iahphx

I know very little about the rent-a-car business except from what I observe when I (frequently) rent cars. By first impression, it doesn't seem like a great business. It's heavily taxed, and I usually pay less than $30/day to drive off the lot with a $20,000 vehicle that I could damge, destroy or hit somebody/something with. Oh, and the rent-a-car company has to keep cleaning the vehicle and maintaining it in tip-top shape.

Most of us recognize that Dollar and Thrifty are lesser players in this industry. I know I only rent from them when they're a lot cheaper than "the big guys." Therefore, I presume they have lower margins than the companies preferred by corporate clients.

So with this in mind, can anyone tell me how this company could be worth more than $2 billion?

http://www.reuters.com/article/2011/...26469120110510

Is there some hidden profitability that I'm missing during my frequent trips on the car rental shuttle bus? It's certainly not obvious to me!

jackal

Honestly, I don't know, either! If only I had known then what I know now--well, had I not been half convinced a couple of years ago that DTG was going into bankruptcy, I would have bought a thousand or ten shares at $0.67/share and been a rich man now.

One thing to note--DTG has done markedly better than the "premium brands" during the "recession," presumably as people (and corporations) have been more price-sensitive and spending their travel dollars with value brands rather than premium brands (that IME don't provide that much better of a product)...

Gambleballs

They aren't making much if anything on the people driving off the lot at $30 a day.

That being said, you probably know better than to pay for coverage/accessories you don't need or want. While others buy it like its required or don't care because someone else(employer) is paying for it. Its not unique to DTG. They are making their money off of auxiliary charges.

jackal

An average of $8-15 per day, depending on location. I'm not sure what the corporate national average is.

iahphx

Yeah, since time immemorial, that's been the path to profitability for car rental companies -- especially those catering to leisure travellers. Heck, I remember my first car rental back in the 80s. My travel agent (remember those!) told me she could get me a great deal with Alamo, but that they would be relentless at the counter demanding that I buy insurance. Without that coaching, I'm not sure I could have remained strong. They've actually gotten less pushy over the years.

But it doesn't seem like a lot of money has been made in the industry during that time. Several car rental companies have gone into bankruptcy, and they're constantly being bought and sold without much fanfare. I would have thought that the consolidation in the industry would have boosted prices (much like it has for the US airlines), but so far, car rentals remain (on average) pretty cheap. Indeed, the best thing that Dollar could do for Hertz is probably take out a low-price competitor. As I mentioned, I tend to shop Dollar/Thrifty only when I find the big players are too expensive. I agree that the difference in service is marginal, although my loyalty cards (Emerald, #!, Preferred) usually speed up the renting process at the majors.

jackal

I know for sure on a local level you're absolutely right. I'd never open one, either as an independent or a franchise.

That may be Hertz's ulterior motive here, but it's odd, because IME, Hertz doesn't even try to compete on price. They charge such a premium that it's almost like they don't want any business (except from companies who sign agreements for discounted rates).

I think (or at least hope) they want to get into the lucrative value market whole-hog (which their Advantage purchase didn't do for them) without tarnishing their premium brand. Killing Dollar and Thrifty would leave them right where they started.

randix

to what value the stock market places on a company, is a useless pursuit. I just picked up a Dollar rental (compact) in SJC for next week at $89/week, a short time ago they were quoting triple + that price... how anyone, be they a Wall Street analyst, an insider in the rental industry, or the "common" guy on the street can apply logic to the pricing structure and then extrapolate that into a business model upon which more than two people could agree and justify an X multiple to establish a fair stock price, is totally beyond me. Will be interesting to see where the rental car industry "is", in 5-10 years...

Auto Enthusiast

Let's remember that rental companies can do simultaneous transactions. So even if they hypothetically make $10/rental, multiply that by 500 cars out, for instance. Discounters, which run a higher utilization, tend to use that strategy, often at the cost of flexibility.

iahphx

Hertz's pursuit of Dollar/Thrifty continues.

http://www.bloomberg.com/news/2012-0...tml?cmpid=yhoo

And I'm still a bit mystified. Hertz says they need another brand for differentiation. The only way this makes sense is to overcharge Hertz customers and then offer price-sensitive customers the Dollar/Thrifty option.

I just don't get this because all the car rental companies pretty much offer the same cars. It's not like the hotel industry where there is an obvious difference between a JW Marriott and a Fairfield Inn. Once you drive it off the lot, what's the difference between Hertz and Thrifty? Why do they need to sell under different brands?

I'm guessing corporate rentals differ from leisure rentals. My strategy is pretty much no-brainer and, I assume, mirrored by most frequent travellers. Given the service I receive at the counter and through their "quick rent" programs, I have a slight preference for National, Hertz and Avis (and, in this group, I like National the best because I like picking my own car), and will look for their rates/discounts first. But if they're more expensive than the second-tier companies, I readily switch to the second tier companies. I almost never bother with the third-tier (non-nationwide, local) outfits.

I'm guessing Dollar/Thrifty rates go up if Hertz acquires them. That will be a shame, since they are sometimes cheaper.

jackal

I think you've hit the nail on the head: these companies need their "premium" brands they can use to charge high rates (and make big margins) to the business crowd. It's much harder to make a profit on cars without a premium brand--the break-even point on rates is in the neighborhood of $20-25/day, and if you're always renting cars for less than that, you're not running a sustainable business. However, the fact that DTAG has performed well lately and looking at how Enterprise built up its empire on just the value Enterprise brand (before buying Vanguard dba Alamo National) means that there is definitely corporate value in the value-brand market.

It's also odd because Hertz has been expanding their Advantage brand, which should be filling the value-traveler niche. However, reviews of Advantage are not terribly positive--there are a lot of issues with overcharging, bad attitudes, and the like. I would have expected more from Advantage once it was brought under the Hertz umbrella, but the service improvements I expected have failed to materialize. (Hint to Hertz: maybe this is why Advantage is not meeting expectations?)

In any case, your strategy is also my strategy, too. If all else is equal--or the price premium is within reason (20%, maybe), I'll pick a top-tier company like National, Hertz, or Avis (in that order, and for the same reason you indicated: I like being able to choose my own car, plus National typically carries more interesting cars than Hertz). I do this for a couple of reasons: one, the brand experience is a bit more consistent with these companies. A well-run DTAG store can actually approach the experience a Gold member gets when using Hertz; some DTAGs actually have a variant of Hertz's "Gold Board" and preprint the contract and have it waiting in your car, making it pretty much just as speedy as Hertz. However, that seems to be the exception, and you won't find that kind of service at all DTAG stores. Additionally, DTAG's brand standards are less stringent than Hertz's on matters such as shuttle frequency and staffing, and they are a bit more picky than Hertz on damage (although not unreasonably so, IMO: Hertz actually lets things slide that I wouldn't let slide if I were loaning my personal car out, whereas DTAG is a bit more strict but entirely fair about it). And while I actually prefer DTAG's rewards structure as it stands for earning free days, Hertz obviously has the advantage when it comes to elite benefits--DTAG doesn't offer any vehicle upgrades or other perks for even hyper-frequent renters.

Another reason I would pick the premium brands for a small price premium is they generally have more corporate stores and thus more flexibility. If you rent a DTAG car in CLT and take a road trip to MCO (as I did a few years ago) and something happens to your Thrifty car in South Carolina or Georgia (fortunately, this didn't happen to me), you're SOL. DTAG is franchised in SC and GA, and a franchised Thrifty location might as well be a Budget or Alamo for all the good it does you. DTAG franchisees are 100% independently owned and operated, and they can't help you if something goes wrong with your corporate Thrifty car--they can't come tow your car in for service, perform maintenance on it, swap you out for another car, or do anything else except give you the phone number to Thrifty corporate (where help is two states away). Conversely, other companies have very different business models, where most or all of the stores are corporate, and even those who are licensees are much better integrated into the corporate system. If you're driving a Hertz car and it dies on you in Hinesville, GA, no worries--there's a corporate Hertz Local Edition there where you can swap to another car in just a few minutes. (This is usually the case with Hertz and Avis, true to a slightly lesser extent with National and Alamo, mostly the case with Budget, shouldn't be an issue anymore with Enterprise after their restructuring, but is often a concern with DTAG and always a concern with the bottom-tier [bottom-feeder] agencies like Payless or Fox.) Plus, DTAG's high level of franchised locations presents a higher risk for customer service issues; although most franchises do try to run a good business, they're less likely to be interested in looking at the big picture (the owner in Spokane couldn't care less that you've rented a hundred cars in the last year in Chicago, Indianapolis, Austin, or Boston--if you damage his car, he wants you to pay him back), and consequently, things that a corporate store might give a bit on in the name of customer service (like extra charges for returning late and things of that nature) may be major sticking points at a franchised location.

That said, though, I am willing to pay about 20% more at the most to rent from a premium agency (after all discounts and coupons have been applied, of course). I don't consider the benefits of Hertz et al. to be worth double or triple the price, and I often see Hertz in that category ($50+ when cars with DTAG are $20, or $150+ when cars are $40 with DTAG).

There's lots more I could write on this subject, but you get the general idea.

On a personal note, I'll be disappointed if this goes through, because the DTAG employee culture is actually pretty positive. I've heard nothing but discontent from those I know who have worked for The Hertz Corporation. I'll put it this way: most of the people I know who work for DTAG still do years later. I don't know anyone who still works at Hertz.

iahphx

Thanks for sharing your thoughts, Jackal. It's pretty obvious that not everyone has your level of car-rental expertise because, if they did, the car rental business would be an even worse business than it is.

I'm still amazed at how cheap car rentals are in the USA. Sometimes, overseas, I actually have to pay "real money" for a car rental. It hurts -- especially when you consider a $25+ car rental in the USA to be expensive. Heck, if not for the crazy taxes, most USA car rentals would seem almost free.

There's obviously money to be made in this brand diffentiation, or the companies wouldn't be doing it. For example, I can't understand the difference between Dollar and Thifty: it seems like their prices are now almost ALWAYS identical on their websites. I don't rent from them enough to notice: I assume they still have separate airport counters in some locations? I know they just share one fleet. There's obviously SOME consumer brand differentiation between National/Alamo/Enterprise, but does ANYONE in the public see a difference between Dollar and Thrifty? Somebody once told me that Dollar was supposed to be the more upscale brand, but I've never observed that to be true, and I be surprised if many folks believe it these days.

jackal

Having been intimately familiar with DTAG for much of the past decade, I can tell you that even *I* have no clue what the difference is supposed to be.

There certainly isn't any brand differentiation. Historically, Dollar was the on-airport provider and Thrifty was the off-airport (as well as suburban/insurance replacement) provider. That distinction has largely gone away.

IMO, the only reason they run two brands now is to try to capture a larger mindshare by presenting customers with two options--i.e. taking up twice the column-width on the Travelocity price grid and perhaps also to try to get around the whole "I'll never rent with [Thrifty]/[Dollar] again" thing by pretending they're two independent companies (which probably 99% of the traveling public believes). And even then, I'm not sure all the duplication in staffing and facilities makes it worth it, but it is what it is.

Also, the fact there are so many franchised Dollars and Thriftys would complicate any brand merger plans. Most larger airports have both brands operated by corporate and would be an easy merger, but there are some places where it could present a problem. Here's a list off the top of my head:

-SEA/PDX Thrifty: corporate
-SEA/PDX Dollar: franchise

-BOS Thrifty: corporate
-BOS Dollar: franchise

-SLC Thrifty: franchise #1
-SLC Dollar: franchise #2

There are many smaller airports where Dollar and Thrifty are both franchised by the same operator, so that would go easier (although I wouldn't be surprised if those licensees asked for one of their two franchise fees to be refunded ), but there are also many smaller airports and off-airport locations where only one brand exists or both brands are operated by two different operators (SLC is the only major airport I can think of where this is the case, but there may be smaller regional airports I don't know of where it is also the case).

iahphx

Interesting, Jackal -- I can tell you do have an exhaustive knowledge of Dollar/Thrifty.

A corporate/franchise city-by-city chart would be marginally useful, I guess. Maybe I'm wrong, but I would book with the corporate side if everything else was equal (which it usually is!).

Right now, the only reason I prefer one to the other is that I try to remember to book with a cashback site and when I pull up the data from a site like evreward.com, the payouts can be different. BTW, I'm not even sure I get the cashback, because it's usually so little money (less than a dollar a day) that I don't bother to to check or follow-up.

jackal

All else being equal, I book with Thrifty, since the Blue Chip program has a satisfaction guarantee: if you're not wholly satisfied, you get your first day free--although I have never actually used that benefit).

I, too, would book the corporate store, all else being (mostly) equal. In BOS, though, Dollar is more popular due to its closer location to the airport--Thrifty really is kinda out in the sticks. I do pick Thrifty, though, usually, since not only is it corporate, the rate is usually a little lower, too.

At SEA, Dollar was closer until the new CONRAC facility opened. Now that it's open, they're both equally an insanely long haul from the terminal.

wetrat0

Looks like it is time to resurrect this thread as Hertz has announced they will purchase Dollar/Thrifty for 2.6bn. http://www.chron.com/business/articl...on-3816889.php

With respect to Hertz filling a value/leisure niche, they are already doing this through Priceline. Rental cars tend to be one of the few items I am willing to "name my own price" on leisure trips because they are largely similar at the major brands. At least a couple of times searching on Kayak, Hertz has been far and away the most expensive rental, and I have named my own price --- something like 1/3 of the Hertz price (maybe 2/3 of the Dollar/Thrifty price) and ended up with a rental at Hertz.