In Fast Money’s sector trade – the car rental business. Whether you're taking an all American road trip or flying across the country, chances are you might need to rent a car.
Last year, after Cendant's transformation into Avis Budget Group (CAR) and Hertz's (HTZ) initial public offering, rental car stocks heated up. Recently though, they have been under a bit of pressure because of concern over lighter airline traffic and higher gas prices.
Gary Paxton, the chief executive of Dollar Thrifty Automotive Group (DTG) joins the guys for this conversation.
Are car manufacturers changing their supply approach with you?
“They’re raising the cost and they’re limiting the supply (of fleet cars),” explains Paxton.
That’s a pretty different approach?
“Sure is. But I think it’s something that can bring discipline to the industry and in the end it will be a good thing,” says Paxton.
What’s the cost impact?
“Our fleet vehicle costs have increased 25% each of the past 2 years. And we’re still negotiating what our fleet cost will be for the ’08 model year,” explains Paxton.
How much is fleet cost as a percentage of overall cost?
“It’s our largest,” says Paxton.
Would you consider including used cars in your fleet?
“We’re putting a few, what we call lightly used vehicles in our fleet, right now.”
Is the rental car business simply a less profitable business?
“I don’t believe so. Many of the discounts we’ve received on fleet prices have been passed along to the consumer as very inexpensive car rental prices. I think you’re going to see some pressure put on pricing to the consumer. But, it’s still a great bargain.
He adds “Average revenue per day in our industry is somewhere in the $40 dollar a day range, which when you think about it – compared to the cost of the asset – is very cheap.”
So you’re going to charge more money?
“We’re going to have to,” says Paxton.
How are the airline cancellations and delays affecting your business?
“We’ve got more customers arriving at the counter later than they were supposed to – and they’re not in a good frame of mind after an extended trip!” he jokes.
Why the distinction in performance between your company versus Avis or Hertz?
Our performance in Q1 was better than Hertz or Avis so I don’t understand that myself. I think the public wants more sizzle than steak.”
Dylan Ratigan asks the guys what they think of this stock.
Eric Bolling doesn’t like DTG. Although he does like Hertz.
Guy Adami says DTG is a buy because of how far the stock is off its 52-week high.
Pete Najarian doesn’t understand why DTG struggles more than Hertz and Avis.
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Trader disclosure: On July 3rd 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders Macke Owns (DIS); Najarian Owns (DNDN), (ERIC), (HLT), (JNPR (CBH), (IMMR); Najarian Closed Out Of (BIDU) Today; Bolling Owns (DIS), (T), (XOM), Natural Gas, Corn