That Hertz

October 14, 2009 in Economics

When you rent a car from Hertz, they offer three refueling options for when you return:

  • Do it yourself (market price)
  • Have Hertz do it ($6.89/gallon)
  • Pre-purchase your refill ($2.89/gallon)

On the surface, the pre-purchase looks pretty good. As the salespeople point out, "it's 20 cents below the pump!" But the small print is that it isn't $2.89 per unfilledĀ gallon; it's $2.89 per gallon in your tank, period. If you have a 15-gallon tank but only use one gallon of fuel, you are still paying for 15 gallons of gas. So this deal only makes sense if you know at the time you rent that you will be returning the car with less than 7% of its tank remaining - the point at which the 20 cent savings becomes meaningful. (We ignore the opportunity cost of convenience.) Since I sincerely doubt anyone can reliably predict the future level of their gas tank, I can't imagine who is taking this deal. Nonetheless, the fact that it's offered means someone must be biting...

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