There is a turf war going on in the car rental business.
Hertz, the world’s largest car rental company and a dominant player in airports, is expanding its suburban locations in an effort to go after a market long held by Enterprise, the industry’s largest U.S. outfit thanks mainly to loaning cars to people whose vehicles are in the shop.
Enterprise, in turn, is moving into airports because the company says its neighborhood customers want the convenience of picking up cars when they fly.
Hertz and Enterprise hope to grow in an industry that was hurt by the terrorist attacks of Sept. 11, 2001. A drop in airline passenger travel and competitive pricing did a double-whammy on overall revenue. A nearly $20 billion market in 2000, the industry has shrunk to $16.5 billion this year.
Still, the latest numbers show a slow rebound is under way. Travelers are back thanks mostly to lowfare carriers, interest rates remain low for needed capital and high fuel costs are not having an impact because they are passed on to customers.
Experts say the strategies of Hertz and Enterprise appear to be sound. Both, however, will have to lure customers who have become accustomed to low prices.
"There’s still some room for growth in the local market and for there to be more competition," said Sherb Brown, publisher of Auto Rental News. "It’s going to be a tough road for Hertz to go down just because Enterprise is so entrenched. Enterprise is locked in with insurance companies and body shops and the various players that control the local market.
"As far as Enterprise going onto the airports, they’re on virtually all of the top 100 airports or near them, and there’s room for them to grow there. They tend not to have as long hours, and they don’t have frequent renter programs and things of that nature. They do have lower rates in many cases."
Over the past decade, offairport business has doubled, Brown said. Industry watchers say $8 billion in sales is done in neighborhoods versus $10 million in airports.
U.S. revenue from airport car rentals decreased from a high of $11.5 billion in 2000 to an estimated $8.3 billion last year, according to Mintel International Group, a company that studies the market and trends. Conversely, the revenue from off-airport rentals has increased from a low of $6.8 billion in 1999 to an estimated $8.1 billion in 2003.
Enterprise moved into neighborhoods in 1962, and it arrived in the East Valley in 1981. Its specialty is the insurance replacement market. The company has contracts with insurance companies that provide rental vehicles to customers when their cars are in repair or body shops.
The company has more than 75 branches in the Valley and employs more than 750.
Next week, Enterprise will open a location in Chandler — its 27th in the East Valley — and the company plans to add another halfdozen stores in the Valley by the end of the year, employing as many as 100.
St. Louis-based Enterprise also carved a niche by renting cars to customers who want to use a vehicle other than their own for weekend and other short trips. Its business philosophy not only allowed it to ride out the downturn in air travel, but to grow by double-digits annually, the company said.
"It is the 1,000-pound gorilla in the room," said Neil Abrams, president of Abrams Consulting Group, a Purchase, N.Y.-based, consulting research firm to the auto rental industry. "By locking into an Allstate, a State Farm or Nationwide, the big underwriters, the consumer really doesn’t have a choice."
Hertz, owned by Ford Motor Co., enjoys a 30 percent market share at airports, giving them the lion’s share of business there. But it’s not nearly as big a lead as Enterprise has in the suburbs, Abrams said.
"There’s only a couple of percentage points that separate the No. 1 and No. 2 airport operators," he said.
Hertz spokeswoman Paula Stifter said the company’s effort to move into neighborhoods began in 1997, but it has gotten more aggressive. In the past three years, the company opened more than 800 suburban locations to make a total of nearly 1,300. About 300 neighborhood stores have opened this year alone. There are 21 locations in the East Valley.
"Our growth was pretty dependent on the growth of the airport market in general," Stifter said. "The suburban market, in regards to insurance replacement, is an area that is showing promising growth, and also one of the things that’s nice about it is it isn’t as cyclical as the airport market. It’s not necessarily based upon the economic conditions of the country or region. People need a car for insurance replacement purposes."
Hertz, based in Park Ridge, N.J., has 1,900 U.S. locations and 7,000 worldwide. Approximately 75 percent of its business in 2003 came from onairport rentals, down from 78 percent in 2002, according to Mintel.
In addition to giving insurance companies, car dealers and body shops an alternative to Enterprise, Hertz sees a growing trend in corporate travel of employees renting cars instead of flying, especially if the trip is a short haul.
"As opposed to putting mileage on one’s own car, people might opt to rent a vehicle, and they don’t necessarily want to go to the airport to rent that vehicle," Stifter said.
Enterprise, a private company with reported revenue of $7.4 billion during its last fiscal year, started seeking more counter space at airports about five years ago. Locally, within last couple of months, it opened outlets at Cutter Aviation at Phoenix Sky Harbor International Airport and at the Deer Valley Airport in Phoenix.
During the fiscal year, it added 27 airport locations, bringing the total airport locations to 170.
Still, a company spokesman says Enterprise, with 5,400 U.S. locations, remains committed to neighborhoods. Last year it opened 500 suburban locations. The company says just 7 percent of its business comes from airport rentals.
"One of the things we sort of pride ourselves on is we’re only 15 miles away from 90 percent of the U.S. population," spokesman Lee Broughton said.
"The neighborhood market is the market that we discovered," Broughton said. "We are aware that the competition is now turning attention to that market. I think a lot of that is the traditional airport business isn’t growing in the way that it has been. I don’t think it’s going to affect the way we do our business. Competition will help us become better at what we do and what we’ve established already."
AVIS MOVES IN
Avis, the third largest rental car company in the United States, also is boosting its presence in neighborhoods. Avis owner Cendant Corp. bought Budget out of bankruptcy in 2002. About 65 percent of Avis’ customer base is business renters, according to Mintel.
Five major companies dominate the U.S. rental car market offering eight brands. Cerberus Capital Management purchased Alamo and National from their parent, ANC Rental Corp. a year ago after it filed for bankruptcy in November 2001. The company is now called Vanguard Car Rental USA.
For Enterprise to do well at airports, it may need to improve service. A J.D. Power and Associates customer satisfaction survey conducted this year shows Avis and Hertz rated best. National, which targets business travelers, finished second followed by Enterprise, which was at the industry average.
A similar survey done in 2000 showed Enterprise leading the pack followed by Avis and National.
Abrams predicts Enterprise’s airport effort will succeed.
"They are doing it in a typical way," he said. They’re conservative. They’re strategic, and they’ve got a plan. They’re cash rich. They’ve got a lot of capital at their disposal to throw at business development opportunities that they feel are in their longterm best interest."