With high gas prices, more thrifty car renters think small

— -- John Fischer, owner of a consulting firm in Houston, booked a midsize rental car with Avis for his trip to Orlando last month.

So he was surprised when the agent gave him a free — but unwanted — upgrade to a Hummer H2. "My gas bill was the same as my rental car bill for the four-day rental," he says.

In a reflection of how rising fuel prices are affecting all aspects of travel, demand for small and midsize rental cars is rising rapidly even as rental companies struggle to keep them on their lots. The shortage means rental companies must steer customers to larger vehicles, usually waiving the upgrade fees — but forcing consumers to pay more in gas.

"Four dollars (a gallon) has been the tipping point," says Chris Payne, a Dollar Thrifty Automotive spokesman. "Many customers don't want larger cars now."

Bookings for compact and economy cars rose 11% and 15%, respectively, in the second quarter, compared with a year earlier, according to Sabre Holdings, which owns Travelocity.

In contrast, bookings for the category of cars that includes SUVs fell 45%. Bookings for full-size cars remained flat, while intermediate and luxury categories fell 1.7% and 26%, respectively.

Even as they struggle to keep fuel-efficient cars on their lots, rental companies are running into financial obstacles in their quest to buy more small cars.

Until a couple of years ago, car manufacturers used to sell to rental companies at little profit "just to get the assembly line going," says Stephen Fitzgerald, Sabre's vice president of hotel and car distribution. This mutually beneficial relationship also allowed rental companies to sell their cars back to the manufacturers in less than a year to keep the rental inventories fresh.

But car manufacturers, whose business is in turmoil, have reduced capacity and are no longer making cars to just dump to the rental market. That means higher purchase costs for rental companies. The acquisition cost for Dollar Thrifty has risen 50% in the last two years, Payne says.

And that means rental companies are keeping their cars longer. "It's going to take awhile to shift your mix (to having more fuel-efficient cars)," Fitzgerald says.

Frequent traveler Joseph Prunty, owner of a software company in Philadelphia, says he has been "stranded at the service counter since March because of a shortage of cars." Instead of a midsize or full-size car that he requests, he says, "I've been given minivans, medium-sized SUVs, monster SUVs and premium cars."

Getting a free upgrade used to be a treat, with many customers booking economy or compact cars in hopes of being bumped up to larger models. But "more people are now requesting economy and showing no interest in moving up," Enterprise spokeswoman Christy Conrad says.

To encourage customers to accept larger cars, Dollar Thrifty started distributing charts to its rental agents this month that show the incremental cost difference in gas payments resulting from upgrades. "There are people who are upset at the counter when (being given a larger car), and we're showing that it's not that bad," Payne says.

A customer who booked a Dodge Caliber but was issued a minivan can expect to pay only $2.50 extra in total for a 100-mile trip at $4.50 a gallon, he says. Moving up to Lincoln Navigator will cost $17.31 more.

Some business travelers — with their expenses paid by employers or clients — remain unfazed by the changing business practices of rental car companies.

John Hales, a network trainer from Sunrise, Fla., says he typically books the smallest car knowing that he'd be frequently offered upgrades. In Utah recently, he booked an economy car for $20 per day, and upgraded for free to a SUV that was priced at $70. "Most of my rentals are for business, so gas prices really don't affect me."

But even corporate customers are showing signs of tightening their belts, says Enterprise's Conrad. "A lot of companies are telling employees to not take the upgrade," she says.

Rental companies say they are eager to reshuffle their fleets to include more fuel-efficient cars, but that the task will take time.

"Fleet plans are made months and months in advance. We're going to work to get our fleet more in line with what consumers are demanding. But the shift is so quick and revolutionary that we weren't able to respond quickly," Dollar Thrifty's Payne says. About 18% of Dollar Thrifty's cars are compact, economy or small convertibles, he says.

Enterprise has already bought 3,000 hybrid cars, and plans to double that number this year, says Conrad. About 45% of the company's fleet get at least 28 mpg.

Meanwhile, rental customers can expect to see older cars. To justify higher acquisition costs and capture more of the depreciation costs in accounting, rental companies will hold onto their cars longer than in the past.

Dollar has historically hung onto cars about nine months. But Payne says it will likely keep them for 12 to 14 months now. Enterprise says it will hold its cars about a month longer than its traditional practice of keeping them 11 to 12 months.

"A couple of years ago, it was rare for customers to see cars with 10,000 miles," Sabre's Fitzgerald says. "Now it's not unusual to get 14,000 or 16,000 miles."

Travelers, have you received an unwanted car rental upgrade lately? Or were you happy to get the bigger vehicle even it meant higher fuel costs? Tell us your stories below.