Instead of handouts, maybe the car rental industry as a whole should adopt the old Avis slogan, "we try harder." According to The Wall Street Journal, car rental companies were successful in getting language inserted into the so-called TARP "reform" bill that would give them a slice of the bailout pie. Passed by the House, Hertz (NYSE:HTZ), Avis Budget Group (NYSE:CAR), and their competitors are now pestering the Senate where the bill is under consideration.
At first blush, there's a lot to recommend the bill. According to the industry, they and fleet car purchasers are the biggest car buyers in the nation. The rental car companies purchase as many as 1.8 million cars a year, but because of the moribund economy, airlines have cut flights, while consumers and business travelers have cut back their spending. Hertz has said it may have to cut 4,000 jobs, and Avis has said that 2,200 job cuts are possible. Dollar Thrifty (NYSE:DTG) announced that it may reduce its workforce by 6%, or 400 jobs. By giving them TARP money, not only will we be helping out the car manufacturers, but the rental companies will be saved, too.
Follow the goldbrick road
On the surface, the argument is plausible, but when you dig a little deeper, you realize just how ludicrous it is. Giving the money first to Hertz, Avis, Dollar, or even privately held Enterprise is a circuitous route to bailing out Detroit.
Hertz and Avis are not going to spend a dollar on General Motors (NYSE:GM) or Ford (NYSE:F) cars for every dollar they receive from TARP. As we've seen in banking, a lot of the money that was given with the intention to make more loans available instead went for other purposes. The car rental companies will also peel off wads of cash for their own uses, too.
It's not that we can't, we won't
Moreover, the car rental industry has to replace its cars because of the wear and tear they endure as rentals. According to the Journal, the typical shelf life of a rental car is nine months, but because the used car market is weak, they're hanging onto them longer. The rental companies are going to have to replace those vehicles sooner or later regardless of whether they get a bailout, but they're looking for the government to finance the purchase.
If you look at the results of the secondary car market, you'll find used car dealers like CarMax (NYSE:KMX) and junkyard auctioneer Copart (NASDAQ:CPRT) stuck in reverse. CarMax lost $22 million in the third quarter while Copart saw profits edge down 1% in its latest quarter. Perhaps we should give them TARP money, too, so they can buy cars from Avis, who can then give the cash to Ford. Or maybe the airlines, who certainly queue up the customers at their car rental counters.
If what we're really trying to do is help out Ford, GM, and Chrysler -- and it should be obvious that the rental agencies aren't so selfless -- then we ought to just give them the money directly. We shouldn't allow it to be siphoned off by third parties and hope it winds its way through the economy and finds the road to Detroit.
