Car rental business consolidates, yet rates will stay competitive

The car rental business has historically been one of the most competitive in the country. Yet the field has now been winnowed down to only three major players: Hertz, Avis, and Enterprise.

Headlines have been warning that this move will result in higher prices due to the lack of competition. But I don’t believe it, because of the economic concept of the “Rule of Threes.”

In capitalism, it’s very common to have three major players controlling a particular industry. Consider Office Depot/Office Max/Staples, or BJ’s Wholesale/Sam’s Club/Costco. Even the remaining full fare airlines might whittle down to a mere three in coming years.

Fortunately, three players is enough to create innovation and price competition. When you get down to just two (aka a shared monopoly), you lose that edge. But with three car rental companies still in play, travelers should have little to fear.

Of course, when you get to the rental counter at the airport, it looks like there are a lot more than three companies. But Enterprise owns National and Alamo; Avis owns Budget; and Hertz has now gotten approval to buy Dollar Thrifty.

But I don’t want you to limit yourself to thinking about renting only at the airport.

When you get to where you’re going, pay a cab to take you off the airport property and get into the town. Both Enterprise and Hertz have a huge network of in-town rental locations that are geared to locals with completely different pricing than what’s available at airports.

For example, on that Colorado ski trip I mentioned, cars at the Denver Airport were as much as a few hundred dollars a day. So I checked and found we could rent a car in the town of Denver for $24 a day.

In another example, my brother once couldn’t find a decent car rental in Dallas because there was some convention going on. All the rentals were more than $100 a day. So I told him to take an airport shuttle from Dallas/Fort Worth Airport to downtown Dallas and he got a car for $22 a day. Giving up convenience in exchange for saving money must run in the family!