The buck stops here: Chrysler sneezes, Dollar Thrifty gets the flu

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Chrysler‘s woes are dragging down Dollar Rent A Car and Thrifty Car Rental.

These are brutal times for Chrysler, which has seen its sales decline nearly 23% through July from a year earlier and this week failed to get the full $30 billion in financing it has been seeking. Last month, it was forced to cancel its leasing program because the values of its vehicles (read: behemoth Durango SUVs and Dodge Ram pickups) are falling too fast to make residual values predictable, and that spells huge losses on every leased vehicle.

Turns out what’s bad for Chrysler is bad for Dollar Thrifty Automotive Group too.

The reason: Dollar Thrifty’s rental fleet is composed of about 85% Chrysler vehicles, according to a recent report by Goldman Sachs. And though Dollar Thrifty, along with other rental companies, has been taking steps to diversify its rental fleets, as discussed in this recent L.A. Times article, it clearly can’t get away from Chrysler fast enough.

On Tuesday, Dollar Thrifty reported second-quarter earnings of $10.8 million, a 30% decline from a year earlier. Most alarming were its vehicle depreciation costs, the rental industry’s equivalent of the kick in the pants taken by a leasing company when a leased-out car comes back worth a lot less than had been expected. You. Eat. The. Difference.

And no vehicles are losing value faster in the used market than Chrysler’s gas-guzzling lineup. According to Dollar Thrifty’s quarterly report, those costs were up 28% per vehicle compared with the second quarter of last year.

‘The company is challenged by its significant exposure to Chrysler,’ stated a report Thursday by Moody’s, which downgraded Dollar Thrifty debt to B3 from B1. Last month Soleil Security Group analyst Mark Millman downgraded Dollar Thrifty to ‘hold’ from ‘buy,’ and Goldman analyst Christopher Agnew cut the price target for the stock by more than half. Though each had separate concerns, all cited the same central problem: Chrysler.

In the last year, shares in Dollar Thrifty have tanked. On Aug. 7, 2007, DTG closed at $31.50. On Thursday, shares closed at $3.52. That’s a 89% nose dive in one year’s time.

Of course, Dollar Thrifty has to contend with other issues, such as rising airfares and resulting declining leisure traffic, increased fuel costs and difficult capital markets. Still, with friends like Chrysler, who needs enemies?

— Ken Bensinger