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HOW TO EXPLAIN CAR RENTAL TO BANKS AND INVESTORS UPGRADE YOUR CLIENT BASE AN INDEPENDENT’S BLUEPRINT

FROM RECESSION TO RECOVERY HOW ARE WE DOING? THE FUTURE OF INTERNET RESERVATIONS NO-SHOW FEES: NOT YET?

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table of contents March / April 2011 • Volume 25, No. 3

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16 FEATURES 14 How to Explain Car Rental to Banks and Investors

18

Investment banker Scott White gives eight good reasons to convince banks their money will be safe, and three compelling arguments to attract equity investors.

16 An Independent’s Evolution Greenberg Rent A Car has progressed into a new client base through a new location, an affiliate program partnership, a “big-business” look and meticulous attention to customer service.

DEPARTMENTS 4

Editor’s Corner 8 Lessons Learned from the Recession

6

Guest Editorial The Right Way to Prepay

18 From Recession to Recovery Car rental operators and industry stakeholders react to market forces and assimilate change into their business plans.

22 The Future of Internet Reservations for

8

Hecker gets 10 years for fraud; Global car rental revenue to top $53 billion in 2015

28

26 A Plan for Growth Fox Rent A Car is looking for a few good affiliate partners to share in its expansion plans.

Car Rental Q&A Which key sales items should we be discussing?

Car Rental Direct connect technology, mobile phone reservations and alternatives to traditional travel portals are all driving change in the world of travel reservations.

Industry News

30 32 34 36

Product and Vendor News Used Car Prices Ad Index RentAlert Avis Budget Says No to No-show Fees

On the Cover: ©istockphoto.com/1001nights 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 Eight Lessons Learned from the Recession As a car rental operator, if you didn’t succumb to the recession, you’ve come away wiser. Here’s an overview of lessons learned—and if you haven’t learned them yet, get with the program. It’s Okay to Sell Out When fleets were tight, operators couldn’t satisfy every potential reservation. But they learned that it’s okay. It hurts to see a reservation slip through, but it costs equally, or more, when a car sits unrented. Operators are no longer playing to the peaks—they’re just better preparing for the valleys.

BY CHRIS BROWN

out and raising rates, independent operators are able to raise rates along with them. But when the market turns, you won’t be able to play the price-war game the other way. Smaller operators survive by filling a market niche, concentrating on it and doing it well. One lender says very few new loan applicants are doing just car rentals today. What’s your niche?

High Mileage = Lower Holding Costs RACs didn’t want to run high-mileage rentals, but when they did, they started liking the numbers. As credit eased and fleet became available, they didn’t have to run units as long, but they still liked those numbers. Customers have adjusted to this new normal. Just give them a clean, mechanically sound car!

Used Car Prices Will Deflate We’d all like to believe that the great return on used rental units is because the models you’ve been remarketing have such high residual values. Yes, cars are being built better than ever, but the main reason is the restricted supply in the wholesale market. Now that the majors have restocked and added 20 percent to their fleets, that supply will hit the used car market in 2012. No one knows how much of a dip in prices that will cause, but count on one.

Plan Purchases Ahead The consequence of manufacturers’ right-sizing their new car sales is that there aren’t extra cars sitting around waiting for you to buy. One fleet supplier complains that one of his manufacturers is back-ordered by 3,000 units on one model. You may want to take advantage of a good used car market by de-fleeting, but you’ll be in a bind when trying to replace those sold units. If you’ve tried going to the auctions to pick up some low-mileage units in a pinch, you know that’s a lot harder too. Plan your fleet a little further out and get those orders in sooner. You have to in today’s market.

Forget the Price Wars “A rising tide lifts all boats.” With the majors selling

4

Keep the Extra Credit Line You may have gone looking for a new funding source when one clamped up during the recession. The money may be flowing again, but hold onto that second credit line. Exercise it now and again, even if the rates are higher. No one wants to go back to being stuck again. You might stay solid, but what if your bank goes under? Some operators complained of wanting to buy cars well within their credit lines, but the banks didn’t have the money to lend.

Take Advantage of Low Insurance Rates Supply is high and demand is low, relatively speaking. Insurance carriers hunting for new, higher-margin niche business types, along with potential rental company customers that have left the market, have kept insurance rates low. Shop the market to take advantage. Talk to three or four new providers. But understand that as an improving economy drives demand, rates may start going up again.

Reassess Your Appetite for Risk Though the overall economy is recovering, personal bankruptcies will continue to affect consumers’ ability to rent— and buy—cars for the near future. There is business to be had from no-credit customers and those looking for long-term rentals. Can you manage cash-deposit rentals? Would you draw the line on accepting debit cards? How much would a GPS tracking system help? Analyze your appetite for risk and protect yourself, as the law of averages will ultimately catch up to you.

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guest editorial The Right Way to Prepay If the car rental industry is going the route of prepaid reservations, the policy should be launched in conjunction with guaranteed reservations to be effective.

“Major airlines agree to refund cancelled reservations less a $5 fee.” That is one headline you will never see, yet some companies in the car rental industry have this exact policy. Recently, one car rental company said it is opposed to no-show fees because they are not widely accepted. Some companies are now taking prepaid reservations and offering a discount. I like the idea of prepaid reservations, but I oppose the way they’re implemented. The following is from one car rental company’s Web site: “If you need to cancel prior to scheduled pick up time, we’ll refund the full prepaid amount less a $10 processing fee. If you don’t show up for your rental, we’ll refund the full prepaid amount less a $50 no-show processing fee.” Here is another: “Cancellation Fee—If the reservation is cancelled more than 24 hours before the pickup time, a $5 cancellation fee will be assessed. If the reservation is cancelled within 24 hours of the pick up or is not picked up at all, a $10 no-show fee will be assessed.” What? The reservation is prepaid, offering the customer substantial savings, and then the rental company is giving the customer’s money back (less $5 to $10) if he cancels? And if the customer does not show up, they refund the prepaid amount less a $50 (or $10) charge? By comparison, here are Hilton’s terms and conditions for Internet rate reservations: “Advance Purchase: Full payment in advance. Nonrefundable. No changes allowed or credits given.” I applaud the effort to get customers to give car rental companies their credit card information and prepay, but why would we not follow the hotel model that is so widely accepted by the public? The hotel customer gives his credit card information knowing he will lose his money on a prepaid reservation, or forfeit one night if he does not show on a standard reservation! Let’s look at the economics: Hotel discounts averaged 17 percent on a room for $199 a night. On a four-day stay, the

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BY BOB BARTON PRESIDENT, AMERICAN CAR RENTAL ASSOCIATION

risk is on a total charge of about $661, in order to save about $135. That’s real money. Under the car rental prepay example, a $40 rate for a fourday rental that runs $160, the customer saves 10 to 35 percent, or $16 to $56. If the customer cancels, she gets it all back except $5 to $10. For a no-show, she’s charged $10 to $50. This will not change behavior. I’ll bet people take the discount, and then don’t care and don’t bother to cancel. Consumers will book with more than one rental company to make sure they have a car, and then walk away from one of the reservations (probably the one with the $10 fee), simply taking advantage of a very liberal cancellation/no-show policy. Remember last year? Travel writers encouraged customers to make multiple reservations. Don’t get me wrong, I like the idea of prepaid rentals, but the policy should be launched in conjunction with guaranteed reservations. Give the customer three simple options: ● If you put down a credit card at the time of reservation to guarantee the reservation, you get a 10 percent discount. (If you do not show up within three hours of your reserved time, you are charged one day. If you cancel at least three hours in advance of your reserved time, there is no fee.) ● Prepaid reservation for savings of up to 35 percent— charge the credit card at the time of reservation and make it nonrefundable with no changes allowed, just like hotels. ● Without a credit card at time of reservation—guarantee the customer will receive a car, but reserve the right to upgrade or downgrade the customer, with no rate adjustment, based upon fleet operations. If your competitors do not follow your lead, who cares? Nobody followed American Airlines initially when it started to advance charge for tickets. The message is clear to the consumer. The perception will be: take advantage of the discount because there is still no risk simply by canceling. We should have prepaid reservations that are consistent with the accepted practice of the hotel industry and in conjunction with a guaranteed reservation policy.

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Recovery Specialists for the Vehicle Rental Industry

2/17/11 4/28/10 2:05:18 9:49:10PM AM


industry news Hecker Gets 10 Years for Fraud Former auto mogul Denny Hecker, who once owned 26 dealerships, a leasing company and Advantage Rent a Car, was sentenced to 10 years in prison on Feb. 11 after pleading guilty to wire and bankruptcy fraud. It was the maximum sentence the 58-year-old Hecker could have received. Hecker has been in federal custody since October, after he was arrested for failing to disclose how he spent nearly $124,000 in insurance money. Hecker’s current attorney Bill Mauzy sought a sentence of eight years, not 10. Hecker reached a plea deal with federal prosecutors in September on two fraud-related charges.

On Feb. 8, Steven Leach, who had been president of Hecker’s Rosedale Leasing, was sentenced to 27 months in prison and was ordered to pay restitution of $14.2 million. Co-defendant and former Hecker employee James Gustafson was sentenced on Feb. 3 to two years of probation and 120 hours of community service for lying to the court and for issuing a phony vehicle title.

DOT Finds No Electronic Flaws Cause Unintended Acceleration in Toyotas A 10-month study by the U.S. Department of Transportation did not find any electronic system flaws in Toyota vehicles capable of producing the large throttle openings required to create dangerous high-speed unintended acceleration incidents, according to the National Highway Traffic Safety Administration (NHTSA). “We enlisted the best and brightest engineers to study Toyota’s electronics systems, and the verdict is in. There is no electronic-based cause for unintended highspeed acceleration in Toyotas,” said U.S. Transportation Secretary Ray LaHood. NHTSA launched the investigation and conducted the study at the request of Congress and enlisted NASA engineers to find out whether any issues with the electronics in Toyota vehicles played a role. “NASA found no evidence that a malfunction in electronics caused large unintended accelerations,” said Michael Kirsch, principal engineer at the NASA Engineering and Safety Center (NESC). NHTSA stated that the two mechanical safety defects identified by the organization previously, specifically “sticking” accelerator pedals and a design flaw that enabled accelerator pedals to become trapped by floor mats, remain the only known causes for unintended acceleration incidents. In March 2010,Toyota first raised concerns regarding the credibility of “unintended acceleration” claims. Pictured is Dr. Matthew Schwall of Exponent Inc., the engineering consulting firm Toyota commissioned to conduct analyses of the electronic throttle control systems in Toyota and Lexus vehicles.

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County Panel Takes a Step Against Car Rental Tax in Wisconsin On Jan. 31, a Milwaukee County, Wisconsin board panel took a step against a car rental tax that would help fund transit in the county, according to the Journal Sentinel. The County Board’s Intergovernmental Relations Committee rejected state support for the tax, which would go toward a three-county commuter rail line. Acting County Executive Lee Holloway was in favor of the tax, which would raise about $5 million. Holloway said he plans to continue seeking state permission to increase the county sales tax as a transit funding alternative. The Southeastern Wisconsin Regional Transit Authority is authorized to collect a car rental tax of up to $18 in Milwaukee, Kenosha and Racine counties. Supervisor John Weishan said he opposed the car rental tax effort because it wasn’t a full solution to the transit funding problem.

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industry news Manheim: Wholesale Supply Declines for 3rd Straight Year Both new and used vehicle retail sales increased in 2010 after four straight years of declines, but wholesale used vehicle supply declined for the third straight year, according to Manheim’s 2011 Used Car Market Report. Among the trends analyzed in the 2011 UCMR: After falling to a 27-year low in 2009, new vehicle sales increased 11 percent, or by more than 1.1 million units, in 2010 to 11.6 million units. That is still the second-lowest total in 28 years. The increase was driven by a 22-percent jump in fleet purchases, as fleets made up for a very low level of acquisitions in 2009. The consensus outlook for new vehicle sales in 2011 is 13 million, though Manheim economist Tom Webb believes there is a strong possibility that figure will be exceeded. After three years of declines, auction volumes in 2010 were estimated to be 12 percent below 2007’s level. Primary reasons for the decline in 2010 were fewer repossessions, rental program vehicles, and off-lease units. The profitability of the rental industry rebounded as a result of operating-cost discipline, access to lower-cost vehicle financing and a significant drop in depreciation expense due to strong used vehicle prices. Rental companies purchased 1.4 million vehicles in 2010, up from 1.1 million units in 2009. In 2010, less than 30 percent of the rental industry’s purchases were program vehicles. Auction prices for end-of-service fleet vehicles rose at auctions despite higher mileage. The average midsize fleet car sold at auction had 68,000 miles, up from 66,000 in 2009 and 64,000 in 2008, yet mileageand seasonally-adjusted prices for these cars reached an all-time high in the first half of 2010.

Car Rental Continues as Leading Revenue Source for Airlines Car rental continues to be a top source of global ancillary revenue for airlines and the travel industry, according to a report shown on the Moodie Report. The 13-page report, titled “Planes, Cars, and Ancillary Revenues,” was conducted by airline ancillary revenues consultancy IdeaWorks. The report states that the health of the airline industry traditionally determines the success of any car rental company. Car rentals are among the top commission-generating services sold on airline Web sites, along with hotel bookings and travel insurance. These commission-based services finished ahead of checked baggage, priority boarding, seat assignments and pre-ordered meals. The report lists Hertz as a global leader in the category of exclusive deals.

Global Car Rental Revenues Expected to Top US $53 Billion in 2015 A new report by Global Industry Analysts Inc., titled “Car Rental Business: A Global Strategic Business Report,” provides a comprehensive review of global market trends, issues, drivers, company profiles, mergers, acquisitions and other strategic industry activities. The report provides market estimates and projections in U.S. dollars for major geographic markets. The report estimates global revenues will reach over $53 billion by 2015. Segments analyzed include by rental locations-airport and non-airport; and by sectors-leisure, business and insurance replacement.

Fla. House Speaker Expects “Chilly Reception” for Rental-car Surcharge Orange County, Fla. lawmakers created a wish list for the legislative session that starts March 8, but a $2 rental-car surcharge on the list isn’t expected to get a pleasant response from lawmakers, according to House Speaker Dean Cannon. “Any bill that seeks to increase taxes at the state or local level will find a chilly reception in the Florida House,” Cannon said in a statement. Orange County Mayor Teresa Jacobs pushed to include the $2 charge among the county’s list of wants, which also includes priorities such as protecting state transportation funding, and opposing efforts to expand jail time inmates would spend in county facilities. Jacobs and other Orange County leaders want to use the potential $30 million to $35 million revenue that a rental-car surFlorida House Speaker charge could bring in to Dean Cannon help fund road, rail or transit needs.

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HOW TO

EXPLAIN CAR RENTAL TO BANKS AND INVESTORS

Based on 18 years of experience raising money for major car rental companies, investment banker Scott White gives eight good reasons to convince banks their money will be safe, and three compelling arguments to attract equity investors. BY SCOTT WHITE

A

s you know, the car rental industry faces biases and misunderstandings. Through hard experience and many hours of talking to skeptical and smart investors, I can attest to the many knee-jerk biases held against car rental. As active business and leisure travelers, most investors have had some negative experience renting a car and have drawn broad judgments about the industry based on random fact patterns. My purpose here is to reveal the arguments and explanations I’ve used successfully with large global banks, leading private equity firms, institutional investors and Wall Street analysts in car rental’s biggest mergers and acquisitions and financing deals. Some versions of the arguments below can be used by local operators with their banks and equity investors. As car rental people, you know all this already. But what follows is the framing of the issues I’ve found to be effective. With banks, I stress why their money will be safe. With equity investors, I stress why their money will grow.

Addressing the Misunderstandings I generally start by asking bankers to “set aside what you think you know about car rent-

al and your own personal experiences renting cars.” I strive to grab their attention and let them know right away that I’m going to take the offensive, tell them stuff they don’t know and refrain from apologizing for the industry. Make no mistake—I say car rental is a great business. Here are the most common biases and misunderstandings I’ve encountered and how I’ve addressed them: ● “FEAR

Car rental is really a kind of finance business and rental service combined. It has nothing to do with manufacturing, unions or foreign competition. In fact, I “go big” early in the discussion—car rental is an essential service and a key part of the transportation network. It enjoys a “utility-like quality” of predictable and recurring revenues. You can’t outsource it to a developing country, nor disintermediate it with the Internet. It is here to stay.

OF EXPOSURE TO ‘AUTO.’”

The last 30 years of automaker troubles have made bankers and investors generally want to stay away from anything having to do with “auto.” But car rental revenue, first and foremost, is driven by travel levels. And since travel spending has mostly grown steadily for decades, so have car rental revenues. A related concern has been fear of automaker bankruptcies. For several years, that was an active, though theoretical, discussion. Recently, as you know, it became real. And it played out for car rental just as car rental people said it would; namely, manufacturers honored their repurchase agreements and continued to sell to car rental fleets. Car rental is and remains an important customer for automakers.

● “EBITDA

IS HUGE!” EBITDA, or earnings before interest, taxes, depreciation and amortization, is what companies use to pay debt service. Unfortunately, you don’t get to service non-fleet debt with gross EBITDA. You first have to deduct the costs of the fleet. Vehicle depreciation and interest is “cost of goods sold” for a car rental company. What’s left is often called Adjusted EBITDA or Corporate EBITDA. It’s the cash flow that can be spent at management’s discretion after fleet costs have been paid. Finally, depreciation of the fleet is a cash expense, not a non-cash expense as it is in a business with longer-lived assets, so you don’t add it back when determining cash flow.

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● “CAR PHOTO: ©ISTOCKPHOTO.COM/MIKE_KIEV

● “THERE’S TOO

MUCH EXPOSURE TO USED CAR PRICES.” This bias is based on the fear that car rental is nothing but a play on the used car market and that such risk is virtually unmanageable. I go right at it: the used car market is huge, efficient, liquid and the same for everybody. Car rental companies monitor their monthly depreciation charges constantly and make changes as needed. In fact, major car rental companies, over time, average a gain on sale of a few hundred dollars per risk car. What’s more, they are all impacted equally and can instantly adjust by tweaking depreciation schedules, raising prices or cutting costs.

RENTAL IS TOO CAPITAL INTENSIVE.” Oh really? Who says? In fact, one can argue it’s not capital intensive at all—the fleet is financed largely by debt, and nonfleet capital expenditure (capex) is relatively small. A dollar of debt is matched against more than a dollar of car and cash. I explain that it’s hard to go bankrupt, so long as you don’t incur non-vehicle debt. Too much non-vehicle debt combined with a downturn in demand or pricing has led to a couple of bankruptcies. On the other hand, Dollar Thrifty demonstrated the terrific credit quality of a properly capitalized car rental company during the recent downturn. You shrink fleet and staffing levels so that diminished revenue can con-

HOW TO ADDRESS TOP BANKER CONCERNS Common Biases How to Address ● Exposure to “auto” ........................................... Top line driven by travel levels Recurring revenues Finance business plus service ● Exposure

to used car prices ........................... Used car market is huge, efficient, liquid and affects everyone equally

● Too

capital-intensive ......................................... Cars are financed Non-vehicle capex is small

● Too

competitive ................................................. Stability of brands and market shares

● No

free cash flow.............................................. Net income is free cash flow

tinue to cover costs. Car rental companies enjoy a proven ability to de-fleet in a downturn. They benefit from a “highly variable cost structure”; that is, it’s relatively straightforward to match costs to revenue. ● “THERE’S

NO FREE CASH FLOW BECAUSE YOU ALWAYS HAVE TO PLOW CASH BACK INTO THE FLEET.” Don’t worry: free cash flow equals net income over time. This is stating the obvious to someone who’s taken accounting. (After all, net income is what’s left over after all the bills are paid). It’s sort of like a first principle. But I find I need to point it out because financial models of car rental companies often lead the modelers to conclude that there’s no free cash flow (which, if true, would make bankers and owners nervous). In fact, properly modeled and demonstrated by decades of performance, car rental companies generally produce net income margins of 5 to 10 percent. Fleet growth can be accommodated by new debt and a growing Owners’ Equity account. ● “CAR

RENTAL IS A ‘COMMODITY SERVICE’ THAT IS TOO COMPETITIVE.” We all know service levels matter, and brands have distinct positioning that plays an important role in pricing. In fact, well over 90 percent of market share in the U.S. is in the hands of the eight well-known brands. The stability of these brands and market shares over decades is remarkable. On the other hand, it’s not as if nothing ever chang-

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panies follow best practices regarding asset management. That is, be careful about who can rent one of your cars and know where your cars are. But don’t car rental companies give away the rental so that they can make money by selling insurance? I bet we’ve all heard that one. Actually, insurance sales are probably best thought of as extra price. Companies manage the insurance issues in various ways, but car rental is not an insurance play.

The Equity Story

PHOTO: ©ISTOCKPHOTO.COM/MIKE_KIEV

es, or you can’t invent a better mouse trap. But compared to many industries, car rental exudes stability. Market shares do move around, but the established brands attract the business.

That takes care of the banks. But why would equity investors want to own a car rental company? Owning a car rental company works for all the reasons discussed above, and for the “upside” laid out below. Here’s why your money should grow if you invest in car rental: ● FINANCIAL

IS NOT RATIONAL.” That is to say, “On any given day, in any given market, on any given car class, prices among competitors can be all over the place.” As we know, that is true. But I’ve looked at decades of detailed pricing data by brand, and long-term price trends among the brands are consistent with the brand images. What causes spot discrepancies? Roughly speaking, half the pricing decision on any given rental is based on competitive factors, and half on the need to “move the metal.”

LEVERAGE This means you can use lots of debt, which is cheaper than equity. The amount of equity needed to support a car rental company is less than you’d think because cars can be largely debt financed. The big opportunity is leverage. That means that small changes in the performance of the business can have big impacts on the value of the equity. In part, that’s because high debt levels magnify changes to the equity (a good analogy here would be to a home loan and the home’s equity; a rise in the value of the home adds wholly to the equity). This is referred to as financial leverage.

● “WHAT ABOUT

● OPERATING

● “PRICING

INSURANCE EXPOSURE?” What about it? There’s no meaningful insurance exposure so long as car rental com-

LEVERAGE The other component is operating leverage, meaning performance that creates earnings above relatively fixed costs accrues dis-

WHO IS SCOTT WHITE? I am senior managing director and head of investment banking at C.L. King & Associates, a New York-based investment bank. I’ve been involved with the car rental industry since 1994 when, as a young investment banker, I executed the IPO of Sandy Miller’s company, Team Rental Group. In the late ’90s, I oversaw the acquisitions of Budget Rent a Car, Ryder Truck Rental, Premier Car Rental and Cruise America as executive vice president of corporate development and investor relations at Budget Group, the successor to Team Rental. In the early 2000s, back in banking, I advised Avis on the acquisition of Budget and on the sale of PHH Europe. In 2005, I advised a consortium of large private equity firms on the cover bid in the Hertz auction. Over the years, I’ve also worked on many capital raising deals for car rental companies. Finally, I’ve performed due diligence related to live deal activity on all the major car rental companies in the world, including Enterprise, Hertz, Avis, Budget, National, Alamo, Dollar,Thrifty, Avis Europe, Europcar and Sixt.

proportionately to the owner (as opposed to other stakeholders, such as employees, debt holders, automakers or landlords). For example, incremental pricing drops to the bottom line. There’s little offsetting cost (although don’t forget that raising prices without reference to the competition can crimp demand). Benefits from operating leverage are why you always want to push pricing as hard as you can. Another example is that better technology facilitates charging the highest price for every rental (yield management). Also, better technology lowers costs, especially fleet management and reservation delivery. Fleet is typically 60 percent of cost structure, so even small improvements in fleet management produce big impacts on earnings. Leapfrog technology (do a lot more for a lot less) can allow car rental companies to lower costs and pocket the difference in earnings. ● EVER

RISING TRAVEL SPENDING Finally, perhaps the strongest argument for putting money into car rental companies, in the form of either debt or equity, is the long-term, secular trend (that is, over and above business cycles) of more and more travel. The “democratization of the skies,” discount airlines, low-cost hotels, GPS and rising global affluence all cause the travel sector to grow constantly. While we’ve lived through some recent contra-experiences, the broader truth is that travel spending almost never declines. As people around the world increasingly get on planes, they increasingly rent cars, ensuring the return of capital to banks and bondholders and an equity account for investors. As you may have noticed by now, I’m a big believer in the business of car rental. I just keep talking about its fabulous attributes until the skeptical, smart people who control large amounts of money say “yes” to me or ask me to stop. I’ve brought billions of dollars into the industry deploying the points above. I hope you can make them work for you. Scott White will present the seminar “How to Explain Car Rental to Banks and Investors” at the 2011 Car Rental Show.

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AN INDEPENDENT’S

EVOLUTION

Greenberg Rent A Car has progressed into a new client base through a new location, an affiliate program partnership, a “big-business” look and meticulous attention to customer service. BY JENNIFER WASHINGTON AND CHRIS BROWN

Matthew Holowinski (with employee Jil Williams), owner and founder of independent Greenberg Rent A Car, upgraded the company’s image with a professional logo and employees with uniforms and nametags. Customers say they enjoy the customer service from a company they think is much bigger.

I

t’s been a busy year and a half for Chicagobased Greenberg Rent A Car since Auto Rental News first profiled the independent rental company (“Finding Your Niche,” Sep/ Oct 09). Since then Greenberg has evolved from the ground up, changing from a business that worked with high-risk, cash rental clientele to one that now services corporate customers and credit card holders from its new counter at the Radisson Hotel Chicago O’Hare. How has founder and owner Matthew Holowinski achieved this business success, even as the travel industry exits the recession?

A New Breed of Customer Holowinski got his start by offering to take competing car rental companies’ cashonly castoffs. “I built a ground for my business on those higher risk customers,” says Holowinski, who developed his career as a top salesperson at Avis O’Hare and then as an Avis independent operator. “I paid the price for that too, but that was the cost of starting the business.” “A lot of cars were coming back with slight damage or damage,” he says. “It was really hard to collect from those people. We learned from our mistakes and it changed our direction completely.” “When I was doing just the referrals, I was basically on life support from my competition,” Holowinski says. “I knew that sooner or later, something might happen and I wasn’t going to have business from them or they’re going to change the rules and I’m not going to have any business.” Holowinski knew he needed to upgrade his customer base.

A Strategic Location An essential first step was a higher-profile location. The company moved from its original rental location in Norridge to the Radisson Hotel Chicago O’Hare, less than a mile from the airport. Holowinski keeps the Norridge location as a main office. Both locations are just outside of Chicago’s city limits, saving the company around 18 percent in taxes without losing the convenience of proximity to the airport. He pays a reasonable flat rate to the hotel. “The hotel knows we’re a new business and that they can’t ask for a lot of money from us right away,” Holowinski says. “It’s convenient for them to offer a rental car company to their customers.” Holowinski realizes the hotel took a chance on an independent. He returns the favor by projecting a “big-business” look with a professionally-designed lobby counter and a trained counter employee who wears a uniform and a nametag. Greenberg—the translated name of Holowinski’s hometown in Poland—also runs a minivan shuttle with the company logo. “Every-

thing looks very professional,” Holowinski says. “People think that this is a big company.”

The Affiliate Strategy The next step was to gain the right reservations. Holowinski partnered with a new affiliate program offered by Economy Rent a Car, based in Costa Rica and expanding in airport locations in North and Central America. The key for Greenberg was Economy’s listing on Expedia and Orbitz at O’Hare International Airport, which is finally driving the right kind of customer to Greenberg. “Our priority right now is the customer from O’Hare. We’re trying to keep the airport customers happy,” he says. The affiliate program allows Greenberg to keep its local identity, and, so far, Holowinski is happy to trade the hefty affiliate commission for more reservations. “This is the only way I see that I can grow,” he says. Holowinski now has the luxury to avoid the cash-only crowd, and he’ll only take local customers with debit cards if they have full coverage insurance. However, he will still take airport referrals

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Greenberg services the airport from the Radisson Hotel Chicago O’Hare.The hotel is less than a mile from the airport though outside of Chicago’s city limits, which saves the company around 18 percent in taxes. The new minivan shuttle is dual branded with Economy Rent a Car, its affiliate partner. for customers with debit cards, many of whom are soldiers coming back from overseas with inactive credit. “They’re getting paid through their debit cards directly through their checking account and are having problems trying to rent a car,” Holowinski says.

Changing Times Not long ago, most of Greenberg’s clients were walkups on weekly rentals or longer. With only 20 or so units, this precluded the need for a reservations system. Today, the company uses Rent Centric to create and manage reservations. Holowinski uses RezCentral from TSD, through his Economy affiliation, to control and update rental rates three to four times a day. “The Expedia and Orbitz customers are focused on the price. So they want to have the best deal and I’m getting those reservations when my price is low and I’m first on those ratings.”

Greenberg’s financing situation has improved. However, Holowinski has stuck with his original funder, Titus Leasing, a small, independent lessor specializing in the livery industry. “I tried two different sources; they didn’t work too well,” he says. “Those are smaller leasing companies. I couldn’t accept their conditions.” To service the airport’s peak season and to expand, he knows he will need an additional funding source. At the moment, Greenberg has 30 vehicles but Holowinski is in the process of buying at least another 10 units. The goal is to reach 60 to 70 units within a few months. Holowinski has a dependable broker who buys rental cars from the majors at auction. He purchases mostly six-month-old 2010 or 2011 model-year units. He’s had good success with Kia and Hyundai. “To us, those cars are very dependable,” he says. “Some

of the units have over 100,000 miles and are still running strong.” The newer vehicles are usually given to airport customers and referrals from the competition at O’Hare. The local, higher risk customers are given the slightly older units. Vehicles are also equipped with GPS tracking devices. Though outright theft has been mitigated with the higher-class clientele, Holowinski has used the system to locate a car left at the airport by hurried renters or to help a renter with directions if they call to say that they’re lost.

A Bright Future With the airport customer as the main focus, it’s no surprise that Greenberg’s next target is Midway Airport. Holowinski is looking for a location outside the city limits to catch another break on taxes. “Five years from now, I see myself in both locations, Midway and O’Hare,” he adds. “I see myself expanding to Milwaukee.” Holowinski admits that he finds passion in his work. He compares his business efforts to sitting in the pilot’s seat of a heavy jumbo jet: difficult to take off the ground but worth the effort once you’re up in the air. “When you beat those obstacles and you’re able to take off, you will hit the higher altitude,” he says.

SELLING SERVICE As owner and operator of Greenberg Rent A Car—an independent car rental company—Matthew Holowinski understands that without brand recognition, customers have no idea what type of customer service they’ll receive. Therefore, he bends over backward to provide the best possible rental experience to build his reputation. “Yesterday, I picked up a customer from O’Hare. He was almost scared to rent from an unknown company, but after he experienced the service, he even shook my hand. It’s amazing,” Holowinski says. Kristy Fischer, a Greenberg client from Orange County, Calif., found herself out of luck with the major car rental companies when she landed at O’Hare Airport with only a debit card in hand. After a call to Greenberg, Fischer was picked up within 15 minutes by a driver while Holowinski sat in the back seat filling out the paperwork on the way back to the office. “They even upgraded me into an even nicer vehicle,” Fischer says. “It just seems like everybody makes it more difficult to do business these days and these guys made it really easy for me.” Holowinski understands that good customer service means sometimes relaxing the rules. The

company usually does not accept prepaid debit cards, but one customer’s dilemma convinced him otherwise. Prince Woodberry, a pastor from Virginia, was trying to get to Chicago to help a woman and her three children involved in a domestic violence situation. After being declined at all of the other rental agencies, Woodberry turned to Greenberg with his prepaid card and was disappointed to hear the cost would be upwards of $250 just to cover the extra mileage. After overhearing Woodberry talking to his wife about the story, Holowinski offered to waive the mileage fees and charge a flat rate so the pastor could get to the family in time. “He really came through for me,” Woodberry says. “I could not have done it without him.” One of Greenberg’s loyal customers, Andy’s Frozen Custard owner Andy Kuntz, was referred after he had been informed that his former go-to car rental company was sold out. After being picked up by Holowinski and experiencing the personable customer service the first time, Kuntz says he hasn’t cu been back to the other company ever since. be “You’ve got a guy that owns a company that cares about his relationship with the customer,” ca Kuntz says. “It’s just a very convenient, one-on-one Ku relationship experience.” re

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FROM

RECESSION TO

RECOVERY Car rental operators and industry stakeholders react to market forces and assimilate change into their business plans. By Chris Brown and Greg Basich

T

wo years ago, Auto Rental News assessed the car rental market in the heart of the recession. We optimistically titled the story “Thriving in the New Economy” (Mar/Apr 2009), because we found green shoots of hope from car rental operators who were successfully adapting to market conditions. As we slowly make our way through the recovery, we revisit operators and industry stakeholders to compare then and now. Yet the market—from travel demand, manufacturing, financing and used cars—has evolved even further. Who is rolling with the punches and how?

OEMs Right Size New vehicle sales into rental fleets grew from 1.1 million units in 2009 to 1.4 million in 2010 as rental fleets replaced long-in-thetooth units held throughout the recession. As lenders have loosened access to capital, and manufacturers are producing cars again, “It seems that the mileage uptick has ceased and it’s come down a bit,” says Tom Kontos, the chief economist for Adesa, the vehicle auction house. However, with fewer shorter-term repurchase programs available and manufacturers closely managing rental fleet sales, Kontos does not anticipate a return to extremely low-mileage used rental units in auction lanes.

“The OEM manufacturing footprint is right-sized relative to long-term retail demand,” says Kontos. “Manufacturers no longer need to crank out as many units and find a home for them in the rental market. And they are recognizing the residual value benefits.” Manufacturers themselves back up Kontos’ statement. “Rental sales will continue to be down year over year on a percentage basis,” Brian Small, general manager, General Motors Fleet and Commercial Operations said in a February conference call. “We want to make sure we have the right amount of product going into the rental market. We don’t know what the balance will be for 2011, but it will trend down.” “Today we manage our rental business with the goal of maximizing residuals,” Small said, stressing that the rental market nonetheless plays an important role in exposing potential customers to GM products. “It’s a bit of a balancing act, but in the end it justifies the approach.” Car rental companies have adjusted to the smaller footprint. “We saw a lot of fleet tightening and people saying, ‘You know, I can own fewer cars and make more money,’” says Mark Eckhaus of Eckhaus Fleet, an independent provider of fleet to rental companies.

Wholesale Evolution Two years ago, wholesale pricing was in a trough. “You couldn’t get financing to buy new, but you could buy a used car pretty cheap and preserve your working capital,” says Kontos. That changed as the barren manufacturing pipeline dried up the wholesale market. Auction prices swelled as dealers fought over good used rental units, which fed directly to car rental companies’ bottom line. But a wholesale market short on cars— and fewer available new units—is putting some operators in a bind, says Eckhaus. Operators who would de-fleet to take advantage of high prices are forced to hold off, as new vehicle orders to replace those units are regularly backed up by a few months. And, of course, using the auctions to fleet up cheaply and quickly just doesn’t work as easily anymore, he says. Kontos says the used car market will stay tight this year, though looking further out it will begin to assimilate the 300,000-unit growth in new rental fleet sales in 2010. This overhang in supply could put some downward pressure on wholesale prices next year. “With more off-rental supply coming, it will be a little harder for rental companies to unload these cars and make the kind of money they have been,” Kontos says.

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and are adding fleet. Although demand appears to be on the rebound, many operators are not stocking up and opening new locations; particularly if there is any indication of uncertainty.” says Yocum. The smaller operators that have survived the credit crisis are typically ones that fill a niche market, few of which are doing just daily rentals. Many are body shops, service garages or car dealerships with synergies for rental customers. “They’re doing something a little different than the guy down the street and are able to keep the business in house rather than referring them to an outside rental agency.” Yocum says.

Business Returns

PHOTO: ©ISTOCKPHOTO.COM/ALFONSOPYRO

Financing Eases “Industry wide, it looks like things are loosening up a bit,” says Wayne Yocum of Automotive Finance Corporation (AFC) regarding fleet financing. “Franchisees and smaller independents seem to be faring well. These companies are cautiously optimistic

“We’re up about 25 to 30 percent from last year, which I think is a reflection of how down it was the year before,” says Matt Pendergast, office manager for Coast Truck Rentals in San Francisco, also a Rent A Wreck franchisee. The company’s truck business services the caterers, florists and party planners in the San Francisco event industry. “When the economy tanks, the first thing to go are the corporate parties,” says Pendergast, “but it’s a lot better this year. People are spending more money again.” Pendergast says rental rates were as high

as he’s ever seen last summer. High rates all around means “We don’t have to offer the best rate in town, and people are still coming through our doors,” he says. Rates have come down, but have been higher than those in winters’ past. The company retails its used vehicles off its lot. Business has been good. “We are able to price them competitively so they’ll move but still get a decent return on them,” he says. The company has two sources of financing. While Pendergast calls the company’s lending situation “satisfactory,” he says he would love a higher line of credit and a more competitive rate. The company’s lenders limit the types of vehicles they can purchase. Rent A Wreck corporate made a recent push to increase its franchisees’ Internet presence and list on online travel portals such as Kayak and Car Rental Express. The move has paid off in new business, says Pendergast, and the company is adding fleet. “Two years ago someone might not have even known about us, and now we show up at the top of those searches, which is generating a fair amount of revenue,” he says.

It’s Okay to Sell Out For VERC Rentals, serving southeastern Massachusetts, the biggest boost to business recently has been a string of winter storms,

FEWER CARS, HIGHER REVENUE Revenue (billions)

Cars in Service (thousands)

17.64

1,665

$20.41

1,861

19.4

1,768

18.91

$21.49

21.49

21.49 20.41

1,714

1,813 $17.64

1,637

16.45

2000

2001

2002

2003

2004

2005

$20.55

20.55

$20.05

2006

2007

2008

2009

1,629

2010

The car rental industry is doing more with less. In 2010, the industry made $20.55 billion on only 1.63 million cars in service. By comparison, the industry made only $16.45 billion on 1.62 million cars in service in 2003.The 2010 numbers translate to an average of $1,051 in RPU (revenue per unit, per month), by far the highest total ever. Car rental companies reined in holding costs to get there, from keeping smaller fleets and running higher utilization to managing hold times to maximize resale values and refining the remarketing process.

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says Jack Vercollone, president. VERC’s six locations are regularly sold out serving the replacement market. Overall, business is great, he says. The company went through its own downturn before the recession, which resulted in the cutting of three of nine locations, yet the downsizing helped the company weather the economic storm. The company’s funding source, a local bank, stood by them through it all. As a result, VERC has been doing well for three years in a row, Vercollone says. Vercollone is seeing the benefit of the OEM’s bid to right size sales, especially the domestic manufacturers. “It used to be real difficult for us to buy American cars when the big boys [major RACs] were buying them so much cheaper,” he contends. “It hurt resale values. Now that everything is tightening up, [the majors] have to make their money a little more on rental rates, and that helps us.” Dealers are coming to him on the hunt for used cars, but they’re all out on rent, says Vercollone. “It’s a nice thing to go to the auction and see very little cars and such great demand for our cars,” he says.

“You’re going to have your peaks and your valleys,” he says. “Cut off your peaks. You want to be out of cars a couple of days of the week. And when you have your valleys, they’re not as deep.”

NEW UNIT SALES INTO U.S. RENTAL FLEETS (MILLIONS) 2005 ....................................... 2.1 2006 ....................................... 2.1 2007 ....................................... 1.9 2008 ....................................... 1.5 2009 ....................................... 1.1 2010 ....................................... 1.4

No Credit, No Problem

Vercollone is comfortable holding cars to just under 36,000 miles. “We like to sell them when they’re still under warranty, while they have some value to the dealers and before they start costing us a lot of money on maintenance,” he says. A new directive is to keep utilization high. While this has been a logistical challenge, especially with the weather and replacement rentals, the company is not losing money by letting fleet sit. “If you have a car waiting for every customer every day, you are over-fleeted,” says Vercollone.

Joe Zawatski, a used-car dealer and USave franchisee in Cleveland, started a rentto-own program during the worst part of the recession. The business took off immediately, and today, while leisure rentals in the area are still “down to the ground,” says Zawatski, his rent-to-own business is up 30 percent compared with two years ago, as credit-challenged customers look for reliable transportation. The quality of customer has improved— delinquencies are down to 6 percent from 21 percent a year ago. “Good people lost their jobs and their cars, but they still need a way to get back and forth,” he says. Similarly, the quality of candidates for open positions at his company is much higher too. “I interviewed [an applicant] for a position recently, and the first four out of five

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candidates who walked in the door had college degrees and were extremely well-qualified but had lost their jobs and couldn’t find a new one.” Zawatski now offers maintenance services to his rent-to-own customer and has hired on three technicians and a service writer. “We charge about 40 percent less [than dealer servicing],” he says. “I make some money and I keep my cars in better condition.” Overall, the company has grown from eight employees two years ago to 12 full-time and two or three part-time.

Fine-tuning High Mileage Monty Merrill, a Dollar and Thrifty licensee in Texas, is relieved to be looking at the recession from the rear-view mirror. “We’re not as afraid as we were then [in early 2009],” says Merrill. “Our blood pressure went down a bit.” Merrill says the company lost some dollar average between 2009 and 2010 but did much better transactionally. In fact the company ended 2010 with record profits, with much of that attributable to the high residual val-

ues of his fleet. The company added 10 percent to its fleet last year and will add another 10 percent this year. Locally, Merrill says the subtraction of a rate bottom feeder—and its subsequent return—had a big impact on rates in his market. “You just scratch your head and say ‘What in the world are you doing?’ It can’t be good for you, and it’s certainly not good for us. It’s not good for anybody,” he says. While Merrill’s company didn’t lose any financing during the recession, it experienced a peculiar situation with its funding source: Merrill had cars to buy that were approved on his line of credit but the banks told him they had no money for the deal. That situation got worse when manufacturers turned off the production pipeline. Healthy $6,000 spiffs dwindled to $1,500 or less. “We decided to wait it out and just sit on the cars and I’m glad we did,” said Merrill. “In the past, if you let a car hit 30,000 miles, you would take a huge hit on the residual,” he says. “Today, that’s just not the case. We have more flexibility in that regard than we’ve

ever had. The higher mileage and longer hold times did nothing but help the car.” With higher mileage cars, Merrill had to adjust his maintenance schedule to include brakes and tires, and he even overhauled his cleaning procedures. He bought a steam cleaner and “used the heck out of it.” Today, the banking is easier and there is supply in the pipeline. But while he’s pulled back on hold times to some degree, Merrill says his customers have accepted the higher odometer— especially as a value brand—as long as the cars are clean and well maintained. And the more stringent procedures are working. “It’s funny; I think the cars are actually cleaner now because we focus on it,” he says. Now, instead of offering a car with mileage in the teens, Merrill is selling some twoyear-old units with 50,000 miles. This hasn’t slowed sales: With teen-mile cars virtually nonexistent these days, dealers are forced to grin and bear it. Merrill believes residual values and rental traffic should stay solid through 2012. After that, he says, “It’s harder to say anything about the long-term anymore.”

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O: OT PH

©

O O.C OT PH CK O IST

A EID LM HJA / M

THE FUTURE OF

INTERNET RESERVATIONS FOR CAR RENTAL

Mark Walker explains how direct connect technology, mobile phone reservations and alternatives to traditional travel portals are all driving change in the world of travel reservations. BY CHRIS BROWN

T

he omnipresence of smart phones, sparring between the airlines and online travel agencies, the push to lower GDS costs and potential car rental company consolidations are all driving change in the world of travel reservations. What lies on the horizon for car rental? Auto Rental News interviewed Mark E. Walker to get his take on the changing online reservations landscape. A former coowner of Advantage Rent-A-Car and a car rental industry veteran of more than 30 years, Walker recently co-founded NÜ Car Rentals, which operates an affiliate car rental network in more than 25 countries. ARN: AMERICAN AIRLINES (AA) NO LONGER LISTS FARES ON EXPEDIA AND ORBITZ. IS THE BALANCE OF POWER SHIFTING AWAY FROM THE

TRAVEL PORTALS TO THE AIRLINE, HOTEL AND CAR RENTAL SUPPLIERS? MEW: In terms of the AA fare delisting, it’s unlikely we’ll see a similar shift in the car rental industry, for a few reasons: You need very unique content and/or a loyal customer base to walk away from the business that large travel portals control. Several hotel chains have tried, but most came back. Enterprise has not been on Orbitz for a number of years now, but Alamo and National still are. Dollar and Thrifty dropped their preferred status on Expedia in 2005 but changed position within a year. Big airlines have a more powerful position than even the largest car rental companies, and yet AA has received a lot of pushback for the move. Southwest Airlines is the best example of a travel company that has taken

a truly hard stance and stuck with it. I think with AA, it is more of a case of desperate times call for desperate measures, especially after the specter of airline bankruptcies. AA does not want to lose the exposure and bookings they get from the travel portals, its goal is to eliminate the associated GDS (Global Distribution System) costs by using direct connect technology. ARN: SO WHAT IS “DIRECT CONNECT?” MEW: Direct connect is a term used to describe a “direct connection” of real-time information between the supplier’s reservation system and the travel portal, in lieu of going through a GDS. Direct connect is not new, unproven proprietary technology. One of the mandates of the OpenTravel

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Please fax this proof back by ______________ on_________________________.


Alliance, formed in 1999, is to create standards to facilitate that connectivity as new interfaces are built. ARN: THEN WHAT’S THE PROBLEM? WOULDN’T A DIRECT CONNECTION BE PREFERABLE, AT LEAST FOR THE TRAVEL PORTAL AND THE SUPPLIER? MEW: A lot of the fees that suppliers pay to the GDSes get rebated back to the originator of the reservations, either a travel agency or a travel portal. So the GDS’s provide a lot of financial incentive to avoid using direct connections. Additionally, these GDS connections are already established, while to establish and maintain direct connections with numerous suppliers takes a lot of investment dollars. GDS messaging is complex and expensive, but the bottom line is that it works and handles millions of rate quotes and reservations per day. If you are a travel portal and have established connectivity and a nice revenue sharing agreement with a GDS, you probably are not in a big hurry to change this. ARN: IS CONSOLIDATION IN CAR RENTAL SHIFTING THIS BALANCE OF POWER? ARE THE MAJOR RACS TRYING TO PUSH MORE CUSTOMERS TO THEIR OWN WEB SITES TO MAKE RESERVATIONS? MEW: Yes, consolidation definitely gives the major car rental companies more negotiating power, but it can also open doors for smaller companies. The consumer might see the top nine brands listed, but the travel portals are now negotiating with only four (and soon, possibly three) parent companies. One way to give some balance against a potential oligopoly is to expand access to smaller companies. Pushing more customers to book directly has always been a goal, but the real goal is to reduce distribution costs. Presence on a travel portal can also act as a marketing venue to put the supplier’s name in front of the consumer. The customer now may be interested in looking closer at that car rental firm by going to the rental company’s own Web site. So whether through Google or other search engines, traditional

advertising, or presence on a travel portal, there is still going to be a cost to bring the unmanaged traveler to the RAC’s Web site for the first time. ARN: BUT THE CONSUMER LIKES BEING ABLE TO COMPARE RATES IN A MATRIX, SO THAT WON’T GO AWAY, RIGHT? HOW MIGHT THAT MATRIX CHANGE? MEW: A Google search may someday provide that information directly. In the meantime, there are meta-search engines like Kayak. They don’t use a matrix per se, but the pricing comes directly from the supplier’s Web site, allowing the consumer to compare rates from multiple Web sites at one time. Increasingly, though, a lot of the pricing on meta-search engines is being provided by various travel portals in addition to the suppliers themselves. The consumer gets the price comparison, but suppliers don’t necessarily get the reservation directly and therefore the lower distribution cost. The matrix displays may be good for price comparisons, but they don’t do a great job of showing product differentiation. Air transactions show nonstop flights versus multiple stops, but there isn’t any differentiation on baggage fees and priority boarding. The car rental matrix displays different car classes, but does not, for example, show if ancillary electives such as loss damage waivers or additional drivers are included in the rate, or if there is a discount for prepayment. These features may be incorporated into the matrix in the future. ARN: WHAT IS THE STATUS OF MOBILE RESERVATIONS? MEW: We actually won an award from the cellular industry for the best mobile travel application in 2000. We created a complete car rental reservation system that accessed a GDS for the content so it wasn’t limited to one RAC. We learned how to keep a mobile application simple and also learned that the user adoption rate of “Web-enabled phones” was going to be much slower than we hoped. Now, with smart phones and the wide range of applications available for them as well as cheap data plans, mobile apps for RAC are much more viable. However, every RAC does

not need a smart phone app. The resources you’ll want to put toward this will depend on your customer base. Start by analyzing your current Web site and understanding how it works with a smart phone browser. What about your confirmation? Is it easily read by a smart phone user? ARN: WHAT ARE THE OTHER BIG INITIATIVES OF THE MAJOR RAC BRANDS THESE DAYS WHEN IT COMES TO INTERNET RESERVATIONS? MEW: Despite the fact that Avis Budget has decided not to pursue the collection of noshow fees, the majors and the indies should continue to study the European model. European RACs have done a great job of making pre-pay and partial pay (deposits) the norm and not the exception. At a minimum, the U.S. industry needs to be of the mindset that, if renters are not willing to give a conditionally refundable deposit to ensure that they have a minivan for the July 4th weekend or a 4x4 for their next ski trip, then rental operators might want to pass on that reservation. Perhaps the terminology needs to change, as the term “no-show fee” sounds too negative. The term “refundable deposit” sounds more user friendly to me. ARN: IN REGARDS TO BOOKING AN AIRLINE RESERVATION, I SEEM TO REMEMBER A PUSH TO GET THE CAR RENTAL OPTION (I.E. A SPECIFIC BRAND) FURTHER UPSTREAM IN THE PROCESS. ARE YOU SEEING THIS? MEW: Yes, and there is logic to the initiative. Think of a travel portal as a store. A store may have Coca-Cola in a big display in the front of the store and Pepsi down on the drinks aisle. Perhaps Dr. Pepper is not carried at all. None of this is by happenstance. The same applies with the online travel store. ARN: WILL THE PRICE TO CONNECT TO TRAVEL PORTALS SUCH AS EXPEDIA, AND EVEN THE GDS’S SUCH AS SABRE OR AMADEUS, EVER COME DOWN TO A REASONABLE LEVEL TO ALLOW AN INDEPENDENT CAR RENTAL OPERATION TO SIGN ON?

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MEW: First, let’s separate the two. Using the store analogy, the GDS is the distributor that makes your products available to various stores. The GDS will generally sign you up as long as you have the connectivity software (available through service providers) and you agree to their terms on cost per transaction, minimum transactions per month, etc. But having GDS connectivity doesn’t necessarily get you in front of renters. Next is the more difficult part—getting the retail stores (e.g. Expedia and Orbitz) to carry your product. And even if you are not using a GDS but are trying to establish a direct connection with a travel portal, does the store need an additional supplier? This is not an impossible hurdle, but one that takes a lot of perseverance and investment. Most independent companies find that the math does not work for them.

INTRODUCING... ABRAMS CARSHARING ADVISORS • Bringing the next generation of ground transportation services to rental companies, corporations, institutions, and government agencies. • Offering a turnkey solution including processes, systems, technology, expertise. • Carsharing’s time has come...as it responds to shifts in long-term cultural, environmental, economic, and lifestyle trends.

ARN: IS THERE ANOTHER OPTION? There are some car rental specialty sites and brokers who are willing to work with independents. If you want access to broader distribution, becoming a franchise of a major brand may be an alternative for you. Another alternative for independents looking for more airport reservations is to become an “affiliate” of a brand. Becoming an affiliate gives the indie operator retail exposure through the distribution that the brand has established, while allowing the operator to retain much of the independent identity already established. We, as do several other firms, provide this service to independent car rental agencies. Best Western Hotels is a good example of an affiliate model. There are no franchisees— just membership agreements that are renewed annually. Quality standards and signage requirements must be met, but the property may maintain its own identity.

BE AHEAD OF THE CURVE! ABRAMS CONSULTING GROUP, INC. Preserving the Entrepreneurial Spirit of the Auto Rental, Travel Service, and Transportation Industries, WORLDWIDE, since 1982. 3020 Westchester Avenue • Purchase, NY 10577-2525 (914) 696-5100 • Fax (914) 696-5101 email: nabrams@abramsconsulting.com website: www.abramsconsulting.com

Mark E. Walker is a co-founder of NÜ Car Rentals, which operates an affiliate car rental network in more than 25 countries. Mark has more than 30 years of experience in the car rental industry.

MARCH / APRIL 2011 • ARN 25

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A PLAN FOR

GROWTH Fox Rent A Car is looking for a few good affiliate partners to share in its expansion plans. BY CHRIS BROWN

M

ost businesses want to grow—the question is, how much and how fast? How well a company manages this process often determines its success. Fox Rent A Car’s growth trajectory began in 1989 with a 10-car fleet. Today, with 13 corporate airport locations and $140 million in annual revenues, the company now stands as one of the largest independent discount car rental companies in the U.S. That growth continues, and the strategy includes adding partners to Fox’s affiliate program, which was officially re-launched on Nov. 1, 2010. Fox hired industry veteran Jeff Wedemire to run the program. As of this writing, Fox has 14 affiliate locations up and running (three domestic, 11 overseas). Six more affiliates are planned for the first quarter. For independent car rental operations looking to become an affiliate, one of the prime criteria for consideration is the desire and ability to grow. “It doesn’t matter how small or big they are, they have to be aggressive in wanting to expand their business,” says Mike Jaberi, vice president and co-founder of Fox Rent A Car. “When they join the system they’ll be generating many more reservations than they have in the past.” That means the potential affiliate must demonstrate it has the credit line, or access to credit facilities, to increase its fleet. Also, rental units cannot be older than two years. Fox’s primary focus for its affiliate markets is in leisure destinations frequented by

the American traveler, such as the Caribbean islands and Central American tourist locations. Domestically, Fox’s strategy is to work with affiliates that serve secondand third-tier airports. Although they’ve had requests from companies serving major airports in the U.S., Jaberi explains that the larger markets are part of Fox’s corporate expansion plan. Fox affiliates are dual branded. The affiliate keeps its name and logo, though airport signage, airport shuttles and rental offices serving the airport must display the Fox logo along with the affiliate’s name.

Due Diligence Along with the ability to grow, the affiliate must be aligned with Fox’s other two core principles: discounted rates and quality customer service. Because physically visiting each potential location is prohibitively expensive, most of Fox’s due diligence is done over the Internet and by phone. Fox starts the vetting process by asking candidates to send photos of the location. Wedemire will check the company’s online reputation through review sites such as Yelp, and he’ll call on people in the know from his vast Rolodex of business associates. “Word of mouth is the best thing to go off of,” says Wedemire, who has nearly 30 years of car rental experience in North America for various companies and in various positions. “I’ve turned people away because of what I’ve heard from some of my reliable sources.”

by Guy Angelo, Guy’s Car Rentals, owned ia in the Caribserves the island of St. Luc re than three bean. A Fox affiliate for mo h airports and years, Guy’s is located at bot rencia Donaii, the cruise ship terminals. Law d. airport supervisor, is picture

However, the due diligence does not end once the rental car company signs on to become an affiliate. In addition to an 800 number for customers to give instant feedback, Fox sends out a customer service survey after each rental to both its corporate and affiliate customers. The surveys are tabulated and analyzed, and the results are relayed back to the management team. Affiliates can be— and have been—cancelled within 30 days for a low customer service ratio, according to Jaberi.

Coming Onboard Once onboard, affiliates are immedi-

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ately displayed on all of Fox’s reservations systems. This includes all third-party travel agencies and global distribution systems, the Fox Rent a Car Web site and the company’s social media tools, which include a blog, Twitter and Facebook. Indeed, Jaberi and Wedemire maintain that the main difference between Fox and other affiliate systems is the strength of Fox’s reservations system, along with the fact that it enjoys a healthy market share on airport as a medium-sized independent. “Out of all of the medium-sized car rental companies that are involved in this kind of business, Fox has the most visibility to help anoth-

er car rental company that wants to grow,” says Wedemire. Affiliates also gain access to Fox’s technology. “There is no printed manual, it’s all online and automated,” Jaberi says. “They can have access to everything we have through the Internet.” Affiliates can access online their reports, billing and manifests, as well as reconcile their commissions. Affiliates can also utilize the company’s robust rate management system. Almost all new affiliates, explains Jaberi, need help in rate management, including getting a grip on automation. Fox’s rate management ex-

Fox’s primary focus for its overseas affiliate markets is in leisure destinations frequented by the American traveler, such as the Caribbean isla nds and Central American tourist loca tions.

PHOTO: ©ISTOCKPHOT

Road Star Car Rental, the Fo x affiliate in To is located two ronto, miles from th e airpor t in th Holiday Inn To e ronto Airpor t East.

O.COM/PIXELPARTICLE

In Mexico, Fox has partnered with Gargo Group, a 17-year provider of car rental services in the state of Baja California Sur, in the cities of Los Cabos, La Paz and Loreto. Gargo Group, a former licensee for a major American car rental brand, has an agreement as the “master affiliate” of Fox for the entire country of Mexico. Gargo Group reports it has increased its number of reservations by approximately 10 percent in the three months after commencing the affiliate agreement. Gargo Group plans to open three or four more locations this year.

pertise is where the company really shines, Jaberi says. “I would say this is one of the biggest points to joining the system.” Affiliates can tap into Fox’s expertise in any other area as well, and Wedemire and his two staffers are always ready to help. Wedemire understands the pressures of growth. “I’ve worked in operations before and I know that you usually don’t have time to breathe,” he says. “The companies that look positively at [the idea to affiliate] will think that they’ll be able to hire somebody because of the growth. I want to have the places that understand that this will really help them grow their businesses.”

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C A R

R E N T A L

Q & A

resource. Here are some brief suggested techniques to follow: ● Keep information safe and handy. According to US News and World Report, U.S. executives wasted 150 hours in 2006 looking for lost documents, notes or general items. Centralize all information into one area. ● Establish a power hour. Once a week leave the office to a quiet neutral place and plan two weeks out. Do not have your cell phone on. Look at your responsibilities and what needs to get done. Schedule your emails and calls for after your power hour. ● Outsource claims and recovery. If you are currently managing the claims process, you are burning time on something that is not your core competency. In most cases a third-party claims provider will collect more, save you time and ensure you are within the applicable laws of your respective state. ● Utilize a daily game plan. By establishing a very detailed daily game plan (DGP) of availability, sales opportunity, operational notes and team schedules, you will cause your phone to ring less. Fewer interruptions mean more accomplishments.

Q&A Q

When setting goals for our team, what are some of the key sales items we should be discussing? Tanya Appleby, Budget Car & Truck Rental Calgary, Alberta

A

Keeping your team focused on every opportunity is an absolute must! Implementing monthly goal settings and staying consistent with them will help your team stay motivated. The most effective managers utilize these techniques when setting goals: ● Make it conversational and collaborative. Having the sales associates involved in the process is critical! Goals that are handed to the sales team without their input or belief are not worth the paper they are written on. Schedule half-hour meetings with each team member in the last week of each month. ● Set the target goal, then discuss the correct dialogue or technique that will help them get there. Allocating enough time during these meetings for practice sessions will help your team focus on these dialogues and build their confidence. ● Set goals to your individual team member’s motivational driver! In a professional setting people are motivated by one of three items: recognition, incentive or accountability. Knowing your team’s driver will help you steer the conversation more effectively. ● Base goals on sales conversions and sales per day. This will allow your discussion to be centered on achievable

PHOTO: ©ISTOCKPHOTO.COM/STUARTBUR

goals and questions. For example, “Can you sell 5 more percentage points of upsells at $20 or more per day?” If the frontline agent is projected to rent 200 cars a month, that means he needs just 10 more for the month. Breaking the stretch goal down on a time basis will help the team member stay focused. ● Write it down! Studies have shown that written goals always have a higher success rate. These small techniques are just a few of the items that you can implement to keep your team focused. They are even more effective if you have goals for yourself as well.

Q

What are some common time traps for car rental owners and managers? Jeff Nuenschwander, Avis Rent A Car Springfield, Mo.

• 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.

A

Time management is a major source of frustration for many owners and operators, because time is their most valuable

28 ARN • MARCH / APRIL 2011

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products & vendor news Hertz Launches Dealer Direct Remarketing Program The Hertz Corporation formally introduced its new Hertz Dealer Direct used-car remarketing program at the 94th annual NADA Convention and Expo, held Feb. 5-7, 2011 in San Francisco, Calif. The Dealer Direct program provides auto dealers with access to an online wholesale marketplace stocked with late-model cars from Hertz’s rental fleet. Dealers can choose from a wide selection of vehicles to purchase at lower prices resulting from buying directly from Hertz without transaction fees. “Hertz Dealer Direct is an integral part of our car sales strategy,” according to Mark P. Frissora, Hertz chairman and CEO. “Dealer Direct provides car deal-

Hertz Equipment Rental Co. (HERC) President Retires Hertz announced Jan 25 that company president Gerald A. Plescia officially retired from the company. Mark P. Frissora, company chairman and PLESCIA CEO, assumes temporary senior management responsibility for HERC until a successor is named. The company expects to conclude the search by the end of April. “During his 32-year Hertz career, Gerry has made many significant contributions to our car and equipment rental businesses, the past 14 years serving as president of HERC,” said Frissora. “Gerry helped lead HERC through two deep recessions during the past decade and he leaves the business with an improved internal organization which is realizing significant revenue growth opportunities.” Frissora added that, “As a result, HERC has made a solid contribution to our fourth quarter 2010 results and we expect HERC to generate double-digit revenue growth and achieve a corporate EBITDA margin of 42 percent for the full year 2011.”

ers with a real-time, ecommerce platform for buying cars directly from our company providing financial benefits to dealers and Hertz.” Hertz Dealer Direct allows auto dealers to search for vehicles currently on rent and ready for sale, as well as vehicles immediately available for wholesale purchase and pick up. The system keeps dealers updated on the status of each available vehicle and notifies them when cars they are interested in become available for sale. Advent Resources Inc., renowned creator of high-performance sales systems for the automotive vertical, developed the Hertz Dealer Direct technology platform and provides ongoing support to the program.

Bluebird Partners with Rent A Toll for Toll Data Rent A Toll Ltd. provides an automated prepaid tolling service that allows car rental companies the ability to eliminate toll violations, generate incremental revenue and also includes an itemized service charge to rental car receipts. Rent A Toll has partnered with Bluebird to provide subscribers an automated process that matches toll data from the toll authority and car rental company. The original video toll solution has been enhanced to accommodate a new transponder model. Bluebird recently upgraded its RentWorks software to allow a particular transponder be assigned to a particular vehicle. Moreover, by using Custom Feature codes, the system can either ask the counter agent if he wants to assign a device or simply tell him that one is being assigned. The interface was also enhanced to take into account Non-revenue Move tickets. This module is included as a feature of Service Pack B9 for version 4. For more information on RentWorks or other Bluebird Auto Rental Systems products, call (800) 304-5805 or visit www.barsnet.com.

30 ARN • MARCH / APRIL 2011

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used car prices

AVERAGE AUCTION SALE PRICE – COMMERCIAL FLEET VEHICLES MID-SIZE CAR

FULL-SIZE PICKUP

FULL-SIZE VAN

SUV

$13,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000

West Central Midwest Northeast Southeast

MODEL

0 0 9 0 0 0 0 0 0 10 10 0 C-0 AN-1 EB-1 AR-1 PR-1 AY-1UN-1 UL-10 UG- EPT- CT-1 OV-1 EC-1 J F M M J A A S J O N D

DE P .R .

SOUTH EAST

NORTH MID WEST EAST WEST CENTRAL COAST

AUDI A4 2008 4D SDN 3.2L QUATTRO18,500 19,550 BUICK LACROSSE 2009 4D SEDAN CXL 12,950 12,250 2008 4D SEDAN CXL 12,050 12,150 CHEVROLET 1500 SILVERADO 2WD V-8 2008 REG CAB 4.8L 14,150 13,450 CHEVROLET COBALT 2009 4D SEDAN LS 7,550 7,800 2008 4D SEDAN LS 6,500 6,750 CHEVROLET COLORADO 2WD I5 2008 EXT CAB 3.7L LT 9,950 7,650 CHEVROLET EQUINOX AWD V-6 2009 4D SUV LT 13,950 14,800 2008 4D SUV LT 11,100 11,950 CHEVROLET HHR 2009 4D SUV 2.2L LT 9,550 8,850 2008 4D SUV 2.2L LT 8,400 7,900 CHEVROLET IMPALA V-6 2009 4D SEDAN LS 3.5L 8,450 8,450 2008 4D SEDAN LT 3.5L 8,250 7,800 CHEVROLET MALIBU V-6 2009 4D SEDAN 3.9L LT 10,350 9,450 2008 4D SEDAN 3.9L LT 7,650 7,100 CHRYSLER 300 2009 4D SEDAN 11,750 11,950 2008 4D SEDAN 10,500 10,600 CHRYSLER SEBRING V-6 2009 4D SEDAN LTD 12,300 13,100 2008 4D SEDAN LTD 11,300 10,650 DODGE RAM 2WD V-8 2008 QUAD CAB 5.7L 15,600 14,350 FORD CROWN VICTORIA 2008 4D SEDAN LX 14,550 12,150 FORD EDGE 2009 FWD 4D SE 17,150 16,550 2008 FWD 4D SE 15,300 14,300 FORD EXPEDITION EL 2WD V-8 2009 4D SUV 5.4L XLT 21,900 21,900 2008 4D SUV 5.4L XLT 18,750 19,200 FORD EXPLORER 4WD V-6 2009 4D SUV 4.0L XLT 16,250 16,250 2008 4D SUV 4.0L XLT 13,400 *16,450 FORD F-150 2WD V-8 2009 EXT CAB 5.4L XLT 18,950 15,550 2008 EXT CAB 5.4L XLT 14,100 11,700 FORD FOCUS 2009 4D SEDAN SE 8,900 8,900 2008 4D SEDAN SE 8,200 *8,950 FORD FUSION 4-CYL. 2009 4D SEDAN SE 10,850 10,450 2008 4D SEDAN SE 10,450 *10,650

19,550

19,450

19,300

12,250 12,250 12,250 11,650 11,450 10,100 13,500 14,450 13,900 7,750 6,800

7,950 6,600

7,800 6,450

7,600

9,150

8,700

14,750 11,900

14,050 11,650

13,100 11,600

9,550 8,450

9,850 8,650

9,050 8,500

9,600 8,350

8,800 8,300

8,250 8,200

10,250 7,800

10,350 6,600

10,350 6,200

12,950 11,250

13,350 11,800

11,700 10,250

12,950 10,600

12,150 10,450

11,600 9,200

14,450

15,650

15,600

14,550

10,650

12,150

15,900 15,350

15,650 15,200

16,550 15,700

21,900 19,200

21,850 19,850

21,900 19,200

16,250 16,150

16,250 13,850

16,250 13,400

15,700 12,100

18,400 14,100

17,100 14,200

9,100 9,050

9,050 8,200

9,050 8,150

11,800 10,300 11,450 *11,050

10,550 10,350

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 11,200 11,150 11,600 FORD TAURUS 2009 4D SEDAN SEL 10,500 9,350 8,750 2008 4D SEDAN SEL 9,450 9,000 *10,150 GMC CANYON 2WD 2009 CREW CAB 2.9L SLE 13,200 13,200 13,200 JEEP GRAND CHEROKEE 4WD V-8 2008 4D WAGON LAREDO 16,750 16,500 16,800 JEEP PATRIOT 4WD V-6 2009 4D SUV SPORT 12,400 11,750 11,950 2008 4D SUV SPORT 11,150 10,550 11,900 LINCOLN MKX AWD V-6 2009 4D CROSSOVER 21,950 21,950 21,950 2008 4D CROSSOVER 21,650 20,400 21,600 LINCOLN TOWN CAR 2009 4D SIGNATURE LTD 19,500 19,500 19,500 2008 4D SIGNATURE LTD 18,800 18,350 18,550 MERCEDES-BENZ S-CLASS 2009 4D SEDAN S550 62,350 58,300 62,900 2008 4D SEDAN S550 49,350 45,600 49,950 NISSAN ALTIMA 2009 4D SEDAN 12,150 11,800 12,050 2008 4D SEDAN *12,900 *12,050 *12,850 PONTIAC GRAND PRIX 2008 4D SEDAN 8,500 9,150 8,800 PONTIAC VIBE 2009 4D WAGON 9,150 8,600 9,550 2008 4D WAGON 8,350 7,750 8,350 SAAB 9-3 2009 4D SEDAN SPORT AUTO 16,000 16,000 18,750 2008 4D SEDAN ARC AUTO 10,250 10,750 11,400 SUBARU OUTBACK 2008 4D WAGON 2.5L LTD 18,100 18,200 16,800 TOYOTA CAMRY V-6 2009 4D SEDAN LE 12,950 12,700 11,700 2008 4D SEDAN LE *13,450 11,900 *13,500 TOYOTA PRIUS 2009 4D HATCHBACK 13,600 14,200 14,050 2008 4D HATCHBACK 13,250 12,650 13,700 TOYOTA TACOMA 2WD V-6 2009 DBLCAB 4.0L PRERUNNER 21,050 19,950 20,800 2008 DBLCAB 4.0L PRERUNNER 18,650 17,450 17,000 VOLKSWAGEN JETTA 5-CYL. 2009 4D SEDAN S 11,900 11,100 12,050 2008 4D SEDAN 10,950 10,200 11,000 VOLVO S40 2009 4D SEDAN 2.4L 11,400 11,400 11,400 2008 4D SEDAN 2.4L 10,500 *12,400 10,950

10,500 10,950 9,850 8,800

9,550 9,000

13,200

13,200

16,750

16,750

11,650 11,950 11,150 10,050 21,950 21,950 *22,150 *22,250 18,950 18,550

19,500 18,550

66,000 46,300

61,050 49,000

12,600 11,850 *12,750 *12,500 8,500

9,150

8,800 8,350

8,750 8,350

16,000 11,250

16,000 10,400

17,450

17,350

12,400 12,800 12,500 *13,600 14,350 13,700

15,050 14,500

20,700 19,250

20,800 19,000

11,500 11,500

11,800 10,650

11,400 11,400 9,850 *12,500

DATA PROVIDED BY MANHEIM MARKET REPORT, A DAILY PRICE GUIDE BASED EXCLUSIVELY ON AUCTION TRANSACTIONS. THE DATA IS BASED ON SALES AT MANHEIM’S 89 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.

32 ARN • MARCH / APRIL 2011

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ARN0311crs_thanks.ind


THANK YOU

To the 2011 Sponsors of the

Lead Sponsors

Business Sponsors

General Sponsors

CLL

Media Sponsor CRS02-01.11

Association Sponsors

Mark Your Calendar for Next Year!

March 12-13, 2012 LLas Vegas Hilton • Las Vegas, NV Produced by Bobit Business Media

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ad index COMPANY

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Chief Financial Officer Richard E. Johnson

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

Editorial Consultant Howard Rauch

Linear Logic – Digital Fuel Meter....... 888-433-5664 .................. digitalfuelmeter.com ..................11 PurCo Fleet Services, Inc. ................... 888-PURCO 88............... purco.com ......................................7

T

Production Manager Brian Peach — (310) 533-2548

ADVERTISING MANAGERS Associate Publisher Joni Owens Joni.owens@bobit.com (310) 533-2530 Fax: (310) 533-2503

Rent A Toll ............................................. 877-509-9506 .................. rentatoll.com ...............................21 Sonoran National Insurance ............... 866-998-1001 .................. sonorannational.com ...................3 Toyota .................................................... 800-732-2798 .................. fleet.toyota.com .........................15

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

TSD Rental Management Software .................................................. 800-743-1200 .................. tsdweb.com ............................C2-1

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.

U-Save Auto Rental .............................. 800-438-2300 x146 ........ usave.com.....................................23

acra Au

otive Fle et tom

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

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rent ALERT

FOR UPDATES,VISIT WWW.AUTORENTALNEWS.COM

Avis Budget Says No to No-show Fees Instead, the company will focus on a prepay option. Is prepay a more workable system anyway? BY CHRIS BROWN

A

vis Budget Group does not plan to implement noshow fees for U.S. car rentals after all. “We’ve slowed it down, because there hasn’t been industry acceptance of it yet,” Avis Budget Group chairman and CEO Ron Nelson told Business Travel News in January. Avis Budget had tested no-show fees for small-market, noncorporate business, and it has the systems in place to handle the fees. The company, along with several other RACs and distributors, participated in a project team within OpenTravel Alliance, the travel industry’s distribution specification and standards development organization, to add no-show related data elements to its standard XML messages. In December, OpenTravel Alliance released its final 2010B message and business functionality schema, which included a message specification for vehicle rental no-show fees. However, with the systems in place, Avis Budget does not plan to test the waters with no-show fees any further, according to Nelson. Instead, Nelson said the company will focus on a prepay option it has in several markets, in which renters receive a rate discount of 5 percent to 15 percent for prepaying a rental. Because travelers are less likely to cancel a paid rental car booking, the system accomplishes the same result as a noshow fee, according to Nelson. “For us, it’s never been about getting more revenue,” Nelson told Business Travel News. “It’s been about managing our fleet. It’s the same issue, but you’re looking through the prism on the other side.” Avis Budget still plans to use no-show fees for large events, such as major conventions and the Super Bowl as well as specialty car rentals, Nelson said.

Making Prepayment Work “I do not see [the Avis Budget announcement] as bad news,” said Craig Parmerlee, director of business development for ACE Rent A Car. ACE was a participating company on the no-show project team with OpenTravel Alliance. “With a penalty assessed after the fact, you are just inviting an argument with a customer who at least showed some

interest in patronizing your business,” Parmerlee told Auto Rental News. Parmerlee said that “deposit” and “prepayment” are practically the same thing: One prepays the entire rental; the other collects enough money so that the customer will definitely show up. According to Parmerlee, prepayment, which is virtually standard procedure in Europe, is a better transaction model for many reasons: ● You get your money in advance. There is no question the card is good. ● You know you have a committed customer at the time of booking and he will call to cancel if he isn’t going to show. ● “Penalty” is a negative word no matter how you try to spin it. “Deposit” is a neutral word. ● A dispute with a deposit or prepayment happens before the rental, so you still have time to work it out or find another renter for the vehicle. ● Penalties have lots of problems administratively. Not only do you have to perform an extra transaction after identifying the no-shows, you also run the risk of charging that penalty improperly, especially if the reservation is under one name and the renter opens the contract under a different person in the party. Parmerlee said ACE takes a $100 deposit for SUV and van rentals at its company stores. “There are almost no unhappy customers in this case,” he said. “If their plans change, we cancel the reservation and refund their deposit, and go look for another renter. In the one case out of 100 that the customer puts down a deposit and doesn’t show for any good reason—and then gets aggressive about a refund—we just refund it and move on. But that happens so infrequently that it isn’t an issue.” “The question is, ‘How can we get this transaction model moved down the car classes towards ECAR?’” asks Parmerlee. “But to be honest, we don’t have such a big problem with no-shows on ECARs. If there are a couple of Ford Focuses sitting unrented, that isn’t the worst problem. Having a couple of $1,500 Expedition rentals no show? That’s a big problem.”

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Auto Rental News March/April 2011