Dollar Thrifty displeased with Chrysler

Car rental companies are all feeling the pain of increased fuel costs, as decreased demand is seeing their cars sitting in lots instead of hitting the road. Dollar Thrifty is feeling even more pain than many of its competitors as this former Chrysler subsidiary is finding that it’s receiving less money when it sells its used vehicles.

The reason for this is that when Chrysler spun off the car rental company that was named Thrifty Automotive Group, it wrote into the deal a long-term contract that committed Thrifty Automotive – now Dollar Thrifty - to buy its cars from Chrysler.

At this time, vehicle sales have a greater impact on a company’s bottom line than vehicle purchases. A majority of firms are attempting to reduce their fleets in order to raise cash and also to reduce operating costs as they see business decline and fewer vehicles required for day-to-day operations.

In a profit warning it issued early in the week, Dollar Thrifty reported that vehicle depreciation costs are expected to cut into its 2008 earnings. Shortly afterwards, the firm said to Forbes.com that what it meant by “depreciation” is the difference between what it paid to Chrysler and what it could get when it sells its used vehicles.

The Dollar Thrifty fleet is taking a beating financially because most of its vehicles are Chrysler-made and have lower resale values than vehicles manufactured by other car makers, said Betsy R. Snyder, a credit analyst for Standard & Poor’s. Other rental car companies tend to have more diversified fleets and are not experiencing the same impact.

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