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And Then There Were Three

May 4, 2010

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In sports they use the phrase "tremendous upside" to describe a draftee's potential. The phrase is appropriate for many aspects of the Hertz acquisition of Dollar Thrifty.

While most are analyzing the deal six ways to an NFL Sunday in regards to the overall financial picture and its impact on consumers, here's an on-the-field view from an operator's perspective.

If the deal goes through, and as of this writing that's no sure thing, Dollar and Thrifty franchisees have to be excited about a partnership with one of America's iconic brands. One Dollar licensee said in the past week he got calls from all the banks he's ever worked with, and the conversations were positive. That should be good for lending.

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The New Franchise View

But how will corporate-minded Hertz view the franchise business?

A short three years ago, such a purchase would have had the franchisee community worried about its survival. However, in the past two quarters-and within the negotiation time frame with Hertz-Dollar Thrifty granted 15 new franchises while signing contracts for an additional 13 franchises. Those new franchise agreements are solid under the acquisition.

The new franchisees in the fold will be able to take advantage of Hertz's expanded buying power with risk purchases. However, in a credit market that requires greater enhancements than ever before, whether Hertz wants to play ball with new lease and repurchase programs to its new licensees remains to be seen.

Hertz has used franchising to open overseas markets and it still has a thriving licensee operation in some smaller markets stateside, though it exists primarily as a corporate operation in North America. Will Hertz put the brakes on future franchising of Dollar and Thrifty locations to follow its more traditional model?

Advantage a Disadvantage?

Hertz has two new options to offer its corporate portfolio. Dollar and Thrifty licensees should benefit by getting some of Hertz's value-oriented corporate customer. But on the other end of the value chain, where does this leave Advantage?

Hertz renewed its commitment to expanding the Advantage brand in its first quarter earnings call, when it announced the acquisition news. But getting on airport is harder than getting past a co-op board on Central Park West. There's no space to give, and the airports hold all the cards. Hertz got the airport market share it wanted instantly with the Dollar Thrifty acquisition, just as Enterprise did with National and Alamo.

There is some grumbling right now about Advantage's rates. How will Hertz manage that now that its new franchisees are competing for the same discount customer? Could Advantage be a bargaining chip to help get the deal done with the FTC?

Indies' Concerns

How will the acquisition affect independent competitors?

On-airport independents should have concerns regarding Hertz's new buying power: some say it will disadvantage independent competitors to the tune of 8 percent in holding costs.

However, with less of a need now for Advantage to gain market share, it could ease the rate wars on airport, which would benefit the tertiary brands. The combined market share of the new Hertz on some airports may be uncomfortably high for the FTC. If Hertz closes some on-airport corporate locations and/or Advantage to appease regulators, the remaining players would benefit.

In terms of the OTAs, the volume that mid-sized independents deliver is not substantial enough to give them any great leverage. But in the interest of diversity and competition, the OTAs have another reason to at least play nice with the small guys.

The industry is in a good place right now. A rising tide lifts all boats, and right now the independent operator is enjoying high rates along with the majors in this market of tight supply.

Though it will take several years, we will get back to 14 million in sales-and a lot of that will be to rental. If we return to over-fleeting and low rates, the new Hertz will be better able to manage with its buying and selling muscle and diversity between its brands.

In this scenario, it's the independents that will suffer first and be hit the hardest.

Comments

  1. 1. Brian Mackenzie [ May 15, 2010 @ 04:32AM ]

    If hertz buys DTAG, say good by to more small business owner-operators in the domestic car rental business. The Enterprise Alamo/National purchase ended small business ownership in those brands and Hertz will do the same with DTAG. Here at OneRez we're hoping for an Avis/Budget tieup for DTAG. Small business ownership is important for all industries and auto rental is no exception.

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Author Bio

Chris Brown

Executive Editor

Chris is the executive editor of Business Fleet Magazine and Auto Rental News. He covers all aspects of the fleet world.

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