Car Rentals: Questions and Answers
Reprinted from “Travel Agent”, January 1997
By Sloane Lucas
Neil Abrams has been a consultant to the car rental industry since 1982, when he founded Purchase, N.Y.-based Neil Abrams Associates, Inc., which provides management services to rental operators and systems throughout the U.S. and Canada, as well as to vendors and suppliers. The international division, Abrams Consulting International, advises companies worldwide. Abrams recently discussed with TRAVEL AGENT where the car rental industry has been, where it is now and where it is headed.
How would you characterize the car rental industry as it was in the past?
Going into the 1980s, the industry was plagued by very little customer loyalty–the perception being that all auto rental companies were the same, rates were pretty much consistent and it really didn’t matter what company you were with, except for those pre-established corporate programs where the customers were forced to be loyal.
When did things start to change?
In the mid-to late 1980s, companies started to try to distinguish themselves from one another. They started to develop new technology and become more service-oriented to develop an identity with the customers, be they commercial or leisure travelers.
What spurred this change?
Alamo and Enterprise basically energized and, to a certain extent, revitalized this industry. You had these vast voids–the local and replacement business as well as the leisure segment unattended and unserviced. Alamo and Enterprise, marginal players in the 1970s, kind of crept in there. [Alamo served the leisure market while Enterprise targeted insurance replacement rentals.] They took advantage of that neglect and created multibillion-dollar markets.
Alamo also realized the value of publishing and promoting low prices, yet adding very strong and aggressive point-of-sale activity for upselling customers with upgrades, insurance and other profitable items. That [angle] had been recognized, but not aggressively pursued. Those two auto rental companies woke up the industry.
How would you characterize the companies themselves?
There was a core–within all these companies–of strong franchisees that were successful through the 1960s, 1970s and into the 1980s. Budget was developing a strong franchisee network, so you had Budget, Dollar and Thrifty within that genre. Hertz, Avis and National, to the extent that they could, were buying up franchises. As one became available, they would acquire it.
What did that do to the carrental industry?
It gave more control to the large companies over quality and fleet management. That was good. With more control of product, channels of distribution and service, there is more that you can bring to the table of the large volume users.
What has been the most significant change in the industry?
The industry has come to recognize that you must make a profit to survive and to thrive. I think that’s all part of this consolidation that we’re seeing. [Republic Industries has bought Alamo and National, hoping to create synergies between the car rental fleets and Republic’s AutoNation USA chain of used-car superstores. HFS bought Avis and is looking for another car rental firm to create synergies with its various hotel chains.] Car rental is not being looked at as a standalone service anymore–it’s being looked at for its synergies with other industries.
How do you feel about the future of the Industry?
I’m bullish. Through the 1960s, 1970s and early 1980s, this was a profitable industry. The cost of vehicles and the pricing were in line with what it takes to achieve a reasonable and significant return on investment.
From the mid-1980s through the mid-1990s, that changed significantly. Vehicle costs have increased many times over in the past 12 years, while the rate structure has remained virtually stagnant. It’s only now, over the last year and a half, that rates have made some upward moves–but that’s out of necessity, not desire. The industry performance overall has been flat. In the long term, however, rates are going to continue to rise.
What are your predictions?
There are going to be more creative approaches to operating the car rental business. The reselling of fleets is going to continue to be a major growth and profit opportunity. and the industry is going to have very strong synergistic opportunities, including strategic alliances with related companies.
There will be continuing emphasis on the global travel service. There is enormous opportunity for the development of travel service in South America, Asia and the Pacific Rim, including auto rental.
Domestically, I think there will be more of a focus on the local market and on the replacement business. There’s money to be made in those areas.
Where do travel agents fit into the future of car rentals?
I think that travel agents will continue to play a major role as a channel of distribution for the auto rental industry. Half the auto rental business today is being booked through travel agents. It’s an important service, and it’s a good value for a customer.
You can’t look at auto rental as an isolated service–you have to look at it as part of an overall travel experience. I think the ability of agents to remain on top of travel service opportunities and pricing will continue to be important.
I think, as with any business in the late 1990s, agents will be under continual pressure from their customers to keep costs down and to become more efficient. You’ll probably see more synergies, more collaborations, more cross marketing and stronger alliances between major travel suppliers and auto rental companies.
Contact Neil Abrams Associates, Inc., at 3020 Westchester Ave., Purchase, N.Y.; 914- 696-5100, fax 914-696-5101.