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Extras drive up car-rental rates

One of the last bargains left in vacation travel has become a major expense: Car-rental companies are raising prices just in time for summer.

After years in which prices were holding steady, a one-day rental of a full-size car can now approach $100.

The sharp jump is largely the result of "passthroughs," those extra charges that car-rental companies tack on at the end of the trip to the bottom of the receipt. With mysterious names like "occ chg" (for "other charges and credits") or "ex serv" (for "extra services"), the charges technically are fees to cover everything from car licensing to airport use.

Car-rental companies have long relied on passthroughs, but they did so in small doses, absorbing the rest as the cost of doing business.

But in the past six months or so, rental companies have become more aggressive about steering the charges to their customers. In many markets, they also have taken double-digit increases in their basic rental rates. The result: The cost of a weekly car rental has in many cases jumped by hundreds of dollars.

It all came as a big surprise for Anna D'Andrea. In February, she and her husband rented a Chevy Suburban from National Car Rental for a ski vacation in Reno, Nev. D'Andrea thought she was signing up for a rate of about $650 for 10 days. But once all the taxes and surcharges were thrown in, her bill came to $850 _ 30 percent extra.

"We knew it was going to be stiff," says D'Andrea, of Minneapolis. "But we ended up spending more on the car than the condo."

The rate increases mark a major shift in pricing for the nation's big car-rental companies, following a spate of public stock offerings and other ownership changes. With years of losses and sluggish growth, most major rental companies now have owners determined to make money from the rental business.

National and other companies in the $16-billion car-rental business make no apologies for the shift. "In all candor, it's a price increase," says William Lobeck, president of auto-rental operations at Republic Industries Inc., the Fort Lauderdale holding company that is headed by investor Wayne Huizenga and owns the National and Alamo car-rental chains.

The add-ons have increased as more states have passed laws permitting them. Minnesota, for example, recently passed a law letting car-rental companies tack 3 percent onto customers' bills to recover the costs of vehicle registration. At the end of the year, any extra funds the companies collect go to state coffers.

Starting in the late 1980s, the Federal Trade Commission investigated a handful of car-rental companies that had failed to disclose various surcharges including those for fuel, extra drivers and drivers under age 25. Dollar and Value Rent a Car both signed consent agreements in 1992 pledging to refrain from misleading practices.

The current passthroughs appear to comply with commission policy, says FTC lawyer Ron Waldman. "As long as the consumer is able to understand what the rate is and what they're being charged, then that's sufficient," he says.

Rental-cars used to be dependable good deals for consumers _ and money-losers for the major auto makers. In fact, the big automakers considered their car-rental operations to be loss leaders, a way to clear the pipeline of models that were in oversupply.

But today, most of the major rental companies have new corporate parents or have become stand-alone, publicly traded companies. The No. 1 company, Hertz Corp., still 81 percent owned by Ford Motor Co., is publicly traded, as is No. 2 player Avis Rent A Car Inc., 20 percent owned by Cendant Corp. As a result, they are paying attention to profits.

Their first move was raising rates _ and keeping them up. So far, that has meant a 7 percent price increase industrywide compared with a year ago, according to Patrick McCormack, analyst at BT Alex. Brown. In some markets, prices are accelerating at an even faster rate.

In San Diego and Phoenix, for example, economy cars were available last year for $145 a week; now, they are approaching $200. Early last summer, Budget was offering weekend specials for $25 a day virtually nationwide. This year, the company says it has no such deals.

But the biggest change is in the fine print of the rental agreement. Charges for "vehicle registration," for example, can range from 1 percent to 3 percent. Some companies tack on 10 percent for the use of airport facilities and a 50-cent charge to cover the cost of making frequent-flier awards. The passthroughs are "a way to recoup these expenses," Republic's Lobeck says.

But then there are the murky areas, like "recoup fee" and "misc."

"It's ridiculous," says Bill Heinzen, who studied a recent rental bill and found that almost $200 in fees and taxes were tucked into a total 10-day charge of $600. "They don't include any of this stuff when they quote you a price," says the Philadelphia lawyer.

The rental companies defend their practice of adding on hefty charges instead of promoting a bigger everything-included rate upfront. Taxes and fees vary so much from state to state, they say, that it would be difficult to advertise across state lines.

And anyway, the rental companies say in raising rates they are only catching on to what airlines and hotels have done for a long time. "I don't see the increases stopping," says Joseph Cappy, chief executive officer at Dollar Thrifty Automotive Group Inc., parent of Dollar and Thrifty. "We could raise prices for five years straight and still not catch up to the airlines and hotels."

Far from disguising the add-ons, the rental companies say they make every effort to let customers know they are there. Breaking out the fees separately helps customers understand what they are paying for _ and shows how car rentals remain cheaper than other travel expenses, the companies say.

"It's still a great value," says Sanford Miller, chief executive at Budget who notes that renting a car costs less than renting a tuxedo.

Republic's Lobeck calls the passthroughs "peanuts" compared to local taxes of as much as 18 percent that states and cities have been levying. The rental companies say the taxes are a way to stick out-of-towners with the cost of projects that locals would balk at financing: Boston recently slapped a $10 surcharge on auto rentals to help pay for a new convention center. Newark International Airport adds 75 cents to rentals to pay for the airport monorail. And renters in Florida find a "FLA Surcharge" at the bottom of their bills, a tax that covers tires and battery-disposal fees.