Posted by: Dave | March 31, 2010

Renting Cars and Free Enterprise 101

In my business travels I recently began noticing the new phenomenon of city operated rental car garages. I have patronized these garages in Phoenix, Las Vegas, and Baltimore, but I’m sure there are others.

The garages work like this.  All rental cars serving a particular airport are kept in a large, multi-story parking garage/reception center located several miles away from the airport.  Patrons board airport authority busses to be transported to and from the garage, and, once deposited at the reception area, proceed to the counter of their rental car provider.  After renting their cars, the customers proceed to the garage deck holding their rental car, and continue to their destination. All rental car operations are centrally located and controlled.

I see these facilities as a direct attack on our free enterprise system.  Because all of the cars are kept in one place, it is impossible for the rental car companies to differentiate themselves from each other through their services at the point of sale. 

At airports without these garages, rental car companies have the freedom to position themselves according to the quality of the service offered at the point of sale. A higher-end provider pays the additional cost to locate their rental cars at or very close to the airport, offering the customer superior service through better convenience and reduced exposure to the elements.  Finicky business travelers greatly appreciate the time saved and increased comfort, and are frequently willing to pay for it.  Rental car companies on the lower end of the cost spectrum locate their car lots away from the airport, often requiring the customer to ride a bus to their car lot, but provide the rental cars at a less expensive price.  Consumers require different solutions, and our economy has supported a plethora of rental car companies over many decades offering wide variances in price and service.  The chaos of the free market system enables the rental car companies to meet the diverse needs of the consumers and also empowers the consumer to choose the solution they need based on lower cost or better service.

But the free market isn’t neat and tidy.  Airport vehicular traffic, always congested, is complicated by customers renting and returning rental cars in multiple lots surrounding the airport, and with busses transferring customers to and from distant lots.  Rental car lots are unsightly and take up large swaths of landscape due to the need to maintain large “at ready” inventories. 

Enter a well meaning city planner who provides a simple answer to the problem.  The city builds a large garage where all rental car companies servicing the airport must locate their cars. The city provides transportation for the customers to and from the facility, and everything is neat, tidy, environmentally friendly, and controlled. 

It all looks good on paper, and I have to admit, looks good to the eye.  But we are sacrificing the innovation and creativity of the free market at the altar of control and neatness.   By putting all companies in the same facility, higher cost providers lose the ability to justify that cost through superior convenience to their customers, while lower cost providers are robbed of their ability to provide less expensive solutions than the city facility.  

Landowners, who may have leased their property to the car companies for rental facilities, see the value of their property go down, and the previous owner of the land that now hosts the rental car facility probably had his property condemned “for the public good” through imminent domain.

In the three airports I visited with these facilities, I stood in a long line to board the airport authority bus, was directed on the bus by an airport authority employee in a drab outfit (obeying the sign not to require him to lift my bag if it weighs more than 25 pounds) and driven 10-20 minutes to the rental car garage.  I was finally recognized as a customer when I reached the counter of my rental car company employee.  

Too bad if my time and comfort were important enough to warrant a higher price for the convenience of renting a car located closer than the airport operated facility.  The same goes for when I return my car at the conclusion of my trip; I must add additional time to return the car to the city rental car garage, which is located somewhat distant from the airport.  The city isn’t concerned with my inability to plan appropriately.  That’s my problem.

The same applies if I want to rent a car really cheap, and am willing to ride to a location more distant than the government-operated rental car garage.  It’s not allowed. 

These facilities remind me of the urban scenery I used to see when I traveled in the Czech Republic and former East Germany.  The urban landscape was populated with cookie cutter multi-story apartment complexes that housed the citizenry; all rectangular, all drab, and all very efficient.


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