In full transparency, the following is a press release from the office of Senator Elizabeth Warren. She was elected by voters in the Commonwealth of Massachusetts to serve Washington DC State in the United States Senate. She is a Democrat. (file photo)
WASHINGTON DC – U.S. Senator Elizabeth Warren (D-Mass), a member of the Senate Finance Committee, wrote two separate letters to the White House Competition Council and to Lina Khan, Chair of the Federal Trade Commission (FTC ), concerning the profit of companies in the sectors of the sale and rental of automobiles.
As Americans face record high prices across the economy, Senator Warren is blasting bad actors who are raising prices for car rentals and sales to boost their bottom line. Senator Warren is asking the White House Competition Council to conduct a review of anti-competitive behavior in the car rental industry and provide recommendations on how to create a competitive market to reduce consumer costs. In her letter to Speaker Lina Khan, Senator Warren expresses concern that predatory pricing by car dealerships is driving up the costs of new consumer cars.
In 2018, only three companies demanded more 95% market share in the car rental industry in the United States. Enterprise Holdings, which consists of Enterprise, National and Alamo, owns a 33% market share, while Hertz Global Holdings – Hertz, Dollar and Thrifty – controls 36% of the market, and Avis Budget Group controls 26%.
Over the past year, these car rental companies have thrived: Avis reported new net income and record profit in November 2021, and Hertz go from bankruptcy in May 2020 to a record profit margin in the third quarter of 2021.
Enterprise Holdings is a private company that discloses little information to the public, but it would have grew its U.S. revenue by nearly $1.5 billion in 2021, up 10.5% from 2020.
While companies raked in profits and rewarded executives with bonuses and stock buybacks, they let customer service suffer to further increase profit margins. They were instructed to reduce their fleets to create low inventory and high prices.
Additionally, their poor customer service and fraudulent practices have left customers stranded when reservations failed and trapped them with excessive charges. They have also repossessed cars from paying customers and repeatedly had customers arrested in a disturbing trend of reporting car theft. In December 2021, nearly 200 people filed lawsuits accusing Hertz of “falsely implicating customers in car thefts,” seeking around $530 million in damages. Hertz has filed approximately 3,365 police reports of car theft against customers over the past four years.
“While these trends in the rental car industry have been exacerbated by the coronavirus pandemic, they closely follow the playbook that rental car companies have been using for over a decade: building share of market through consolidation, using monopoly power to increase prices and reduce services to increase profit margins,” Senator Warren wrote in her letter to the White House Competition Council.
In the letter to Lina Khan, Senator Warren is concerned about car dealers’ long history of deceptive advertising practices and consumer fraud, and dealers’ potential violation of consumer protection laws to raise prices and fatten their own profit margins, and contribute to inflation.
Americans have long accepted that they face a complex shopping environment when buying a new car, viewing advertised Manufacturers’ Suggested Retail Prices (MSRPs) as a mere suggestion and negotiating to pay as much below the MSRP as possible – while navigating marketing tactics high-pressure sales, mysterious fees, confusing offers for their used cars, and financing proposals that put them at risk of scams.
But the scams have become rampant over the past year, when the shortage of new cars hit buyers, dealers and manufacturers and succeeded in “consumers routinely pay hundreds, often thousands, more than the listed price”.
Although car dealership profits have reached new levels over the past year, this is not a new problem. In May 2020, Federal Trade Commission (FTC) Commissioner Rebecca Kelly Slaughter warned of “tricks and pitfalls” that prevailed in the “deeply broken” auto finance industry. In the wake of the coronavirus pandemic, these practices appear to be increasing across the country.
The profit margins of car dealerships are increasingly exorbitant, especially Medium markups of $4,048 for GM’s Cadillac luxury line and $2,289 for Hyundai’s Kia vehicles, on top of the Manufacturer’s Suggested Retail Price (MSRP). State attorneys general across the country have reported increase in complaints against car dealerships for deceptive practices, “bait and switch” tactics and outright fraud.
“Given the alarming increase in deceptive practices and predatory pricing in the auto sales industry, the Federal Trade Commission should initiate a broad review of the extent of these practices and determine whether a price regulation rule drip and other unfair and deceptive practices in the automotive industry is necessary,” Senator Warren wrote in her letter to the FTC.