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DEALING DEALING WITH WITH DISASTER DISASTER JAPAN JAPAN AFTERMATH, AFTERMATH, JOPLIN JOPLIN FIRSTHAND FIRSTHAND MARKET MARKET SNAPSHOTS: SNAPSHOTS: JAPAN JAPAN STATISTICS STATISTICS ‘NO ‘NO BIRDS’ BIRDS’ IN IN AUSTRALIA AUSTRALIA GRASSROOTS GRASSROOTS EFFORT EFFORT DRIVES DRIVES CHANGE CHANGE IN IN MINN. MINN.

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table of contents JULY / AUGUST 2011 • Volume 24, No. 5

20 12

FEATURES 12 Rental Car Supply: Silver Lining, or Dark Cloud? With historic used car prices, you’re “sitting on gold.” But can you take advantage? And how long will it last?

16 Market Snapshots: Japan, Australia ARN travels abroad to profile Mazda Rent-A-Car, offer Japanese car rental market statistics and update the Japan crisis aftermath; plus a snapshot of Bayswater Car Rental, one of Australia’s largest independents.

20 Local Operator Drives Change

22 DEPARTMENTS 4

How the GAO auto recall report could affect auto rental.

6

After escaping destruction by the Joplin tornado, an Avis licensee and his team aid the relief effort.

24 A New Approach to the Hiring Process Behavioral and situational interviewing techniques reveal how potential employees would handle future work situations. Interpreting the answers will help you gauge a candidate’s true worth.

Industry News Safeco Field Tax Voted Down Calif. Assembly Approves Recall Bill

26

Car Rental Q&A What are some non-traditional signs or indicators that business is beginning to pick up?

A grassroots effort results in anti-steering legislation in Minnesota.

22 Crisis Care, Car Rental Style

Editor’s Corner

28 30 31 32

Product and Vendor News Used Car Prices Ad Index RentAlert Sell now?

On the Cover: ©istockphoto.com/RTimages ©istockphoto.com/Henrik5000

AUTO RENTAL NEWS (ISSN 1075-9409) (USPS 011-305) (CDN IPM# 40013413) is published bimonthly with additional issues in February and December, by Bobit Business Media, 3520 Challenger Street,Torrance, California 90503-1640. PERIODICALS POSTAGE PAID at Torrance, California 90503-9998 and additional mailing offices. POSTMASTER: Send address changes to Auto Rental News, P.O. Box 1068, Skokie, IL 60076-8068. Please allow 6 to 8 weeks for address changes to take effect. Subscription Prices - United States $25 per year; Canada $30 per year; Foreign $75 per year. Single copy price - $10; Fact Book - $30. Please allow 6 to 8 weeks to receive your first issue. Bobit Business Media reserves the right to refuse non-qualified subscriptions. Please address Editorial and Advertising correspondence to the Executive Offices at 3520 Challenger Street, Torrance, California 90503-1640.The contents of this publication may not be reproduced either in whole or in part without consent of Bobit Business Media. All statements made, although based on information believed to be reliable and accurate, cannot be guaranteed and no fault or liability can be accepted for error or omission. Printed in USA

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editor’s corner How the GAO Auto Recall Report Could Affect Auto Rental The report recently released by the Government Accountability Office (GAO) shows that the auto recall process is in need of repair, and is difficult for vehicle owners to comply. This could help the fight for sensible recall legislation.

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he issue of recalls seems to have snowballed beyond the bounds of car rental and fleets. The Government Accountability Office (GAO) is on the recall case, having just issued a report that takes the National Highway Traffic Safety Administration (NHTSA) to task for the overall low repair rate of recalled vehicles. The GAO report recommends that: ● the word “urgent” should be added to recall letters in large type to get readers’ attention, and the VIN of the recalled vehicle should be included so it is clear that the letter pertains to the owner’s current vehicle. ● NHTSA creates a VIN search function on www. safercar.gov and publicizes the website to vehicle owners and the public. ● NHTSA develops a plan to use the data it collects on recall campaigns to analyze particular patterns or trends that may characterize successful recalls and determine whether these represent best practices that could be used in other recall campaigns. ● NHTSA seeks legislative authority to ensure that potential buyers of used cars are notified of any outstanding recalls prior to sale. Interestingly, the report does not make recommendations to NHTSA whether it should take action specific to car rental companies, nor does it tell car rental companies how to handle its recalled vehicles. The report does relay the GAO’s discussion with car rental companies, who “… stated that a better indication of the severity of the recall would help them determine how to treat recalled vehicles in their fleets and reduce confusion.” However, getting NHTSA onboard has been, and will be, an uphill battle. NHTSA “… believes that adding content to the notification letters could be distracting and that the fundamental information … is covered by the current requirements,” the report states. Further, “NHTSA officials told us that the agency has recommended to the

4

BY CHRIS BROWN

rental car companies that they should not rent recalled vehicles until the defect has been repaired.” But here’s where it gets interesting: The GAO organized 10 focus groups of vehicle owners in different cities to determine their awareness of auto safety recalls, their willingness to comply with the recalls and ways to improve safety recall notification letters. Among other things, focus group participants reported that “they … may be more likely to comply if the letters included the VIN number and clarified the severity of the defect.” Exactly! Clarify the severity of the defect. This mirrors what the American Car Rental Association has been advocating for months. On top of that, the report points out that “… NHTSA has the ability to add requirements to the defect notification letters.” While NHTSA feels its letter system is adequate, the GAO report suggests otherwise. This could open the door for wording that characterizes the nature of the recall. While NHTSA has stated its resistance, the fact that another government agency has issued a report with recommendations for change could help the car rental industry’s case with legislators. Now, it’s not just the car rental industry calling for clarification, it’s the “real people” who made up the focus group. It’s constituents. The report shows that the public has real issues with the way recalls are carried out. And it shows that NHTSA is not the be-all, end-all authority — its practices have been and should be vetted by other government agencies. The report falls short of recommending a twotiered system or addressing recalls by severity, as the focus groups recommend. But, at the very least, the GAO report should show legislators looking to push through recall bills that the issue is much more complicated than banning all unfixed recalled vehicles from the road.

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industry news DTAG Recommends Shareholders Take No Action Regarding Hertz Exchange Offer Dollar Thrifty Automotive Group’s board of directors unanimously recommends that Dollar Thrifty shareholders not tender their shares pursuant to Hertz Global Holdings’ offer to acquire all the outstanding shares of common stock of Dollar Thrifty for a price of $72 per Dollar Thrifty share, according to a June 6 press release. Each share consists of $57.60 in cash and 0.8546 shares of Hertz common stock. In the statement, Dollar Thrifty reiterated that it has agreed to cooperate with Hertz in its efforts to pursue antitrust regulatory clearance of Hertz’s proposed acquisition of Dollar Thrifty. The company also said it is cooperating with Avis Budget Group in connection with Avis Budget’s efforts to pursue antitrust regulatory clearance of an acquisition of Dollar Thrifty. As of press time, Avis Budget Group had not made a counteroffer for Dollar Thrifty. The company expected an FTC ruling in June, according to a CNBC report.

Meet Horatio, Mascot of Hertz’s New Branding Campaign The Hertz Corporation unveiled a global, multifaceted branding initiative in May designed to cultivate a dialogue with customers by focusing on customers’ driving experiences. The campaign is built around the question “Are You The Gas or The Brake,” and focuses on how people operate as either the gas (more aggressive, exciting, adventurous) or the brake (conservative, reserved, more of a planner). The campaign acknowledges the wide range of “travel personalities” and serves as a platform to address the different wants, needs and aspirations of customers. Hertz will use the platform to illustrate the flexibility provided by its products and services and its ability to fulfill a variety of travel preferences. As part of the new brand campaign, Hertz is offering incentives, such as free weekend rentals and the opportunity to win a new Chevy Camaro SS. The central element of the new branding initiative is a marketing campaign created by Omnicom Group’s DDB and WPP’s G2. As part of the creative, Hertz introduced an animated mascot named “Horatio,” voiced by actor Owen Wilson.

6

Avis Budget Group to Buy Avis Europe Avis Budget Group, Inc. and Avis Europe plc announced on June 14 that they have reached agreement on the terms of the acquisition by Avis Budget of all outstanding shares of Avis Europe in exchange for £3.15 in cash per Avis Europe share, which is roughly $5.00. The acquisition is scheduled to close in October 2011, subject to Avis Europe shareholder approval, court approval and regulatory clearances, according to a press statement. Avis Europe is an independent, publicly traded company that operates the Avis brand via a network of more than 3,100 locations in 112 countries, through wholly-owned subsidiaries in 13 countries and through a license arrangement in an additional 99 countries. Avis Europe also operates the Budget brand through 950 locations in 59 countries. The terms of the transaction value Avis Europe’s ordinary equity at approximately $1 billion. According to the press statement, several of Avis Europe’s shareholders have already committed to support the transaction. Avis Budget has received “hard” irrevocable commitments from Avis Europe’s majority shareholder, D’Ieteren, whose holdings represent approximately 60 percent of the share capital of Avis Europe as well as from the directors on Avis Europe’s board. Upon the acquisition becoming effective, the combined Avis Budget and Avis Europe businesses will have annual revenues of approximately $7 billion and owned or licensed operations in more than 150 countries. Avis Budget expects to fund the acquisition using a combination of its own cash resources, equity funding through the potential issuance of up to $250 million of Avis Budget common stock, and debt financing that has been arranged by a syndicate of banks and/or proceeds from the issuance of debt securities. While Avis Budget will continue to monitor the Dollar Thrifty situation, “the company’s focus squarely will be on completing and integrating the significant acquisition of Avis Europe,” according to the press statement.

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industry news Schumer Announces National Safety Recall Legislation Arguing that car rental customers would be endangered if rental agencies were allowed the decision to take a safety-recalled vehicle out of service or not, U.S. Sen. Charles Schumer, D-New York, once again called for legislation that would prohibit renting cars that have been recalled for safety reasons. At the 2011 Car Rental Show, the American Car U.S. Sen. Charles Rental Association (ACRA) proposed a two-tiered Schumer, D-New system categorizing each recall by the nature of the York defect and the potential for harm. Schumer rejected the ACRA proposal. Schumer introduced legislation in March requiring car rental companies to operate under the same restrictions as automobile dealerships, which are banned from selling any recalled vehicle until the safety issue is addressed. Schumer said ACRA’s proposal would allow each rental car company to set its own policy, which would lead to the rental of unsafe cars. The ACRA proposal, however, would require the owner or lessee of any vehicle (commercial or private) to immediately cease operation of the vehicle when the manufacturer and/or National Highway Traffic Safety Administration (NHTSA) believe continued operation of the vehicle — pending completion of the recall remedy — would pose a significant risk to public safety.

Calif. Assembly Approves Recall Bill Introduced by Assemblymember Bill Monning, AB 753 would require car rental companies to ground and fix all vehicles under a safety recall before renting them. The bill passed 42-26, one vote more than the simple majority needed. California AsThe American Car Rental Associsemblymember ation has drafted a series of proposed Bill Monning amendments to the bill. The amendments seek to: move the proposed safety recall provisions from the Civil Code section into the Vehicle Code; allow for manufacturer-specified interim repairs; recognize “staged” recalls — when the recall is staggered by date, for instance — as well as regional recalls; and extend the recall rules requirement to “any owner of more than 10 vehicles who permits its employees, customers or other persons to operate a vehicle.” The measure will now go to the California State Senate. A hearing was expected in June, after press time.

Safeco Field Auto Rental Tax Bill Voted Down A proposal to extend some taxes on car rentals, hotels and restaurants that would pay off Safeco Field in Seattle failed in the Washington State Senate on May 19. Senate Bill 5958 failed by a single vote. Supporters argued that the taxes on car rentals, hotels and restaurants would create thousands of new jobs by funding a convention center expansion and other amenities. The car rental and restaurant taxes would end in 2015. Critics argued that lawmakers should not erode public trust by extending the life of what was voted in as a temporary tax scheduled to expire once Safeco Field bonds are paid off. The bonds will be paid off this year ahead of schedule due to better-than-projected revenue. Shane Skinner, controller for Enterprise Holdings in Washington and Alaska, worked to oppose the bill. “We have really focused on the promise that was made back in 1995 that these taxes would expire, as promised to our customers and the people of Washington,” Skinner told Auto

According to a recent Elway Poll of 405 Seattle voters, 57 percent said they favored repealing the taxes rather than extending them for other purposes, while 37 percent preferred keeping the taxes.

Rental News. Doris Cassan of CMC Investments Inc., a Seattle-based Dollar Rent A Car licensee, was also instrumental in contacting legislators to oppose the bill.

Proposed legislation to extend taxes on rental cars to pay off Safeco Field, home of the Seattle Mariners, was voted down on May 19.

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industry news Sea-Tac Conrac on Track The consolidated rental car facility at Sea-Tac Airport serving Seattle is on schedule to open in the spring. The $419.3 million rental complex will be finished in November but won’t open immediately to give car rental companies time to ramp up operations. The five-level, 2.1 million-square-foot facility will have a 50,000-square-foot customer service area, 5,400 parking stalls on four floors plus a fifth-floor bus plaza. Moving the rental cars into the facility will free up about 3,200 parking spaces in the Sea-Tac airport garage. The conrac is being funded with a $5 daily charge on rental cars. The daily fee will increase to $6 when the conrac opens. The charge will pay for virtually the entire facility, according to a Sea-Tac media fact sheet.

Texas CDW Legislation Defeated Texas legislation that would have imposed some unnecessarily strict requirements on vehicle rental companies that sell collision damage waivers (CDWs) as part of vehicle rental contracts has been defeated by the Truck Renting and Leasing Association (TRALA), according to a statement from the association. Texas HB 3059 would have regulated the form used and the price that vehicle rental companies could charge when selling CDWs. It would have also required CDWs to be underwritten, which would have essentially treated CDWs as an insurance product and required higher licensing standards for vehicle rental company employees that sell CDWs.

Hawaii Passes Car Rental Surcharge

Getaround Unveils Peer-toPeer Car Sharing Technology Peer-to-peer car sharing service Getaround unveiled in May the Getaround Carkit, the first device designed exclusively for peer-to-peer car sharing, according to the company. The Getaround Carkit combines GPS, Wi-Fi and keyless remote technology. Along with a new iPhone app, users can conduct entire transactions, including reserving, paying for and unlocking cars on their iPhone. The Getaround service allows car owners to set pricing and availability, and to optionally approve each rental request individually. Getaround also announced it is working with Berkshire Hathaway, one of the nation’s largest insurance groups, to provide insurance coverage for Getaround rentals. This policy includes liability, collision and comprehensive coverage. The coverage supersedes the policies of both owners and renters throughout the rental period.

Hawaii state lawmakers passed House Bill 1039 on April Apr 29. The bill includes an increased surcharge on car rental taxes from $3 to c $7.50. The surcharge will be used to help $ close the state’s deficit.

HAWAII II

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industry news Thrifty, Enterprise Win Website Awards Keynote Competitive Research has announced the results of the Keynote Competitive Research Industry Study examining U.S. rental car websites. In the 2011 U.S. Rental Car Sites study, Enterprise.com took first place for Best Overall Customer Experience and Thrifty.com came in first for Best Overall Technical Quality. For the “Customer Experience” portion of the study, Keynote observed and conducted online interviews with 2,000 prospective rental car customers as they interacted with the websites of 10 car rental companies and travel portals: Alamo, Avis, Budget, Dollar, Enterprise, Expedia, Hertz, Orbitz, Thrifty and Travelocity. The study revealed that when tested by actual users, Enterprise.com offers the strongest Overall Customer Experience, placing first in both “Conversion Impact” and “Customer Satisfaction.” For the “Technical Quality” portion of the study — using measurement computers located in 12 cities across the U.S. — Keynote measured a typical transaction when search-

John Holt to Run Advantage The Hertz Corporation and Advantage Rent A Car announced that John Holt has been appointed vice president of Advantage Rent A Car. Holt has assumed the position and reports directly to Mark Frissora, Hertz’s chairman and chief executive officer. Holt succeeds Lois Boyd, who was HOLT appointed to lead Hertz’s equipment rental business on April 25. Holt joined Hertz in 1995 as a manager of its airport location in San Diego. Other key roles include territory manager in Los Angeles, director of U.S. car rental field operations in the company’s Park Ridge, N.J. headquarters and, most recently, general manager of off-airport operations in Southeast Florida. Prior to joining Hertz, Holt held sales and operations leadership roles for other companies, including a leading national leisure rent a car company. He is a graduate of San Diego State University with a B.A. degree in business administration and an M.B.A. from California State University.

ing for and reserving a rental car online. Based on the thousands of transactions monitored over the course of the study, Thrifty.com set the standards for both Responsiveness (speed) and Reliability and was named the winner for Overall Technical Quality.

Hertz Introduces EVs to D.C. Fleet and Electric Bikes in London The Hertz Corporation announced the expansion of its Global EV initiative to Washington, D.C., adding all electric (EVs) and plug-in hybrid electric vehicles (PHEVs), including the Chevy Volt and Nissan LEAF to its Union Station fleet. Hertz is making the next generation of electric vehicles available to members of Congress, employees on the Hill and the general public. Hertz has also introduced Ultra Motor Fast4ward Edge and A2B Hybrid 24 electric bicycle models to London. Both models can reach speeds up to 15.5 mph. With every electric bike rental, customers will receive full training, a lock, optional helmet and a copy of the AA Leisure Guide to London with suggested bike rides around the capital.

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RENTAL CAR SUPPLY: SILVER LINING, OR DARK C The used car market is enjoying historic pricing — but can you take advantage, and how long will it last? BY CHRIS BROWN

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he summer season is in full swing and you’re ready to rent cars — but have you seen that used car market? Auction prices are higher than ever and dealers are scrambling for low-mileage used units — the cars you’re renting right now. It’s the perfect car rental Catch-22: You’re sitting on gold, yet you can’t cash in because replacing your current fleet with new inventory is a questionable proposition at best. So what are car rental companies doing? And how long will this last? “We have some [rental operators] that were selling their cars for $500 to $1,000 more than the price they bought from us a year ago,” says Mark Eckhaus of Eckhaus Fleet, a supplier to auto rental companies. “We have guys that have gone to the auction and from week to week the car is $800 more.” Matt Rawlings of City Auto Rental in Cleveland, Ohio, reports similar pricing. Rawlings bought a 2009 Kia Rio at auction in December for $7,400 that was fetching $10,000 in May. Similarly, a 2010 Chevy Aveo bought for $9,200 was going for $11,000 five months later. That’s right, a used Chevy Aveo. The numbers are not anecdotal. In May, a straight average of auction prices for rental risk units remained above $14,500 for the third consecutive month, according to Manheim auction data. The Manheim Used Vehicle Value Index stood at 127.8 — the highest it’s ever been.

But if you sell, you have to replace those cars. And there isn’t much out there. After bankruptcy, the auto manufacturers had found religion with their new business model of building to demand and regulating sales to the rental market. Then the Japan crisis forced both Japanese and domestic manufacturers to cancel orders to rental and commercial fleets. “We’ve been advising people that if you have cars on order, and you think you’re going to get them, don’t sell what you’re renting yet,” Eckhaus says. David Wilson, a Thrifty licensee in Nashville, Tenn., says that while he would like to sell into this market, he is staying put for now. “We decided because of the uncertainty about orders, we’ll turn off our sales and hold our fleet through the summer, hoping that the market will hold and we’ll sell for a profit later this year,” he says, adding, “Though it’s tempting to keep selling right now, we’re in the business of renting cars.” Jack Vercollone of VERC Rentals in Massachusetts was able to replace canceled orders through purchases from other manufacturers and fleet dealers. “We’re paying more money for them,” Vercollone says. “But there’s an opportunity on the flip side to sell some of our small stuff. We’re willing to go with tighter utilization now if we can sell those cars at a good profit.” “We had a bunch of orders canceled but

I think we’ll be all right, and yes, we’re going to have to run some cars longer because of that,” says Charlie Mullen of ACE Rent A Car, regarding the company’s 12 non-affiliate locations. Mullen — and other operators — report that early summer demand has been soft, mitigating some of the supply issues. “All things in balance, we’re going forward with a smaller summer rental fleet and we’ll have higher rates,” Mullen says.

Tough on the Little Guy While holding inventory is viable for some, the depleted used car market is not helping the independent RACs, such as Rawlings, who rely on the auctions to stock their fleet. “It’s costing me $2,300 more just to buy the exact same car I bought five months ago,” he laments. This hurts his floor plan as well as the business model. “I’ve got to go out and borrow more money just to maintain the same fleet size, or come up with more capital somewhere,” Rawlings says. “I have inexpensive cars and an inexpensive rate. It’s hard to maintain that rate when your costs go up by $2,000.” Moreover, the cars Rawlings traditionally bought with 15,000-20,000 miles now have 30,000-40,000 miles and require more recon, including tires. “It’s costing me more to put those cars on the road,” he says. On the back end, Rawlings has adjusted

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K CLOUD? his remarketing strategy. He moves most of his metal from his own lot. He has a website to advertise his inventory and has arranged for flexible financing for buyers with lessthan-stellar credit. “I’ve picked up my retail selling efforts instead of taking them to the auction,” he says. “I’m doing a better job of letting my renters know I have cars for sale.”

Working the Short Season Rental companies that serve a short summer tourist season are also squeezed into a short supply scenario. “Holding fleet isn’t really the answer for us in most cases,” says Randy White, CFO of Corpat Inc., a National and Alamo licensee serving the northern Rocky Mountain states. Corpat needs a much larger fleet for the summer season, though holding program cars longer can cause problems with the program mileage caps. White says his group has been dealing with cancellations, but worked the supplier contact list hard for replacements. They got the cars, but in terms of price, they had to grin and bear it. “There’s not as much room to negotiate these days,” White says. “We needed the cars.” After ordering, it becomes an issue of timing. The goal is to get out of the cars when the season ends, but minimum hold periods may force operators to hold cars longer than they actually need them, White says. And with cities spread out over hundreds of miles it becomes a logistics problem to move them to auction. “We’re not standing too bad on numbers, but they’ve been slow in getting here,” White says. “If the cars come late, we may have all

AVERAGE AUCTION PRICE – RENTAL RISK UNITS 2008

2009

2010

2011

$15,000 $14,500 $13,500 $12,500 $11,500 $10,500 $9,500 $8,500

Jan

Feb

Mar

Apr May

Jun

Jul

Aug

Sep

Oct

Nov Dec

Rental risk units reached historic auction price highs in May. Are they ready to come down?

PRICE CHANGES FOR SELECTIVE MARKET CLASSES year-over-year % change, May 2011 25% 20.1% 20% 14.4%

15% 10% 5.6% 5%

1.3%

1.1%

0% -5%

-4.0%

-5.8%

-10% Total

Compact cars

Midsize cars

Luxury cars

Pickups SUV/CUV

Vans

The value of compact cars spiked this spring on higher fuel prices.

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these relatively new cars we don’t need in October and November.”

The Fuel Wild Card As evidenced by the skewed pricing for economy cars, high fuel prices are once again throwing a monkey wrench into the market — but to what extent? “This market is not overreacting like we saw in 2008,” says Ricky Beggs, managing editor of Black Book. “This isn’t uncharted territory — it’s not disrupting the whole industry as it did before.” Tom Kontos, chief economist for Adesa, says auction values of trucks and SUVs have softened in the face of firming prices in other segments, especially versus compact cars. However, “The supply of SUVs and pickup trucks is not nearly as skewed as it was in 2008,” Kontos says. “Back then there was almost a boycott of buying SUVs.” While the demand side is lifting compacts and economy cars more than trucks and SUVs, “The rising tide of tight supply is lifting the values of all ships,” Kontos says. With large car values still somewhat depressed relative to other segments, some are adopting a buying strategy that goes against conventional wisdom: “I can buy bigger cars for about the same price I can buy these smaller cars for,” Rawlings says, “and rent them for more.” Fuel prices peaked in May, according to the U.S. Energy Information Administration’s Short-Term Energy Outlook, and will continue to fall — though not to the extent they did after summer 2008, leading into the recession. Nonetheless, falling fuel prices may be starting to impact the wholesale market. “We’ve already seen the bubble burst on our Priuses,” says Vercollone, who saw gas prices drop in his area for three weeks in a row. “They peaked three or four weeks ago (in May) and now they’re starting to come down. They’re about $1,000 less now than we were getting for them, maybe more.”

The Tipping Point “When I talk to people about what the used car market will be like in the next eight months, I ask ‘how can it possibly be any higher?’” says Dave Arney of VRCG, a consulting firm and supplier to the rental market. “The used car market, I believe strongly,

NEW VEHICLE SALES INTO RENTAL FLEETS, JAN-MAY 2010-2011 2011 2010 % Change Jan ........ 97,709......118,634 ..... -17.6% Feb .....134,575......151,271 ...... -11.0% Mar ....159,683......147,134 ..........8.5% Apr ....147,740......119,973 ........23.1% May ....128,455......162,218 ...... -20.8% Car rental companies were busy restocking fleets when the industry was hit with order cancellations in May due to the crisis in Japan. has topped out and is on its way down. If you can sell cars, sell them right now.” Arney points to the recent months’ hyper appreciation of cars as a market aberration. Arney, like others, sold a few thousand cars to rental fleets last fall that were worth more six months later, even with 15,000 more miles on them. The market can’t sustain those prices, Arney contends. “There was sort of a panic [in mid-April] when prices peaked,” Arney says. “Large rental companies gobbled up thousands of used cars at auction that would have gone to dealer lots. Dealers grabbed what they could as well. The Japan crisis, and then $4 gas, only exacerbated the situation.” But high prices are already starting to affect demand as dealers are having a hard time moving overpriced used vehicles. May’s used car sales dipped about 1.4 percent compared with the same month a year ago, according to data from CNW Research. Joe David Pacifico of Pacifico Marple Ford Lincoln in Broomall, Penn., reports a case where a dealer paid “well over invoice” for low-mileage Ford Fiestas. “There’s not a lot of markup in those cars as it is. You pay the freight and the sale fee and you own the car for practically MSRP. And they’re used. Who’s buying them?” “There is no doubt the bubble will burst at some point this year,” says Art Spinella, president of CNW Research. “As soon as the Japanese new vehicle supply issue is resolved — perhaps by September — pressure will be off dealers to concentrate heavily on used models, which is the case right now.” With new car supply more readily available, consumers can reject those high used car prices. “Eventually some of the shoppers who would have bought a used car will buy a new car,” Kontos says.

Time to Sell By the end of May, car rental companies were keeping their cars 1.5 months longer than they had in January, according to CNW Research. At the same time the average mileage of rental risk units sold at auction moved above 40,000 miles, according to Manheim Consulting. After the summer, car rental companies will be looking to dump those units, which will have higher mileage than usual, putting downward pressure on prices. Spinella expects that as soon as supply of new Asian-built product comes back online, retail used values will fall 8 to 14 percent compared with the beginning of June. “I’m worried about placing orders for the fall,” says Wilson of Thrifty Nashville. “We’ll need to unload the cars we have now, which could get brutal.”

Looking Long Term When looking long term, a bubble bursting may be the wrong analogy. That outlook may be more akin to an air mattress deflating — owing to a shortage in off-lease volume. The volume of lease originations fell by more than 25 percent in both 2008 and 2009 year over year, reports Kontos, when some players pulled out of the market. Off-lease supply will bottom out in 2012, which means “We can expect to see the beginnings of a recovery in offlease volume in 2013,” Kontos says. How then should any car rental operator play this roller-coaster market? Sound advice may be to simply stick with what you do best. “Three years ago the market was atrocious, and there was nothing we could do about it. We had to keep going and wait for things to rebound,” says Rick Mullinax, executive vice president of Midway Car Rental. “We’re going about our normal activity because we realize that there is a bubble, and even though car prices are high, they’re going to come back down,” Mullinax predicts. “I prefer to look at what our operating profit is without reintroducing last year’s car sales to this year. Without those gains, are we still making more profit?” “There are things I can’t control, but I can control my employee costs, the types of cars that I buy, to a limited scope my rates and the level of customer service we provide,” Mullinax says. “We’re running a marathon, not a 100-yard dash.”

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❱❱❱ MARKET SNAPSHOT - JAPAN JAPANESE CAR RENTAL INDUSTRY STATISTICS TOTAL FLEET SIZE NATIONWIDE

TOTAL OPERATORS 2010............................................ 6,399 ● 2009............................................ 6,135 ● 2008............................................ 6,181 ●

2010 FLEET BY VEHICLE TYPE Passenger Car ....................................................195,340 ● Trucks, other commercial vehicles ................162,632 ● Minibuses................................................................. 6,273 ● Other ..................................................................... 18,254 ● Total......................................................................382,449 ●

2010.......................................... 382,499 2009.......................................... 376,593 ● 2008.......................................... 367,132 ● ●

FLEET SIZES OF THE SIX LEADING JAPANESE-OWNED OPERATORS (MARCH 2011)

Passenger cars Trucks, other commercial vehicles ● Minibuses ● Others ●

Toyota Rent a Car

Nippon Rent-A-Car

Nissan Rent-a-car

MAZDA Rent-A-Car

Orix Rent-A-Car

JaParen Rent-A-Car

66,245

17,180

14,198

15,067

19,193

8,367

18,652 1,230 3,464

4,660 183 125

2,382 145 24

3,661 203 43

10,882 77 643

1,381 66 29

COMPANY SNAPSHOT Times Mobility Networks Co., Ltd. (MAZDA Rent-A-Car) Established in 1965, MAZDA Car Rental Corp. was sold by Mazda Motor Corp. in 2004 to an investment company, which in turn sold it to Park24 Co., Ltd., a publicly traded car park company on the Tokyo Stock Exchange.This year, Park24 transferred the car sharing operation to Times 24 Co., Ltd., a new subsidiary. Park24 also changed the official name of MAZDA Car Rental Corp. to Times Mobility Networks Co., Ltd. (TMN) though the car rental service continues to use the brand name MAZDA Rent-A-Car. ● Total locations (May 2011): 439 ● Airport: 53, Local: 386 ● Corporate stores: 192, Franchisee locations: 247, Fleet size: rental car: 21,975, car sharing: 2,260 ● Breakdown of business: Leisure: 30%, corporate: 35%, replacements: 20%, tour: 10%, other: 5% ● Car Procurement method: Purchase and lease. There are no buyback programs in Japan. ● Average hold times: N/A. (General averages in Japan: small, intermediate: 24 months, luxury: 36 months) ● Popular rental models: subcompact Mazda Demio (Mazda2) ● Primary ancillary sales: Child seat, CDW ● Primary remarketing channel: auction ● Recession impact: Shorter rental days, and a move toward car sharing to cut personal spending.Times 24 Co., Ltd.’s car sharing system offers rentals in 15-minute increments. ● Business boost: As part of a government tourism campaign, visitors from overseas countries, especially from Asia, are increasing and are renting cars during their trips. Japanese car rental companies have referral contracts with overseas car rental companies and travel agents that funnel customers through these networks.TMN began an affiliation with Europcar in 2006 to strengthen its inbound business. ● Business hassle 1: Car rental companies must manage the fact that driving is only allowed for overseas tourists with driver’s licenses issued through the Geneva Agreements. ● Business hassle 2: Per a revision of traffic law in 2006, car rental companies must pay parking violation fines incurred by renters. Car rental companies closely monitor violations and train rental agents on how to mitigate violations. ● Environmental initiative: TMN is presently testing six Mitsubishi i-MiEV electric cars in its car sharing fleet. ● Environmental initiative 2: As of April 2004, all Japanese car owners, including car rental companies, receive a tax break for buying a more environmentally friendly car. This has resulted in a car rental fleet of smaller vehicles, though it is also based on customer demand for smaller vehicles.

AN INDUSTRY DEALS WITH DISASTER In the wake of the March 11, 2011 earthquake and tsunami in northeastern Japan, Japanese car rental companies are not only suffering supply issues, they must rebuild infrastructure and assist in the relief effort, according to the Japanese Car Rental Association. The Association reports that car rental companies are having difficulties in meeting customer demand.The rental car supply is worsening into the beginning of the summer season due to the lack of supply of new cars. To help meet demand, car rental companies are keeping cars that they would have sold. Because of the disaster, normal seasonal car rental demand has dropped, though car rental companies are supplying cars in the disaster area for reconstruction efforts. Park24 Co. Ltd., owners of TMN, reported heavy tsunami damage to its locations in Ishinomaki and the Sendai Airport, though the company reported no employee casualties. (According to April 14 data from the Japanese Car Rental Association.) Prefecture ■ Car Rental Companies Damaged ■ Approx. Cars Destroyed ■ Deaths (RAC staff)

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❱❱❱ MARKET SNAPSHOT - AUSTRALIA AUSTRALIAN AUTO RENTAL INDUSTRY STATISTICS MAJOR MARKET SEGMENTATION

MARKET Total revenue (2011 est.)........$3.1 billion ● Total operators .......................................410 ● Locations .............................................. 1,846 ●

Total fleet size (est.).................................. 60,000

Households..........................................25 % Airport operations .............................35% ● Non-airport operations .....................40% ● ●

MARKET SHARE, MAJOR COMPANIES WTH Pty Ltd (Avis Rent A Car System) ........................ 13.5% ● Hertz Investment Holdings Pty Ltd: ...................................9.3% ● Thrifty (Australia) Pty Ltd .....................................................7.0% ● Budget Rent-A-Car (Avis Budget Group) .........................6.5% ● G1 Holdings (Australia) Pty Limited (Europcar) .............4.8% ●

SOURCE: WWW.IBISWORLD.COM.AU

COMPANY SNAPSHOT Bayswater Car Rental “My father started renting out cars from the family home in Perth in the late 1950s,” says Arnold Kluck Jr., director. “He did this because as a taxi driver-owner, the government restricted him to a maximum of four taxis. Car rental seemed like a natural progression.” In 1988, Kluck moved to Sydney with his brother to start the business there. Kluck’s father still runs the Perth offices with another son. Bayswater is the largest independent car rental company in Sydney and Perth. ● Total locations: 1 in Sydney, 4 in Perth ● Fleet size: 2,500 ● Breakdown of business: Mainly local, leisure, insurance replacement. Local 60%, interstate 30%, international 10% ● Car procurement method: 100% buy. Buyback programs are not very common in Australia. Finance and leasing dominate. ● Average hold time: 30 months. Before the recession, average hold time was 24 months. ● Popular rental models: Entire fleet is white Toyota Corollas. ● Ancillary sales: “We cater to the frugal end of the market,” says Kluck. “We’ve found this price point works with our budget conscious customers, with most clients buying at least one ancillary product. We also charge for interstate driving, underage drivers and electronic toll service.” ● Primary remarketing channel: “We sell our old Corollas to Toyota dealers for new replacements. There seems to always be retail demand for a white Corolla, which keeps the dealers interested. The used car market has held steady in Australia, as opposed to the boom-bust cycle in North America.” ● Marketing/advertising: “We have had an on-going quirky ‘No Birds’ campaign for 30 years. It means no frills. People think we are crazy for running such an obscure slogan, and maybe they are right. Our frontline staffs get asked dozens of time each day ‘What does ‘no birds’ mean?’ A large portion of our fleet has yellow ‘no bird’ decals on the front doors. This increases our profile. We also spend ‘more than we should’ on the Internet and in local newspapers.” ● Recession impact: “The first couple of months were slow, and then the federal government started handing out money ($1,000

Arnold Kluck Jr., director of Bayswater Car Rental, stands next to a white Toyota Corolla, the only model in the Bayswater fleet. The company has been known for its “No Birds” campaign for the past 30 years.

to individuals and $2,000-4,000 to families) straight into personal bank accounts. The next 18 months we were flat out and have never been busier. The government also gave tax breaks for buying cars, which helped too. The Australian economy rebounded strongly, so these government measures have long since been wound back. But it was good while it lasted.” Legal/legislative threats: “At this stage there is no vicarious liability for rental cars in Australia, although local authorities and insurers are always pressuring and testing this. Australian state governments have limited taxation powers compared to the USA. Therefore, they tend not to single out the car rental industry.” ● Biggest business challenge: “Marketing. The Internet has massively changed the way we market ourselves. It is a continual challenge to manage Internet marketing, social media and traditional press.” ● Industry comparisons: “We came to the Car Rental Show expecting to see differences in the way North America does business compared to Australia. We were surprised how similar they are. The Australian car rental market is a mature industry and we feel our growth comes mainly at the expense of competitors that fail to keep up.”

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LOCAL OPERATOR DRIVES CHANGE A grassroots effort results in anti-steering legislation in Minnesota. BY JOANNE M.TUCKER

S

tarting Aug. 1, auto insurance companies in Minnesota will be required to allow customers the freedom to choose any auto rental company if the customer has car replacement in his or her collision coverage. Insurers are allowed to recommend a company to a consumer, but are prohibited from making this a stipulation of service. SF 508, signed into law by Gov. Mark Dayton May 25, mandates that insurance claims representatives will have to give customers obtaining a replacement car rental a verbal advisory, which reads, “Minnesota law gives you the right to choose any rental vehicle company, and prohibits me from requiring you to choose a particular vendor.” The road to that legislation was paved by a precedent-setting bill in New York State, a Minnesota anti-steering law already in place regarding glass repairs and a grassroots effort by a local car rental operator who saw that change was needed.

Laying the Groundwork “I lived at the Capitol just talking with as many people as I could and monitoring the process because we didn’t have any funds for lobbyists,” says McKenzie Prokosch, account relations manager for Choice Auto Rental, a locally owned provider of insurance replacements. Prokosch spent most her time meeting with the legislative commerce committee members and organizations in support of the cause. “I don’t have any political experience, but I wasn’t afraid to ask questions, whether it was to the [committee] members or their legislative assistants,” she says. More than 40 auto body shops joined in by signing a letter sent to legislators urging them to pass SF 508. The Alliance of Automotive Service Providers and the Minnesota Auto Dealers Association were also on board, along with eight other auto rental companies. “There are a lot of other locally owned com-

panies here fighting the same battle,” she says. “We just wanted to be able to compete, and also for consumers to know they had an option.” A New York anti-steering bill passed last year helped to lay the groundwork for Prokosch and the authors of the Minnesota law. The grassroots effort in New York gave these small rental companies the incentive and hope for a victory in Minnesota. “I was expecting it to take years,” says Prokosch, referencing the New York process, which had taken four years. The Minnesota legislation was pushed through in about four months.

Prokosch says the verbal advisory is probably better anyway, since so many people don’t read their policy thoroughly. “It’s right in people’s faces as it is happening,” she says. She also cited that there’s already a verbal advisory for auto glass replacement, so it wouldn’t be foreign for the insurance claims representatives to add this to their protocol. The anti-steering bill received overwhelming support, with only two voting against it in the Minnesota House. The bill received unanimous support in the Senate.

Leveling the Playing Field Adjustments Made A registered opponent of the bill, the American Insurance Association (AIA), called the bill “anti-reform” and stated that it went against freedoms of the marketplace in a prepared statement April 13. “The bill is definitely opening up the free market and allowing people to compete. And when there’s competition, obviously you get the best service and best rate for the consumer,” a main point used throughout the legislative process, Prokosch says. The Insurance Federation of Minnesota (IFM), a nonprofit insurance trade association, opposed the original bill due to vague wording. The original bill stated that insurance companies would not be allowed to “pressure” the insured to a certain rental company. The word “pressure” was changed to “require.” Once the word was changed, IFM moved its stance to neutral. The bill was also opposed by insurance agencies because it called for a written notice to the insured, which is what the New York law states. The added expense of this written notice would have cost the insurance companies an estimated $4-5 million annually, according to Prokosch. “I had no interest in adding an expense for anyone,” she says.

Part of Prokosch’s role at Choice Auto Rental is to communicate the company’s services with insurance agencies. She says many times in the past she wasn’t allowed to do so, but SF 508 opens this door. “It’s a benefit for [insurance companies] to know what’s out there,” says Prokosch, adding that she understands the benefit of an insurance company having a preferred vendor in an attempt to get a better deal. “So we went at it basically as a consumer awareness issue and then also to level the playing field for other businesses,” she says. The next step for Minnesota’s car rental businesses, Prokosch says, is to make sure the auto shops are also aware of the change. “Consumer’s preference will now be the deciding factor on who handles the rental for them,” Prokosch says. “On August 1, everyone involved with the claim, insurance companies, body shops and rental companies, will be saying the same thing to the customer: ‘You are able to use any rental vendor you prefer!’” Since the passing of this law in Minnesota, Prokosch has fielded numerous calls from other states looking for similar change in their market. “The interest and suggested need for change has been overwhelming,” Prokosch says.

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CAR RENTAL STYLE

After escaping destruction by the Joplin tornado, an Avis licensee and his team aid the relief effort. BY JESSICA CARRICK

G

rowing up in the heart of tornado alley, Jeff Neuenschwander, an Avis licensee serving Southwest Missouri, had been through it all before — but not like this one. The tornado that hit Joplin on Sunday, May 22 was classified as an F5 (out of 5) on the Fujita Tornado Intensity Scale. This is the most devastating tornado in the country since 1947. Charting the storm as it crossed the state, Neuenschwander discovered it was heading toward the house of Melinda Miller, the manager of his Joplin store. “I texted her to see if she was OK, literally as I was watching the debris cloud on the radar on TV,” says Neuenschwander, who lives halfway between Springfield and Joplin. With the phones out, Miller texted him that her house was damaged and she wasn’t able to drive her car. “At that point I took off to try and find her,” he says. Neuenschwander arrived a half hour before dark. The initial emergency response teams waved him through thanks to an orange vest he was wearing. “You could see the devastation and the gas fires,” he recounts. “I tried to figure out where her house was but I couldn’t tell the streets; there were no street signs and no

houses. I could hear people screaming, and there were people trying to dig out others who were trapped.” Neuenschwander never did find Miller’s house, but he ultimately found her in the neighborhood. “We didn’t know until after it was all over how bad our house was,” says Miller, who was

in the hallway with her boyfriend and three dogs when the roof was torn off. “And then we walked down the road and saw that just a few houses away there were houses that were completely leveled.” Neuenschwander loaded them up and took them back to the safety of his house.

The Disaster Response

The Avis location at the Joplin Regional Airport, undamaged by the tornado, became a hub of activity for disaster relief providers and local residents needing insurance replacements.

The next day, as the scope of the devastation unfolded, Neuenschwander sprang into action. He contacted his lending institution and asked for some flexibility with his lines. He suspended the cars scheduled for auction and returned them to fleet. He got on the phone to the Manheim Auction in Springfield, and within 30 minutes 15 drivers had signed up to help move cars. “No one asked how far they were going or the pay,” he says. “They just showed up.” Reservations flooded in from a wide range of disaster relief providers, including the Red Cross and the White House. Neuenschwander’s team moved cars within his four franchise locations and took vehicles from Avis Budget Group’s regional offices in Dallas and Bentonville, Ark. “They [Avis Budget Group] took a very proactive approach to offering us employees and help

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on the ground and started pushing cars toward our area,” he says. Neuenschwander’s fleet increased 25 percent to meet demands. “We’ve been out of cars essentially every day since this happened,” he says. “We’re doing everything we can to get vehicles in here for this response. And they are still coming in.” While many vehicles have been rented to workers organizing the relief effort in Joplin, 75 percent have been to residents. Miller says the insurance rentals are taking longer to get approved. Most rentals are for at least a month, and many will be oneway drops. “We’ve rented pickup trucks to people who have lost everything and are moving back to wherever they came from,” Neuenschwander says. “Just about everyone from our Springfield staff worked overtime through the [Memorial Day] holiday weekend,” says Neuenschwander, who even worked the counter until midnight. “We had employees on their days off down in Joplin to answer the phones, to try and talk to the insurance companies that are trying to get cars for their adjusters, who are trying to get cars for their customers.” Employee efforts haven’t gone unnoticed. “It has been fantastic to see people come together to respond,” Neuenschwander says.

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A NEW APPROACH

TO THE HIRING PROCESS

PHOTO: ©ISTOCKPHOTO.COM/ENDOPACK

Behavioral and situational interviewing techniques reveal how potential employees would handle future work situations. Interpreting the answers will give you a better gauge of a candidate’s true worth in your company. BY TOM SABOL

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hat don’t we have enough of? Time and money are two things that come to mind. In business, when we don’t hire the right people for the job, we’ve wasted both. Think of how much time and money it actually costs to employ someone. Besides obvious expenses such as salaries, federal and state taxes, benefits, uniforms and training, there are soft or unexpected costs incurred, such as loss of productivity or sales, advertising and recruiting for replacements and the possibility of paying unemployment benefits. All told, the employment process can cost from 40 percent to 1.4 times an employee’s base salary. A car rental agent with an entry salary of $22,000 per year could cost $33,000 to employ — at the low end. Now consider the cost of having to replace an employee, as much as 150 to 250 percent of the employee’s annual compensation. A seasoned car rental agent with a $44,000 annual salary would cost at least $66,000 to replace when it’s all said and done.

Traditional Versus Behavioral Interviewing You can save time and money in hiring — and gain a better candidate — by approaching the interview process differently. Studies show that the typical traditional interview is a predictor of future performance

only about 10 percent of the time. Traditional interviewing relies on standard and straightforward questions that are easily answered by candidates. They effectively tell interviewers what they want to hear, but not what they need to hear. If an interviewer can glean information about past experiences or hypothetical situations, it becomes a better gauge of the candidate’s true worth. Behavioral or situational interviewing has a success rate of 55 percent. A study by the Society for Human Resource Management (SHRM) defines behavioralbased interviewing as “a thorough, planned, systematic way to gather and evaluate information about what candidates have done in the past to show how they would handle future situations.”

Here are some examples of behavioral interview questions: ● Give me an example of a time when you had to deal with a difficult coworker. How did you handle the situation? ● Describe a time when you performed a task outside your perceived responsibilities. What was the task? Why did you perceive it to be outside your responsibilities? What was the outcome? ● Tell me about a time during your previous employment when you suggested a better way to perform a process.

● Describe a situation in which your stress level was high in dealing with a customer. Asking these types of questions will allow you to interpret how a candidate has reacted to real-world situations in the past. However, some planning and preparation are needed for this type of interviewing to work any better than the traditional methods.

Document Effective Behaviors You must place a value on certain behaviors within your company. In the car rental industry, as in most industries, companies are looking for employees who have strong communication skills. Additional skills you should be looking for include: customer service, sales, initiative, integrity, listening, phone skills and problem solving. Before you interview candidates, understand the job you need to fill. Perform a job analysis to gather and analyze the data, and then document the data. Employee surveys and observations are ways to gather your data. Analyzing the data will require you to rate the effectiveness of the employees that you have observed or surveyed. Document what you consider to be the most effective behaviors and create a standard that you will use to evaluate the answers your candidates give you in the interview. In addition to the skills listed earlier, you may further discover what skills a success-

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ful employee has. For example, you may not have realized that handling stressful situations calmly was an aspect of customer service skills. It’s a good idea to re-evaluate the position on a regular basis. To understand those skill sets, look to your most successful employees. What are the traits they possess, and does a candidate’s handling of a past situation match what you are looking for in an employee? Did the situation the candidate described, the actions they took and the outcome of the situation relay their proficiency in the skills you require? Be sure to use a standardized evaluation form to chart how each candidate handles the situations. When notating a candidate’s response, determine if he was able to specifically describe the situation and the task. What was the action he took? What was the outcome? Rate his answers (1 - 5) compared to the skills needed.

Situational Interviewing — Resolving the Task at Hand Situational interviewing is similar to behavioral interviewing; however, situational

interviewing relies on the interviewer creating a specific scenario in which the candidate must imagine performing the task and resolving the situation. The benefit here is that the candidates all have to respond to the same hypothetical situation. It relies less on how they have done things in the past and more on the situation at hand. Situational interviews also don’t require the candidate to have specific experience as it pertains to the scenario. When creating the hypothetical situation, base it on a key task they might perform as your employee. Select the task from the data gathered during the job analysis. It is easier to assess the best fit by creating a standard hypothetical situation that all the candidates have to maneuver through. Some hypothetical situations include: ● Rent Me a Car: Have candidates rent you a car. How would they handle a customer that seems to be pressed for time? Did they offer additional products? Did they listen to the customer’s need and suggest an upgraded vehicle? They may not know the systems or your policies, but you can evaluate their sales acu-

LE A S R FO Established Rental Car Company McCarran International Airport Las Vegas, Nevada Small location in McCarran Rent-A-Car Center plus 2 locations in major hotels in Las Vegas. This is a turn-key business with over 30 years of longevity.

men or their customer service skill. Did they communicate well in their answer? How well did they handle the problem? Did they take initiative when handling the scenario? ● Working as a Team: Describe a situation at the counter in which the candidate has a disagreement with a coworker. Customers are present. Did they handle the situation professionally and with integrity? Did the customer suffer because of the disagreement? Based on what you determined when doing your job analysis, you now have an idea of the behaviors and skills that should be demonstrated during the candidate’s response. Record your ratings on the standardized evaluation form using the suggested 1-5 scale. When the interviewing has been completed you can go back and objectively determine who will be the best fit. Tom Sabol is a human resource professional for Leslie Saunders with more than 10 years of experience in recruiting, training and development. Sabol is a certified Professional in Human Resources (PHR) and member of the Society for Human Resource Management.

Budget Rent A Car of San Diego International Airport is currently seeking a qualified entity to acquire its operating rights. • • • • • • •

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Please submit qualified inquiries to:

bobfore@budgetsd.com JULY / AUGUST 2011 • ARN 25

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C A R

R E N TA L

Q & A

Q

What are some non-traditional signs or indicators that business is beginning to pick up? K. Michaels - Independent Rent a Car Central Florida

A

It is safe to say that everyone has a different opinion about the current economic condition — where we are or when it will end. Keeping your pulse on the following items will add a different perspective to your version of a recovery: ● Look for changes in hotel occupancy and non-seasonal rate increases. Unlike car rental operators, hotel operators cannot cut capacity in their room availability. Occupancy in the hotel industry is a consistent indicator. ● Truck rentals and equipment rentals begin to increase. ● Your top performers and best employees begin to have other career options and offers. When things turn around they will be the first to be approached by a customer or competitor for a job. ● Walk-ups and reservations with less advance notice will increase. ● Independent car rental operators will increase their fleet. ● Your competitors may begin to offer services or customer experience items that may have been recently cut, such as adding customer service greeters and frontline staff, new and more unique fleet choices, new location signs and other general location improvements. ● Your local politicians will change

their message from blaming each other for the downturn to taking individual credit for the turnaround. Regardless of how you feel about the current economic climate, the more sources of information you can obtain will allow you to form your own opinion.

Q

How do we change our incentive plan to prevent sales associates from leaving the counter or engaging in customer profiling? Station Manager Airport rental operator, Western Canada

A

The good news is that you do not have to do anything to your incentive plan. Don’t change it. It is not the role of the incentive plan to hold sales associates accountable; it is the role of the manager. The bad news is that many managers do a very poor job of holding associates accountable for these poor and unprofessional sales practices. Following these techniques will greatly reduce these troubling behaviors: ● When the cat is away the mice will play: It is critical that your management team establishes its presence on the counter during peak rental hours. Managers should ensure that rentals are processed equally by every associate. ● Set fair and obtainable stretch targets: If incentive targets are set unrealistically it will create an unfair expectation for your team and their internal motivators will get the best of them. If no one in the location is receiving a payout, there is a problem.

PHOTO: ©ISTOCKPHOTO.COM/ALASHI

Q&A

● Go inside the numbers: Removing subjectivity and hearsay from the scenario will greatly enhance the manager’s ability to hold the staff accountable. Review individual associate length of rents, average rentals by hour worked and incentive earning per agreement. Calibrate all these trends versus the location’s team average. ● Play the devil’s advocate: Ask your associates if they have ever been pre-judged or treated differently when they made a purchasing decision somewhere else. Applying these techniques and having a relationship-focused approach with your frontline team will improve your team’s rental productivity and enhance your customer’s experience.

• Email your car rental operationrelated questions to Auto Rental News care of chris.brown@bobit.com. • Consultants from the Khoury Group will come up with concise, insightful answers to help you better run your car rental operation. Feel free to contact the Khoury Group directly at questions@thekhourygroup.com.

26 ARN • JULY / AUGUST 2011

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products & vendor news FSNA 2011 Convention Set for Oct. 23-25 Franchise Services of North America Inc. (FSNA) is preparing for thee U-Save, Auto Rental Resource Center (ARRC), Xpress Rent A Car and d Rent-A-Wreck of Canada combined convention October 23-25, 2011. The convention, to be held at Caesars Palace in Las Vegas, is celebrating the 30th anniversary of U-Save and the 32nd anniversary of Rent-A-Wreck of Canada. FSNA is contacting companies now regarding exhibition space. Additional information to come regarding sponsorship levels, hotel accommodations, booth transport and more. Contact Melinda Ganus at 800-438-2300 ext. 146 or melinda.ganus@usave.com for more info.

Bluebird Announces 2011 Users Conference Bluebird Auto Rental Systems’ Users Conference 2011 will take place Sept. 21-22 at Caesars Atlantic City, N.J. If reservations are confirmed by August 31, the cost is $89 per person. If reservations are confirmed September 1 through September 14, the cost is $105 per person. RSVP to Melanie Pancoast at (973) 989-2423 or Melanie@barsnet.com. Rooms can be reserved directly by calling Caesars Atlantic City at (800) 345-7253 by September 6. Be sure to tell them that you are with the conference. There is a special Bluebird Conference group rate of $131 a night for a single room in the Centurion Tower.

Private Equity Firm Invests in CarTrawler ECI Partners, a UK mid-market private equity firm, has invested in CarTrawler, the Dublin-based provider of online car rental distribution systems. The funding from ECI will be used to support the continued growth of CarTrawler organically and through acquisition, according to MCGEARTY CarTrawler. In addition, Mike McGearty, the former COO of CarTrawler, has been announced as the new chief executive. Bobby Healy will continue as the company’s chief technology officer (CTO) and Niall Turley will remain director of supply. Chris Watt, director at ECI, will join the board. Richard Prosser will also join the board as chairman. Prosser formerly served as managing director of the Specialist and Emerging Markets division of TUI Travel Plc, a leisure travel business.

CarTrawler and Travel Booster Sign Cooperation Agreement CarTrawler, the car rental distribution system with more than 550 suppliers in 175 countries, and Galor Systems, developer of web-based travel management system Travel Booster, announced a cooperation agreement on June 1. Through the interface with Travel Booster, CarTrawler will now distribute its full content to all members of the Travel Booster network. Travel Booster users will benefit from the largest selection of car rental options from leading and independent car rental suppliers worldwide, in 29 languages and multiple currencies. “CarTrawler provides car hire services to airlines, hotels,

hostels, online travel agents (OTAs), tourism information websites, travel and transportation (car rental, rail and ferry) sites, and retail travel agents (corporate and leisure travel agents),” said Robin White, VP sales EMEA, CarTrawler. “Travel Booster extends our reach even further through its enormous database of distribution partners around the globe.” “Partnering with the best car rental distribution system in the world adds a tremendous amount of content to our network, benefitting all Travel Booster users,” said Orly Livnoni, CEO of Galor.

28 ARN • JULY / AUGUST 2011

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used car prices

AVERAGE AUCTION SALE PRICE – COMMERCIAL FLEET VEHICLES $16,000

MID-SIZE CAR

FULL-SIZE PICKUP

FULL-SIZE VAN

SUV

$14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000

1 0 0 0 1 0 0 0 1 1 10 0 R-1 AY-1 UN-1 UL-10 UG- EP-1 CT-1 OV-1 EC-1 AN-1 EB-1 AR-1 PR-1 M A F J D N J A O S J M

West Central Midwest Northeast Southeast

MODEL

AP P .R .

SOUTH EAST

NORTH MID WEST EAST WEST CENTRAL COAST

AUDI A4 2008 4D SDN 3.2L QUATTRO 19,600 19,500 BUICK LACROSSE 2009 4D SEDAN CXL 15,250 15,250 2008 4D SEDAN CXL 11,850 13,200 CHEVROLET 1500 SILVERADO 2WD V-8 2008 REG CAB 4.8L 13,300 12,400 CHEVROLET COBALT 2009 4D SEDAN LS 8,550 9,100 2008 4D SEDAN LS 6,850 7,000 CHEVROLET COLORADO 2WD I5 2008 EXT CAB 3.7L LT 10,750 7,750 CHEVROLET EQUINOX AWD V-6 2008 4D SUV LT 11,850 13,050 CHEVROLET HHR 2009 4D SUV 2.2L LT 7,200 7,100 2008 4D SUV 2.2L LT *9,850 *9,850 CHEVROLET IMPALA V-6 2009 4D SEDAN LS 3.5L 10,100 9,900 2008 4D SEDAN LT 3.5L 9,850 9,850 CHEVROLET MALIBU V-6 2009 4D SEDAN 3.9L LT 8,750 11,050 2008 4D SEDAN 3.9L LT *11,750 10,200 CHRYSLER 300 2009 4D SEDAN 13,550 14,150 2008 4D SEDAN 11,600 11,850 CHRYSLER SEBRING V-6 2009 4D SEDAN LTD 9,950 9,350 2008 4D SEDAN LTD *12,450 *11,900 DODGE RAM 2WD V-8 2008 QUAD CAB 5.7L 16,500 14,300 FORD CROWN VICTORIA 2008 4D SEDAN LX 14,600 14,600 FORD EDGE 2009 FWD 4D SE 15,950 13,350 2008 FWD 4D SE *15,950 *14,700 FORD EXPEDITION EL 2WD V-8 2009 4D SUV 5.4L XLT 21,200 20,750 2008 4D SUV 5.4L XLT 18,450 18,950 FORD EXPLORER 4WD V-6 2009 4D SUV 4.0L XLT 15,700 15,400 2008 4D SUV 4.0L XLT 13,200 *15,800 FORD F-150 2WD V-8 2009 EXT CAB 5.4L XLT 17,400 14,400 2008 EXT CAB 5.4L XLT 15,200 12,850 FORD FOCUS 2009 4D SEDAN SE 11,450 11,200 2008 4D SEDAN SE 10,600 10,850 FORD FUSION 4-CYL. 2009 4D SEDAN SE 11,350 11,900 2008 4D SEDAN SE *12,950 *12,600

19,700

19,900

19,800

15,250 12,500

15,250 11,650

15,250 10,750

11,850

13,400

13,050

9,150 6,950

9,100 6,550

9,150 6,700

8,850

10,200

9,050

13,200

12,400

12,950

7,350 *10,250

7,300 *9,850

7,050 *10,050

10,300 *10,700

10,800 10,600

10,450 9,750

11,700 10,950 11,300 *11,500

10,950 10,050

13,950 12,450

15,250 12,350

14,350 12,500

10,050 9,650 *10,650 *10,450

9,250 *11,300

14,250

16,450

16,050

10,100

10,000

12,150

17,200 15,500 15,850 *16,000

16,150 *16,200

20,750 18,950

20,300 19,850

20,750 19,350

14,950 *15,050

13,000 12,950

15,350 13,550

14,900 13,750

17,400 15,350

16,850 15,450

11,650 11,250

11,700 10,000

11,650 10,850

12,800 11,200 *13,450 *12,850

11,800 *12,250

THE GRAPH ABOVE REFLECTS ACTUAL AUCTION PRICES RECEIVED BY SELLERS OF COMMERCIAL FLEET VEHICLES. THESE VEHICLES GENERALLY HAVE HIGH MILEAGE. THE TABLE BELOW REPRESENTS THE WHOLESALE VALUES OF MODELS REGARDLESS OF SELLER.

MODEL

SOUTH EAST

NORTH MID WEST EAST WEST CENTRAL COAST

FORD RANGER 2WD V-6 2008 2D EXT CAB 3.0L XLT 14,150 12,450 14,600 13,050 FORD TAURUS 2009 4D SEDAN SEL 11,150 10,850 11,350 12,400 2008 4D SEDAN SEL *11,200 10,300 11,300 9,750 JEEP GRAND CHEROKEE 4WD V-8 2009 4D WAGON LAREDO 20,850 21,800 22,700 21,650 2008 4D WAGON LAREDO 18,850 15,000 15,500 16,600 JEEP PATRIOT 4WD V-6 2009 4D SUV SPORT 13,450 13,450 13,250 13,450 2008 4D SUV SPORT 11,700 12,000 11,900 11,700 LINCOLN MKX AWD V-6 2009 4D CROSSOVER 24,850 24,850 24,850 24,850 2008 4D CROSSOVER 22,200 21,050 21,650 22,550 LINCOLN TOWN CAR 2009 4D SIGNATURE LTD 19,700 20,750 19,850 19,850 2008 4D SIGNATURE LTD 18,750 18,850 19,250 19,250 MERCEDES-BENZ S-CLASS 2009 4D SEDAN S550 62,150 55,550 60,050 60,050 2008 4D SEDAN S550 50,250 47,400 49,050 49,700 NISSAN ALTIMA 2009 4D SEDAN 14,350 12,750 13,050 14,100 2008 4D SEDAN 14,200 *13,650 *14,250 *14,150 PONTIAC GRAND PRIX 2008 4D SEDAN 9,350 10,000 9,800 8,450 PONTIAC VIBE 2009 4D WAGON 9,700 9,850 10,800 9,800 2008 4D WAGON 8,750 8,750 8,750 8,750 SAAB 9-3 2009 4D SEDAN SPORT AUTO 16,750 16,750 16,750 16,750 2008 4D SEDAN ARC AUTO 11,750 12,450 12,900 12,600 SUBARU OUTBACK 2008 4D WAGON 2.5L LTD 18,100 18,400 17,500 17,350 TOYOTA CAMRY V-6 2009 4D SEDAN LE 14,950 14,900 14,050 14,600 2008 4D SEDAN LE 13,850 12,850 13,250 14,050 TOYOTA PRIUS 2009 4D HATCHBACK 18,550 18,450 18,250 19,100 2008 4D HATCHBACK 16,350 17,050 16,600 17,850 TOYOTA TACOMA 2WD V-6 2009 DBLCAB 4.0L PRERUNNER 21,050 20,200 21,050 21,100 2008 DBLCAB 4.0L PRERUNNER 19,500 18,500 19,450 18,950 VOLKSWAGEN JETTA 5-CYL. 2009 4D SEDAN S 12,450 11,100 11,850 12,150 2008 4D SEDAN 11,400 *11,100 11,400 11,550 VOLVO S40 2009 4D SEDAN 2.4L 13,650 12,950 13,650 13,650 2008 4D SEDAN 2.4L 12,550 *13,350 12,000 10,550

13,650 12,800 11,100 22,050 15,700 13,450 11,400 24,850 22,050 18,600 *19,250 65,300 50,300 14,650 13,850 9,300 9,350 8,750 16,750 12,100 16,800 14,300 *14,300 19,150 18,450 21,250 19,900 13,050 11,100 13,650 13,350

*Vehicles noted have higher (or equal) 2008-over-2009 values because the average mileage of the 2008 models going through the auction is less than the 2009 average mileage. Data provided by Manheim Market Report, a daily price guide based exclusively on auction transactions. The data is based on sales at Manheim’s 80 North American auctions. The Manheim Index (Manheim Used Vehicle Value Index) at www.manheimconsulting.com provides “trend” data for the most recent 12 months and is updated monthly with commentary and segment analysis.

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ad index COMPANY

PHONE

®

www.autorentalnews.com

WEBSITE

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Vice President & Group Publisher Sherb Brown — (310) 533-2451

Abrams Consulting Group ...............914-696-5100 .....................abramsconsulting.com ...............23

Executive Editor Chris Brown — (310) 533-2499 chris.brown@bobit.com

Bluebird Auto Rental Systems ....................................800-304-5805 .....................barsnet.com ...................................9

Assistant Editor Jessica Carrick — (310) 533-2490 jessica.carrick@bobit.com

Courtney Leasing, Inc........................407-438-0083 .....................courtneyleasing.com...................19

Web Editor Greg Basich — (310) 533-2572 greg.basich@bobit.com

Dollar Rent A Car..............................800-555-9893 .....................dollar.com.....................................19

Art Director Armie Bautista

Fleet Job Finder...................................-..............................................fleetjobfinder.com ......................29

Production Manager Brian Peach — (310) 533-2548

GMAC Smart Auction.......................877-428-9882 .....................aboutsmartauction.com............C4

Subscription Inquiries (888) 239-2455

GMI Insurance Services ....................800-722-3229 .....................GMI-Insurance.com ......................5

Chairman Edward J. Bobit

Lancer Insurance ................................800-782-8902 x3027 .........lancerinsurance.com .................C3

President & CEO Ty F. Bobit

PurCo Fleet Services, Inc. ................888-PURCO 88 ..................purco.com ....................................11

Chief Financial Officer Richard E. Johnson

Sonoran National Insurance ............866-998-1001 .....................sonorannational.com....................3

Editorial Consultant Howard Rauch

TML Information Services, Inc. .......800-743-7891 .....................TML.com.......................................17 TSD Rental Management Software.......................800-743-1200 .....................tsdweb.com .............................C2-1 U-Save Auto Rental ...........................800-438-2300 x146 ...........usave.com .....................................17 Auto Rental News Webinar: How to Increase Cash Flow in 2012 Sponsored by WTP Advisors.....................autorentalnews.com/webinar/WTP ...............................27 WTP Advisors ................................914-733-7715 .....................wtpadvisors.com .........................15

ADVERTISING MANAGERS Associate Publisher Joni Owens joni.owens@bobit.com (310) 533-2530 Fax: (310) 533-2503 Great Lakes Robert J. Brown 1000 W. University Dr. Ste. 209 Rochester, MI 48307 (248) 601-2005 Fax: (248) 601-2004 Printed in the USA All statements made, although based on information believed to be reliable and accurate, cannot be guaranteed and no fault or liability can be accepted for error or omission. acra

The Advertisers’ Index is provided as a courtesy to Auto Rental News advertisers. The publisher assumes no responsibility for errors or omissions.

JULY / AUGUST 2011 • ARN

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rent ALERT

FOR UPDATES,VISIT WWW.AUTORENTALNEWS.COM

Sell Now? The used car market is at its valuation peak – but the so-called bubble may be better characterized as an air mattress deflating. It’s all about supply. BY CHRIS BROWN

“G

irl we couldn’t get much higher. Come on baby, light my fire!” If there’s anything that gets fleet consignors hot these days it’s the prospect of selling into this strong wholesale market. Maybe Jim Morrison was singing about used car prices? The Manheim Used Vehicle Value Index reached another historical peak in May. But the numbers are starting to soften moving into mid-June. For the week of June 13, Kelley Blue Book reported that values for subcompact, compact and hybrid cars have started to decline for the first time since January. Black Book values show that the same week marked the largest overall decline in vehicle values in more than three months, with the exception of one week in early May. Have used car prices peaked? To understand the market forces at work, everything should be viewed through the prism of supply. The Japan crisis hit in March, just as the industry was returning to some normalcy after the recession, bankruptcy and a new manufacturing business model had already drastically reduced supply. That giant sucking sound you heard this spring was the car rental industry taking whatever it could out of the market — both new and used — to replace lost orders. This aggravated already tight wholesale supply and drove up prices. At auction, small cars were selling for $500 to $1,000 more than they cost last fall — with 10,000 more miles on them. This is clearly a market aberration that is in the midst of correcting itself. If you’re in a position to sell your small cars, sell now. Fuel prices have topped out and the Japan supply issues are working themselves out. The market will never be better than this. Listen to the Lizard King: “The time to hesitate is through. No time to wallow in the mire.” If the market is coming down, by how much can we expect, and when?

Coming Soon Post Labor Day will bring the usual selling off period, though this year the market will see more than its fair share of off-rental units with 50,000 miles on them — rental companies held those units through the Japan supply crunch to meet summer demand. However, “There may be a week or two where the market looks like it will fall off the cliff, but I don’t think that will be sustainable,” says Alec Gutierrez, manager of vehicle valuation for Kelley Blue Book. Dealers are still hungry for

inventory, Gutierrez says. There will be no glut. Fuel prices won’t crash as they did in 2008, at the onset of the recession. Back then, fleets got right-sized in a painful adjustment to fuel price trends. In terms of model mix, fleets aren’t getting stuck with vehicles they can’t sell. No such pricing chaos is expected this time.

This Fall Art Spinella of CNW Research expects prices to slip in the third and fourth quarter by three to five percent. Gutierrez concurs. “If supply weren’t an issue, then perhaps we would see these values drop more than 5 percent,” he says. By November, the market will begin processing the dearth of volume of off-lease units from the recession, which will keep supply tight and prices afloat. And though the Japan pipeline will be flowing again, no one is expecting a flood of new cars. “Lack of vehicles in dealer inventory is not going away anytime soon,” reports a national fleet dealer. “We’ll struggle with vehicle inventories over the next year.”

Looking Further Off-lease supply will stay tight through all of 2012, until the lease returns from the 2010 recovery start hitting the market in 2013. New car sales will rebound. Total sales could reach 12.6 million this year, a million more vehicles than last year’s 11.6 million total. If half of those sales involve a trade in, another 500,000 units will enter the wholesale channel, says Tom Kontos, Adesa’s chief economist. “It may ease some of the tightness of supply but probably not enough to offset the off-lease decline,” Kontos says. “More things are working against a growth in supply in the next 18 months than for a growth in supply.” After that, it’s hard to predict too far into the future. There is always the specter of over production and deep new car discounts — and thus a spiral of back-end values. A booming economy and lower unemployment could lead automakers astray, and some upstart marques could make a market share play. Yet, for a change, market watchers are guardedly optimistic. No one has lost their cynicism about how this could be screwed up again. It’s just that, at least for the foreseeable future, the new manufacturing business model is easier to adhere to than deviate from.

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Auto Rental News July/August 2011