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Freakonomics at Work in Rental Cars

In the epilogue of Freakonomics, we admitted that we had written a book that had no unifying them and which probably didn’t help a reader solve any real problems. The best we could hope for, we wrote, was that “You might become more skeptical of the conventional wisdom; you may begin looking for hints as to how things aren’t quite what they seem … The most likely result of having read this book is a simple one: you may find yourself asking a lot of questions. Many of them will lead to nothing. But some will produce answers that are interesting, even surprising.”

It is amazing how many people now write to us to tell us that they have done exactly that — started to ask a lot of questions and think through problems for themselves and arrive at interesting conclusions. It is as if we inadvertently deputized a bunch of people to wander through the world and poke around beneath the surface to see what they can dig up.

Here’s an example which, although it’s pretty minor in terms of world importance, is pretty interesting. It comes from a man named Joe Rosen:

Dear Steven & Stephen:

After reading the book, I’ve started to look at things a bit differently. I’m an immigration attorney in Georgia, after retiring with 30 years in the government, 20 as an FBI and U.S. Customs Special Agent.

Here’s my Hertz car rental experience and my analysis.

I recently reserved an intermediate Hertz rental car in Tucson for a week. Intermediate is usually a Taurus or similar model.

When I got to the counter I was advised that I had been upgraded to a brand new Ford Explorer with free Sirius radio. I gladly took the upgrade. When I picked the car up there were a row of brand new Explorer’s being rented by Hertz.

Prior to returning the car, I filled up the tank for a charge of about $ 60. My gas mileage was about 10 miles to the gallon.

When I analyzed it, it all made sense using your reasoning approach.

Ford has a ton of Explorers that people will not buy because the mileage is so poor. Their response is to offer huge discounts to sell them.

Hertz rents the cars so they have no consequence of buying a car with poor mileage, since they do not have any gas costs. The gas costs are all picked up by the renter. Hertz reaps a great price advantage in purchasing discounted explorers without suffering the consequences of having to pay high gas usage expenses.

Most renters are probably business renters who are reimbursed for their car costs by their employer. They accept the luxury of a big rental car without having to worry about the gas prices being paid by them.

The only loser appears to be the employer who’s reimbursement is based on high gas costs or an individual renter who pays his own car rental expenses.

Does that all seem to make sense?

I certainly will no longer jump at a free upgrade to a larger rental car and crucify my clients into reimbursing me for inflated gas costs because Hertz was able to buy cheap large SUV’s.

Joe Rosen

Joe’s analysis seems just about spot-on to me, especially since cars are such a long-lead production item, and since the inventory of gas guzzlers has probably backed up fast and furious because of gas and green issues. What do you think?