwab, sees it as a chance for investors to shake off their paralysis."[In] every situation lies an opportunity: Investors looking to make some shorter-term moves could benefit from buying stocks and funds at lower prices," he wrote on Thursday. "We continue to believe that global reflationary policies, combined with the possibility of a continued weakening of the dollar will benefit the more cyclical technology, industrials and materials sectors."
After listening to Wednesday's Federal Open Markets Committee statement, market strategists and economists concluded that if Fed chairman Ben Bernanke and his colleagues had their way, we'd stop worrying about inflation. After all, the longer-term absence of inflation, kept in check so far because people just aren’t spending much money, would be ideal for getting the economy out of its current mess: 10-year Treasury yields would remain low, the modest pace of housing activity would continue, and investors would be at least mildly positive about our economic prospects.
However, such a scenario may be tenuous at best. According to our pundits, the Federal Reserve is trying to strike a delicate balance by using non-committal statements, such as "the pace of economic contraction is slowing" and "conditions in financial markets have generally improved in recent months." The goal, our pundits say, is to keep bond investors from driving up yields and derailing the low mortgage rates that are helping the recovery in housing. They also hope to stimulate enough growth in the economy that it will rely less on stimulus money.
ISI Group policy analysts, Andy LaPerriere and Tom Gallagher, explain the Fed's difficult position. The Fed, they argue, has to stay vague, offering near-term reassurance that rates aren’t in danger of going up without making the stimulus plan look open-ended.
"We don't think the Fed wanted to encourage market pricing of late '09-early '10 rate hikes; instead, it probably wanted to avoid direct longer-term guidance," they wrote. The analysts believe the Fed will rely on future testimony from Bernanke to more clearly signal that it won't hike rates for a while.
LPL Financial chief strategist Jeff Kleintop says he sees some promising signs that the markets are undergoing a healthy recovery and becoming more stable. "The fact that this process is taking place without explicit policy action demonstrates that the markets may be coming off of the Washington life support machine," he wrote.
Barry Knapp, U.S. strategist for Barclays Capital, thinks this indicates a "credit-less" recovery, meaning we’ll see smaller, less leveraged growth as investors try to steer clear of repeating the bubble and bust cycle. Such a recovery, he says, may be mild but runs less risk of being powered by cheap capital and overextended borrowing.
“The key macroeconomic question is whether the economy can recover with capital restrictions and credit contraction. There is precedent for a credit-less recovery,” he wrote on June 25. “In the case of the recession ended March 1991, bank asset growth fell 1% in 1991 and was flat for 1992; however, GDP averaged 2.7% for the four quarters following the recession and 3.2% for the subsequent four quarters.”
Ron Muhlenkamp, the founder and president of investment firm Muhlenkamp & Company, sees similar parallels to the early 1990s. He projects that, like the recession of the '90s, it could take a couple of years for consumer confidence to return.
"This time around, with the problems in our credit markets and financial institutions, it wouldn’t surprise me if consumer confidence stays modest – subdued – for a long time coming out of this recession," he wrote in his June Sign Post commentary. "But, remember, the economy may come back long before a return of consumer confidence, similar to what happened after the 1990 slowdown. Public perception lags the economist’s definition and the markets anticipate the economist’s definition. That’s just the way it works."
So how should investors play this complicated state of affairs?
According to a June 25 report by JPMorgan strategist Thomas Lee, this might be a prime time to get in early on cyclical stocks, such as consumer discretionary companies, technology, industrials and materials. He cautions, however, that rising oil prices and the recent three-month stock market rally could translate into a possible correction in September.
Brad Sorenson, the director of market and sector analysis at Charles Schwab, sees it as a chance for investors to shake off their paralysis."[In] every situation lies an opportunity: Investors looking to make some shorter-term moves could benefit from buying stocks and funds at lower prices," he wrote on Thursday. "We continue to believe that global reflationary policies, combined with the possibility of a continued weakening of the dollar will benefit the more cyclical technology, industrials and materials sectors."
10 Things Rental Car Companies Won't Say
1. “We’re a tax magnet.”
Rental-car customers are paying more, due to an unprecedented slew of taxes and fees. But that extra money doesn’t go to the rental car companies; it goes into city and state coffers, where it’s used to fund municipal projects. For example, in 2005 car rentals in Arlington, Tex., were hit with a 5 percent tax to help pay for the new Dallas Cowboys stadium. Car rentals get tapped as fund-raisers because local politicians won’t feel the repercussions at the voting booth. “They’re taxing people who are flying in from someplace else,” says a Hertz spokesperson. “These people can’t and don’t vote locally, so there’s no harm for them.”
But there’s a way for consumers to dodge some of these fees: Pick up your car in town, not at the airport. In 2005 Travelocity found that taxes and fees were 45 percent lower for off-airport rentals. An added bonus, according to Neil Abrams, president of Abrams Consulting, is that you’ll save on rates, too: On average, they’re $10 cheaper per day in town.
2. “We track your every move.”
Over the past few years, rental agencies have begun to install GPS devices in their vehicles. These units allow companies to track cars that are lost or stolen. But global-positioning technology also lets them know when a renter has been speeding or has taken a car into another state, which may be construed as increasing wear and tear. “Opportunity for a rental car operator to impose geographic limitations was never pitched by GPS sellers, but was discovered coincidentally,” says Michael LaPlaca, an attorney who specializes in rental car law.
To date, most companies don’t use the technology to impose fines, but it can and does happen. American Car Rental, for example, was charging customers in Connecticut $150 each time they topped the speed limit for two minutes at a stretch, claiming it damaged their vehicles. Connecticut’s Consumer Protection Commission deemed the fines excessive, ordering the company to refund penalized customers, and in 2005 the state’s Supreme Court affirmed the decision. (American Car Rental has since gone out of business.)
Since then other states, including New York and California, have passed laws preventing rental car companies from imposing such penalties. But some still try to get away with it: In 2006 California’s attorney general announced a settlement of over $700,000 in a consumer protection lawsuit against Fox Rent A Car for using GPS to illegally charge customers who traveled outside a three-state area and for forcing customers to purchase liability insurance. (Fox Rent A Car has not returned calls for comment.)
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
4. “You probably don’t need our insurance.”
Most companies make reserving and renting a car pretty simple—until it comes to the issue of insurance. That’s where they offer a bewildering array of supplemental coverage, which can easily add $10 to $30 to your daily bill. What the overeager reps won’t tell you is that you may already be covered, either partially or completely.
There are two major types of insurance you’ll want: a collision/damage waiver and liability. The former covers repair and replacement costs to the car should anything happen to it; the latter protects you from lawsuits if you’ve injured anyone or damaged property when driving. If you have auto insurance, it usually extends to rental cars, providing both collision/damage and liability, as long as you’re on a leisure trip. And many credit cards cover damages to the vehicle but don’t offer liability.
As with any type of insurance, it’s always more complicated than it seems. “You shouldn’t assume you’re covered by your credit card,” says a spokesperson for the Insurance Information Institute. Check ahead of time with both your credit card and auto insurance providers to see if, when, and how you’re covered.
5. “Your reservation doesn’t mean bupkes.”
Andy Parker was looking forward to spending his winter vacation exploring the back roads of Aruba. He even reserved a Jeep with Hertz to handle the rough driving conditions. But when he went to pick it up, he was told all they had on the lot was a sedan. “It was a sore spot,” says the Buffalo, N.Y., meteorologist, who got stuck with a small Nissan.
As Parker found out, a reservation isn’t a guarantee. The rental agreement is contingent on availability. In fact, you’re not reserving a specific car model, but simply a class of car. (One exception: Hertz allows you to reserve high-end models in its “Prestige Collection.”) What a reservation actually means is that the company is supposed to have some kind of vehicle on the premises for you to rent. So if you get a smaller car than what you reserved, be sure to ask for a rate adjustment. (Parker got Hertz to take 20 percent off his bill; Hertz did not return our calls for comment.)
If the lot is empty, the company is supposed to find you a car even if it means calling another agency and covering the difference. So if the clerk doesn’t offer, remind him that the company is liable if you wind up paying more for a rental car elsewhere.
6. “Special orders are our bread and butter.”
Just like supermarkets, rental car companies bank on getting their customers to do some impulse buying at the checkout counter—where you can now choose from a sizable menu of à la carte amenities and services. The strategy seems to be working: 2007 revenue reached $21.5 billion, a 21 percent increase since 2002, according to Auto Rental News.
A spokesperson for the American Auto Association says that a rental vehicle tricked out with extra features could run you $20 more a day. Here’s how it breaks down: GPS with turn-by-turn directions costs about $12 a day. Avis and Budget rolled out a service that for a minimal amount each day will let you pay highway tolls electronically—but that fee doesn’t include the tolls themselves. And if you want a baby seat for the minivan, add another bill to the pile.
Companies have also begun pushing specialty cars. In 2007 Avis introduced its “Cool Car” collection, which includes the Nissan Altima Hybrid, Cadillac CTS, and Hummer H3. And even low-priced Thrifty has a “Beyond Luxury” collection, offering cars like the BMW 5-series and Cadillac Escalade. “It can be a place to make money,” the AAA spokesperson says.
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
8. “We’re cutting corners anywhere we can.”
You may not have noticed, but over the past few years the fine print on rental contracts has been changing, restricting privileges and perks, even for the industry’s best customers. For example, in the winter of 2005, Hertz shortened the grace period for returning a car from one hour to half an hour for everyone including its #1 Club Gold members; customers also can no longer return a car after a location has closed for the night without incurring a late fee. (Hertz did not return our calls for comment.)
In another move to cut corners, rental companies across the board have begun making customers liable for damage caused by so-called acts of God, such as hurricanes and floods. Avis and Budget, the last major holdouts on this policy change, have recently added it, even to their frequent renters’ contracts. The new rule means it’s now up to renters either to return a car before the natural disaster hits, drive the vehicle out of harm’s way, or pay up for the newly developed insurance option to cover this type of damage.
9. “you won’t believe what we’re charging for fill-ups.”
Even when Brandon Harris is in a hurry, he tries to gas up before returning his rental car. When he was on vacation in Costa Rica a few years ago, he had to travel 15 minutes out of his way to find an open station. “I don’t think the rates that [rental agencies] are charging are fair,” the Chicago resident says. “It’s cheaper to do it yourself.” Although most car rental companies claim they charge the same for gas as local market conditions, it’s really the service charge that jacks up the price: You’re paying for fuel plus the luxury of not having to pump it yourself, says an AAA spokesperson, and not filling up the tank can tack on an additional $20 to your bill.
Car rental companies do offer another option: prepaying for a tank of gas at a more reasonable rate so you don’t have to worry about finding a station at the last minute. There’s only one problem: You’re not likely to return the car empty. “Whatever gas you leave in the tank is a donation to the rental car company,” the AAA spokesperson says. So unless you’re tight for time, it still pays to gas it up yourself upon return. But watch out for gas stations right next to the airport, since they tend to have higher prices. These pumps “make a killing on out-oftowners filling up rental cars,” the AAA spokesperson says.
10. “We offer some terrific deals—on Thursdays when the moon is full.”
Jay Winger thought he’d found a great deal. He was planning to use a Budget double-upgrade coupon when he rented a car for his Las Vegas vacation. The coupon had been accepted when he made the reservation online, but when he arrived at the rental desk, the agent refused to honor it. Why? At the bottom of the coupon in “really small print,” Winger says, it stated that the coupon wasn’t valid in all areas— including, as it turned out, Vegas. “There are always certain locations that don’t take part in national promotions,” says an Avis Budget Car Rental spokesperson. Winger wound up spending about $60 more than he had planned. “Renting a car is really tricky,” the Minneapolis native says.
On every rental car company website, there are ads flaunting the companies’ latest deals. Not to mention the paper coupons that appear regularly in newspapers. But there are so many rules and restrictions involved that it’s often impossible to get exactly the deal that’s being advertised. For starters, some require a Saturday-night stay or a minimum five-day rental. Companies also designate blackout days, exclude popular locations like New York and Las Vegas, and reserve the right to terminate any given offer at any time.
Rental-car customers are paying more, due to an unprecedented slew of taxes and fees. But that extra money doesn’t go to the rental car companies; it goes into city and state coffers, where it’s used to fund municipal projects. For example, in 2005 car rentals in Arlington, Tex., were hit with a 5 percent tax to help pay for the new Dallas Cowboys stadium. Car rentals get tapped as fund-raisers because local politicians won’t feel the repercussions at the voting booth. “They’re taxing people who are flying in from someplace else,” says a Hertz spokesperson. “These people can’t and don’t vote locally, so there’s no harm for them.”
But there’s a way for consumers to dodge some of these fees: Pick up your car in town, not at the airport. In 2005 Travelocity found that taxes and fees were 45 percent lower for off-airport rentals. An added bonus, according to Neil Abrams, president of Abrams Consulting, is that you’ll save on rates, too: On average, they’re $10 cheaper per day in town.
2. “We track your every move.”
Over the past few years, rental agencies have begun to install GPS devices in their vehicles. These units allow companies to track cars that are lost or stolen. But global-positioning technology also lets them know when a renter has been speeding or has taken a car into another state, which may be construed as increasing wear and tear. “Opportunity for a rental car operator to impose geographic limitations was never pitched by GPS sellers, but was discovered coincidentally,” says Michael LaPlaca, an attorney who specializes in rental car law.
To date, most companies don’t use the technology to impose fines, but it can and does happen. American Car Rental, for example, was charging customers in Connecticut $150 each time they topped the speed limit for two minutes at a stretch, claiming it damaged their vehicles. Connecticut’s Consumer Protection Commission deemed the fines excessive, ordering the company to refund penalized customers, and in 2005 the state’s Supreme Court affirmed the decision. (American Car Rental has since gone out of business.)
Since then other states, including New York and California, have passed laws preventing rental car companies from imposing such penalties. But some still try to get away with it: In 2006 California’s attorney general announced a settlement of over $700,000 in a consumer protection lawsuit against Fox Rent A Car for using GPS to illegally charge customers who traveled outside a three-state area and for forcing customers to purchase liability insurance. (Fox Rent A Car has not returned calls for comment.)
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
3. “Our prices are etched in sand.”
Trying to find the best rental deal can be frustrating, since rates can fluctuate dramatically from day to day, even minute to minute. “Prices are constantly changing,” Abrams says. That’s because rental car agencies use something called yield-management technology, which continually adjusts pricing depending on how many cars are available. A sudden rash of cancellations or bookings, for example, can push rates up or down. When we priced an Enterprise rental for a spring trip to Los Angeles, the cost vacillated dramatically: Two hours after we first checked the company’s website, the per-day rate for a full-size car dropped almost $8, and over the next week it continued to yo-yo dramatically, with a range of $40. (“There are any number of reasons why the price of a rental car can fluctuate,” says a spokesperson for Enterprise. “During weekend specials you may see savings up to 50 percent; renting during the week could cost you more.”)
Even the way you book can affect prices. When we called the Avis desk at LAX to reserve a minivan, we were quoted a price more than $150 higher than the amount being advertised simultaneously on the company’s website. Also, online travel agencies like Orbitz or Priceline can have completely different prices. That’s why it pays to comparisonshop and check back later to see whether rates have fallen—there’s usually no fee to cancel a reservation or rebook at a lower rate.
4. “You probably don’t need our insurance.”
Most companies make reserving and renting a car pretty simple—until it comes to the issue of insurance. That’s where they offer a bewildering array of supplemental coverage, which can easily add $10 to $30 to your daily bill. What the overeager reps won’t tell you is that you may already be covered, either partially or completely.
There are two major types of insurance you’ll want: a collision/damage waiver and liability. The former covers repair and replacement costs to the car should anything happen to it; the latter protects you from lawsuits if you’ve injured anyone or damaged property when driving. If you have auto insurance, it usually extends to rental cars, providing both collision/damage and liability, as long as you’re on a leisure trip. And many credit cards cover damages to the vehicle but don’t offer liability.
As with any type of insurance, it’s always more complicated than it seems. “You shouldn’t assume you’re covered by your credit card,” says a spokesperson for the Insurance Information Institute. Check ahead of time with both your credit card and auto insurance providers to see if, when, and how you’re covered.
5. “Your reservation doesn’t mean bupkes.”
Andy Parker was looking forward to spending his winter vacation exploring the back roads of Aruba. He even reserved a Jeep with Hertz to handle the rough driving conditions. But when he went to pick it up, he was told all they had on the lot was a sedan. “It was a sore spot,” says the Buffalo, N.Y., meteorologist, who got stuck with a small Nissan.
As Parker found out, a reservation isn’t a guarantee. The rental agreement is contingent on availability. In fact, you’re not reserving a specific car model, but simply a class of car. (One exception: Hertz allows you to reserve high-end models in its “Prestige Collection.”) What a reservation actually means is that the company is supposed to have some kind of vehicle on the premises for you to rent. So if you get a smaller car than what you reserved, be sure to ask for a rate adjustment. (Parker got Hertz to take 20 percent off his bill; Hertz did not return our calls for comment.)
If the lot is empty, the company is supposed to find you a car even if it means calling another agency and covering the difference. So if the clerk doesn’t offer, remind him that the company is liable if you wind up paying more for a rental car elsewhere.
6. “Special orders are our bread and butter.”
Just like supermarkets, rental car companies bank on getting their customers to do some impulse buying at the checkout counter—where you can now choose from a sizable menu of à la carte amenities and services. The strategy seems to be working: 2007 revenue reached $21.5 billion, a 21 percent increase since 2002, according to Auto Rental News.
A spokesperson for the American Auto Association says that a rental vehicle tricked out with extra features could run you $20 more a day. Here’s how it breaks down: GPS with turn-by-turn directions costs about $12 a day. Avis and Budget rolled out a service that for a minimal amount each day will let you pay highway tolls electronically—but that fee doesn’t include the tolls themselves. And if you want a baby seat for the minivan, add another bill to the pile.
Companies have also begun pushing specialty cars. In 2007 Avis introduced its “Cool Car” collection, which includes the Nissan Altima Hybrid, Cadillac CTS, and Hummer H3. And even low-priced Thrifty has a “Beyond Luxury” collection, offering cars like the BMW 5-series and Cadillac Escalade. “It can be a place to make money,” the AAA spokesperson says.
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
7. “You’ve got to do a little detective work to find a good deal.”
It used to be that better deals were to be had at smaller, independent rental car companies. But with rising energy prices and weakening demand, that’s no longer true. In fact, the changing rental car landscape is making it any company’s game to pitch a bargain—which means it’s more important than ever to shop around for the best deals.
Good to know, since rental car rates—which remained relatively flat after 2000—have begun to rise again. The average daily cost of a rental was $73 in the second quarter of 2008, a 3 percent increase over the year before, according to American Express Business Travel.
So how to find a bargain? Your best bet is to hit the Internet: Expedia.com and Orbitz.com offer reliable online comparison-shopping tools for rental car companies at locations near you. A recent search of Orbitz.com, for example, turned up a $230 weekly rate for an economysize car from Budget’s location at New York’s John F. Kennedy International Airport—that’s nearly half of what Avis was charging ($458).
8. “We’re cutting corners anywhere we can.”
You may not have noticed, but over the past few years the fine print on rental contracts has been changing, restricting privileges and perks, even for the industry’s best customers. For example, in the winter of 2005, Hertz shortened the grace period for returning a car from one hour to half an hour for everyone including its #1 Club Gold members; customers also can no longer return a car after a location has closed for the night without incurring a late fee. (Hertz did not return our calls for comment.)
In another move to cut corners, rental companies across the board have begun making customers liable for damage caused by so-called acts of God, such as hurricanes and floods. Avis and Budget, the last major holdouts on this policy change, have recently added it, even to their frequent renters’ contracts. The new rule means it’s now up to renters either to return a car before the natural disaster hits, drive the vehicle out of harm’s way, or pay up for the newly developed insurance option to cover this type of damage.
9. “you won’t believe what we’re charging for fill-ups.”
Even when Brandon Harris is in a hurry, he tries to gas up before returning his rental car. When he was on vacation in Costa Rica a few years ago, he had to travel 15 minutes out of his way to find an open station. “I don’t think the rates that [rental agencies] are charging are fair,” the Chicago resident says. “It’s cheaper to do it yourself.” Although most car rental companies claim they charge the same for gas as local market conditions, it’s really the service charge that jacks up the price: You’re paying for fuel plus the luxury of not having to pump it yourself, says an AAA spokesperson, and not filling up the tank can tack on an additional $20 to your bill.
Car rental companies do offer another option: prepaying for a tank of gas at a more reasonable rate so you don’t have to worry about finding a station at the last minute. There’s only one problem: You’re not likely to return the car empty. “Whatever gas you leave in the tank is a donation to the rental car company,” the AAA spokesperson says. So unless you’re tight for time, it still pays to gas it up yourself upon return. But watch out for gas stations right next to the airport, since they tend to have higher prices. These pumps “make a killing on out-oftowners filling up rental cars,” the AAA spokesperson says.
10. “We offer some terrific deals—on Thursdays when the moon is full.”
Jay Winger thought he’d found a great deal. He was planning to use a Budget double-upgrade coupon when he rented a car for his Las Vegas vacation. The coupon had been accepted when he made the reservation online, but when he arrived at the rental desk, the agent refused to honor it. Why? At the bottom of the coupon in “really small print,” Winger says, it stated that the coupon wasn’t valid in all areas— including, as it turned out, Vegas. “There are always certain locations that don’t take part in national promotions,” says an Avis Budget Car Rental spokesperson. Winger wound up spending about $60 more than he had planned. “Renting a car is really tricky,” the Minneapolis native says.
On every rental car company website, there are ads flaunting the companies’ latest deals. Not to mention the paper coupons that appear regularly in newspapers. But there are so many rules and restrictions involved that it’s often impossible to get exactly the deal that’s being advertised. For starters, some require a Saturday-night stay or a minimum five-day rental. Companies also designate blackout days, exclude popular locations like New York and Las Vegas, and reserve the right to terminate any given offer at any time.
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