Reflections of an Industry
Reprinted from “Auto Rental News”: December/January 1994
Growing up in the home of an apparel manufacturer for the first 21 years of my life, one of the first and most fundamental threads of wisdom indelibly woven into what has become my fabric of business knowledge is as follows:
“It is possible to own, operate and remain in a business for over 40 years without ever having one good season, or even a mediocre season.”
This lesson was taught to me by a man who owned a home, two cars, sent three kids to private colleges, never owed a nickel to anyone throughout his life, and was as honest as they come. Well, perhaps the threads aren’t woven too tightly, but it certainly explains why I am so comfortable with a prevailing business mentality over the 17 years I have been associated with the auto rental industry. This is a business that auto rental veterans love to hate. Yet, as with my father, there is this invisible hook, or perhaps a magnet, that keeps them tethered.
What is it about this business that on one hand is so exhilarating to management of large corporate systems as well as owner/operators, yet can be so exasperating and full of angst? I’ll tell you what I think.
On the plus side is the thrill of the hunt, the knowledge that every rental transaction is one that the competition won’t get; the emotional charge on the day the market-share statistics are released by the airport; the surge of joy in a purposeful ride by the competitions’ lots and finding them full of cars (and yours isn’t); the run to the auction to bring a few extra cars into the fleet to meet unanticipated customer demand; a warm letter of thanks from a customer well served; and a solid all-around business performance exhibited in months’ end reports with positive trends in all key measurement criteria.
Many longtime rental operators can easily, without much prompting, provide a litany of reasons why auto rental is the worst business in the world: a rental rate structure dating back to the Mesozoic period; the safety net of the manufacturer turnback programs hanging on the precipice; terms already less favorable than in the past, and an uncertain future; interest rates at the lowest levels in decades but lending sources more reluctant to get involved with auto rental; insurance carrier refusal to continue to underwrite coverage in perceived high risk areas (often times regardless of individual operator loss experience); labor and staffing problems leading to customer service problems; and continued economical uncertainty in the foreseeable future after three years of unpredictability, volatility, and general business erosion.
It is certainly understandable why the love/hate relationship exists. But any business worth owning or managing will have risk. The objective is to get as many factors working for you as is realistic. You must take advantage of every opportunity including pushing yourself to do things you’d simply rather not do; to assume you are smarter than your competitors (let them prove you are not); and to take control of as many elements of the business as is possible, rather than being a victim of them. There is an imperative to harness, direct and influence what we can. Here are some things to focus on . . .
Fleet Management – This is both the highest exposure and greatest opportunity area. Matching the right fleet mix with your customer needs and strategic slotting in a rate class is as important as anything you can do. Don’t depend on fleet programs for the long term. Buying right, selling right, and understanding and using wholesalers and auctions will be more critical in the future. Retailing is also going to become a new revenue channel for most operators. Trucks are high margin items. Lastly, fleet utilization is the name of the game. Shoot for 95 percent. Unlikely for sure, but you won’t accept 80 percent as a passing grade either.
Financial Management – Work the numbers and analyze them on a monthly basis. Constantly source new creditors – you never know. Do the same with insurance carriers. Finally, control each and every line item on your expense sheet. Push your managers to watch the numbers. Be sure your labor costs remain in line with your revenue (strategic use of part-time employees avoids extraordinary health insurance premiums).
Yield Management – A lot has been written about this in the past couple of years. A car sitting on the lot not generating revenue is worth nothing to you. The objective is to get it rented, at the best rate possible, but rented nonetheless. Forecasting and analysis of historical trends are critical. It requires commitment and hard work as well as a financial investment, but it will pay off! Learn more about it.
Sales Management – Despite what some veterans of the business believe, car rental is a service that can be sold. New channels of distributionto enhance fleet utilization and yield should be analyzed. If you are an airport operator getting your head beaten in through intense competition or are being victimized by airline problems, look at the local market. The local market is truly where future growth lies. Conversely, if you are a local market operator, you may want to consider an off-airport operation to enhance your utilization as well, depending on peaks and valleys in your weekly rental cycle. Teach your people how to sell. Grab every walk-up you can. Go out and meet your local market customers. It has to work over time.
Customer Service Management – I won’t dwell on this. If you don’t understand its importance, you’re in the wrong business.
People Management – Beyond day-to-day supervision of the staff, which is crucial, what I actually mean is people development. The auto rental industry has not done a great job in developing a cadre of management with a depth and broad scope of business skills. Don’t get me wrong – there are many highly skilled, knowledgeable people at the operating level. Nevertheless, how many can read and interpret a financial statement? How many have gone out on sales calls, put together a business plan, bought and sold cars at auction, or planned a fleet on their own?
These skills can be taught. Senior management of the major corporate-run systems and owner/operators should take the initiative to begin the educational process. Your ability to build a diversified, knowledgeable core of people that understand not only the business but “BUSINESS” will ease a lot of anxiety and prepare the organization for growth and evolution in the industry.
There is something about the auto rental business that is consuming. I have a lot of friends, acquaintances and clients in the business who, over the years, have become disgusted, left, and then come back because they missed it. Sexy it isn’t. Dynamic and evolutionary it is. In the final analysis, it is a business of cars and people – asset management, people management, people services. The challenge is to understand how they play off each other. With that under-standing, the control of the elements that are manageable, and the commitment to take the tough steps, a lot more peace of mind will follow. OH – AND HAVE A GOOD SEASON, will ya?