March 2009 - As corporations scramble to trim every last dime from their budgets, industry pros attest that travel buyers can yield significant results from scrutinizing their ground transportation contracts.
Ground transportation is "the most overlooked area for savings, and now it's very important to find savings in absolutely every place you can," said Dave Kilduff, CWT Solutions Group managing director of ground transportation. "There are a lot of people out there now looking at that."
"I'd say to every travel manager today that they should definitely go out for bids in this environment," said Mark H. Ziegler, corporate travel manager at technology provider Atmel Corp. "I have already seen at least three preliminary offers below my current rates that include insurance and upgrades, and I haven't actually begun my RFP process, which will happen later this year." In the meantime, Ziegler said, his current vendor has given him an extension on his present contract.
"For a lot of companies, ground is still an untapped area for savings," said Frank Schnur, vice president of American Express Business Travel Global Advisory Services. "There are significant savings opportunities to be had by simply putting a preferred vendor program in place."
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"Every travel manager today should definitely go out for bids in this environment."
— Mark H. Ziegler, Atmel Corp. corporate travel manager
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In a report issued in January, CWT predicted that "2009 ground transportation prices will stay flat, as suppliers must now compete harder than ever for fewer travelers." To achieve optimal value, CWT recommended that travel managers aggregate all of their car rental business into a single preferred provider and doggedly drive all bookings through that sole vendor. "You're going to get a better price, better service and greater accountability," Kilduff said.
Buyers may have particularly strong leverage with black car and limousine vendors, Kilduff added. "Those services are usually the most overlooked, because you have a multitude of suppliers," which makes it "fairly difficult, in terms of corralling all those suppliers and getting strong preferred vendor deals and then directing all the business through those preferred vendors. If your people are literally renting from hundreds of limo companies, there's no accountability, because they don't have a contractual agreement with you." With preferred vendor relationships, however, "you gain negotiating leverage, and you're going to have better benefits, better safety and better security, because you're going to negotiate all that in."
Matthew Tolan, senior vice president, global sales at Carey International, noted a sharp uptick in interest in preferred vendor agreements. "Clients are saying they used to have 25 vendors nationally, regionally and locally," Tolan said. "But now they say they're going to narrow it down to two or three. And to do that, they expect a better price."
Timing Is Everything
As nerve-wracking uncertainty looms across the table for both sides of the buyer-seller proposition, there is one group that can claim fiscal stability, demonstrated value and calm self-assurance. It consists of those who negotiated new ground contracts, particularly with car rental companies, just before the economic tsunami swept ashore in late September.
"I went out last September and did new two-year contracts with our preferred car rental companies," said Karoline Mayr, travel manager at software maker Deltek Inc., where 350 of the company's 1,300 employees are on the road 90 percent of the time. "Our preferred provider is Hertz, and our number-two provider is Avis. We took advantage of the climate that was coming and set up some really good reduced rates, with a rebate program as well, so we were all set up when the economy started to turn."
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"We took advantage of the climate that was coming and set up some really good reduced rates, with a rebate program as well, so we were all set up when the economy started to turn. Basically, we just kept asking for more."
— Karoline Mayr, Deltek Inc. travel manager
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In her planning and negotiating, Mayr focused on the top 10 cities where Deltek does business. "We specifically tried to lower our rates in those cities, and we were successful," she told
Procurement.travel. "We opted for a two-year agreement that would lock in rates for the presumed length of the recession. Then we said, 'Hey, we want to look at surcharges, too.' Basically, we just kept asking for more."
The strategy worked: Deltek is now paying less for cars than it was a year ago.
Travel buyers and consultants both say that there's still plenty of negotiating leverage for buyers who were not as prescient as Mayr.
"The leverage is in certain services you're willing to give up, like immediate inventory access or automatic upgrades," said Neil Abrams, president of Abrams Consulting Group. "If you're willing to give those kinds of things up, you have a lot more leverage. And if you can guarantee a dollar volume of transactions, as opposed to saying, 'We hope to be able to,' then you can get a lot more out of them, because the vendor can rely on that from a cash flow standpoint."
For companies that don't mind the slight inconvenience, renting cars at off airport locations can yield significant savings, Abrams added. "As a travel manager, there are ways you can save a lot of money. It's just a matter of what you're willing to sacrifice, or what you're willing to ask your people to do, to save money. And that's an element of organizational philosophy."
A more palatable approach may be to move to a different price point.
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"Get a grip on your total volume, then plan for consolidation and start driving people to those preferred suppliers. That will give you leverage to get better rates, services and benefits."
— Dave Kilduff, CWT Solutions Group managing director of ground transportation
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"If you're already doing business with a big company that has multiple brands, there is a way to save money," Abrams said. "For example, if you're an Avis customer but you want to reduce your costs and keep your relationship with a vendor alive, you might want to consider Budget at a lower price point. And the same is true with Enterprise and Dollar and Thrifty. You may not get the services an Avis customer is used to, but it's the same company and the same car. It's just at a different price point."
However, Kilduff said suggesting the loss of your business to a competing bidder may be an even better way to achieve real savings in today's market.
Cheryl Hoffard, manager of travel, meetings and events at The Schwan Food Co., where 20 percent of the company's 20,000 employees travel, has used tough negotiating to bring down costs. "We were more aggressive with our preferred car rental agencies," Hoffard said, "and we are receiving a better deal today than we were a year ago."
Keys To The Kingdom
Travel managers who want to squeeze the fat from ground budgets should first master the discipline of precision, both in planning and budgeting, Carey International's Tolan said. "The more information you have about your spend, the more likely you are able to leverage that," he said. "If you do business with local black car and limousine vendors all across the country, you will have a very hard time interpreting that much data." With a national vendor, Tolan said, buyers can get detailed analysis and reporting of their usage patterns and costs. "That's important because the key to procurement now is precision," he said.
Amex's Schnur suggested that buyers take a broader view of the vendor value equation. "Just focusing on the price of the intermediate car rental rate is not the right strategy," he said. "You need to look at everything else beyond that --the weekly rates, the city surcharges and all the other fees--because these contracts are complex today. If you don't understand the full scope of the offering, you can easily make the wrong decision. And if you make the decision solely based on the intermediate car rental daily rate, then you are not doing a sufficient amount of analysis to ensure that you're getting the best deal."
But in the current recession, the most important bottom-line issue is money and its related bargaining power, Schnur said. "What corporate travel managers can do is create a steady stream of business to the car rental companies, or other ground suppliers, where they haven't consolidated in the past," he said.
Even more important, said CWT's Kilduff, buyers who want to maximize their fiscal efficiency must look at the big picture and not get caught up in individual details. "You need to look at what you're doing," he said. "For example, very few travel managers tackle the black car/limo area, where a lot of money can be saved if you do your due diligence."
The critical standard of scrutiny should be based on apples to apples comparisons and not vague approximations, Kilduff added. "But to compare apples to apples, you need to get control of the entire ground segment of your business. You have to start looking at where all the agreements are throughout the world, if you're global, and get a grip on your total volume. Then you have to make a plan for consolidation and start driving people to those preferred suppliers, which gives you negotiating leverage that is going to get you better rates, better services and better benefits."
Concerns On The Ground, Other Than Mere Price
In today's market, with both travel buyers and sellers buffeted by unprecedented economic challenges, one almost inevitable consequence is the difficulty suppliers have in maintaining a quality standard once taken for granted.
"We're seeing that rental vehicles tend to be less well maintained than they were in the past," said Richard Crowley, manager of general accounting and travel liaison at Argonne National Laboratory. "For example, they are just not as clean, so I'm getting more complaints from people about dirty cars."
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"I'm getting more complaints from people about dirty cars."
— Richard Crowley, Argonne National Laboratory manager of general accounting and travel liaison
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Dave Kilduff, CWT Solutions Group managing director of ground transportation, said that such complaints from corporate travel managers soon will constitute a genuine trend, as the business climate is expected to worsen further before it gets better.
"When it comes to cleanliness and the condition of cars and the service levels, you certainly are going to be hearing more from travel managers, and that is something to keep your eye on in the future," Kilduff said. "Certainly as the profitability of these companies diminishes and they start cutting people, at some point that's going to show."
Since last fall, all the major car companies announced layoffs and other cost-cutting measures. Even privately owned Enterprise Rent-A-Car (which also owns the National and Alamo brands) in 2008 announced mass layoffs, the first in its 51-year history.
In their efforts to shrink operations, car rental companies have found that disposal of existing fleets has been hampered as "the value of used vehicles dropped precipitously," said Avis Budget Group CEO Ronald Nelson. At the same time, fleet renewal efforts have been strained by higher new car prices and well-publicized struggles at Detroit's Big Three automakers. The rental companies also have faced a tough environment for credit and fleet financing, though Avis Budget and Dollar Thrifty each announced new arrangements for fleet financing, and Hertz said it had begun similar discussions with lenders.
Combined with declining commercial volumes, pricing pressures and enormous one time impairment charges, these factors pushed Avis Budget, Hertz Global Holdings and Dollar Thrifty Automotive Group to collective 2008 losses in the billions. "Hertz experienced unprecedented volume, pricing and residual value contraction across all of its businesses in the fourth quarter of 2008," according to CEO Mark Frissora.
Things had gotten so bad that the car rental industry's trade association appealed to Congress for funding from the Troubled Asset Relief Program.
Looking ahead, each of the publicly traded rental companies told analysts to expect their financial challenges to continue at least during the first half of 2009. Hertz provided no specific future revenue or earnings guidance "due to continued volatility in car and equipment rental markets."
