Toyota's rental car problem

toyota_avis.gi.top.jpgThese recalled Toyotas, sitting at an Avis storage lot in Toronto last month, may now be back on the road. But will rental car customers shun Toyotas even after repairs?By Chris Isidore, senior writer


NEW YORK (CNNMoney.com) -- Toyota Motor is struggling to hold onto its customers through its recall crisis. But the ones it might have the most trouble keeping are the biggest: rental car companies.

Any reluctance by people to rent Toyotas would create problems for companies like Enterprise Holdings, Hertz Global Holdings and Avis Budget and discourage them from buying new cars from Toyota.

Spokeswomen with Enterprise, the nation's largest car rental company, and Hertz (HTZ, Fortune 500) said that this isn't a widespread problem but some customers are unwilling to rent recalled models of Toyotas that have since been fixed.

"For the most part people are pretty accepting of the repairs and don't have problems. But we have had customers who don't want Toyotas. We do our best to find them a different model," said Hertz spokeswoman Paula Rivera.

Enterprise spokeswoman Laura Bryant said some customers have also declined the repaired Toyotas, but could not give details of how common this is. Toyota only makes up about 4% of Enterprise's fleet.

But industry experts say they expect drivers declining to rent Toyotas right now is likely fairly common, given the choices available to renters in most circumstance.

"There are plenty of arguments as to why Toyota owners will keep driving their cars," said Jesse Toprak, a vice president with TrueCar, a car pricing Web site. "But there's no reason to take a risk and rent one, given the alternatives."

David Cole, from the Center for Automotive Research, a Michigan think tank, said it'll take only a fraction of renters to decline Toyotas to sour the rental companies on the brand.

"The car is only making money when the wheels are moving," he said. "If it's parked, it's a liability."

Even if customers are happy to drive a rented Toyota, the hit to the resale values of recalled models may make rental car companies think twice about buying more Toyotas.

Kelley Blue Book, which publishes used car values, lowered the estimated value of all recalled models about 4% since the crisis began. The declines are even bigger for newer models.

Traditionally Toyota's strong resale values were a selling point for rental companies. Toprak said the decline of a few hundred dollars in the value of a used Toyota due probably isn't enough to sway consumers, but that such a small shift "can make or kill a rental company's decision to buy a car or not" since the profit margins on these vehicles are so thin.

Toyota is not as reliant on rental car companies as U.S. automakers General Motors, Ford Motor (F, Fortune 500) and Chrysler Group or Korean automaker Hyundai Group. Each of them depend on rental car companies for more than 10% of their sales.

But two of the recalled models -- the Corolla and the Camry -- were No. 2 and No. 3 in terms of vehicles purchased by U.S. rental car companies in 2009, according to figures from an industry source.

It's estimated that about 130,000 Toyotas, or almost 9% of the brand's U.S. sales last year, went to the rental car fleets. That's enough to keep a single Toyota factory going more than six months.

In addition, the big increase in new vehicle purchases by rental car companies were the reason U.S. auto sales rose in January. Sales to consumers fell from the low levels of a year earlier. So it will be crucial for Toyota to not lose ground in the key rental car market.

The spokeswomen for Enterprise and Hertz would not speculate on their future Toyota purchase plans, saying they are concentrating on getting recalled vehicles back on the road as soon as possible.

Bob Barton, president of the American Car Rental Association, said purchase decisions will likely depend more on what incentives Toyota is willing to offer rental car companies, such as whether Toyota will finance the purchases or promise to buy back the cars after a set number of months.

But Toyota's decision to temporarily shut down U.S. plants during the crisis is also a reason for concern for rental companies that want to make sure they get the cars they order, Barton said.

Cole said that all the uncertainty surrounding Toyota -- the company faces a Congressional hearing and potential customer lawsuits -- could discourage purchases by the rental companies.

"If you're the rental car industry, your assumption is that life is not going to get better soon for Toyota," he said. To top of page

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