Enterprise Carves Corp. Car Rental Discount-Tier Path

New York - Enterprise Rent-A-Car, one of the world's largest rental car companies due to its stronghold in the off-airport replacement market, quietly is making major gains in the corporate travel market that have moved it onto the turf of such vendors as Alamo, Budget and Thrifty.

The company, which reported $6.9 billion in total revenue for the fiscal year ending July 31, 2003, up from $6.5 billion in 2002, claimed it had 4,987 U.S. and 5,533 total locations and a total fleet of 559,682 cars. It also claimed that 10 percent to 20 percent of its revenue last year was from business travel.

With growth in the "strong double digits," according to Rob Hibbard, Enterprise vice president of rental development, the company is making a noticeable mark in the corporate travel landscape. "The corporate segment is a big part of our business. We're approaching $1 billion in corporate rental revenue," Hibbard said. "And that's growing."

According to Hibbard, Enterprise currently serves all 100 of the top U.S. airports and another 160 on top of that. As the largest purchaser of automobiles in the country, Hibbard said the company has created beneficial economies of scale and, as a result, pricing has become competitive. "You won't find midweek or one-day surcharges. You'll seldom find city or state surcharges, and we don't have a cancellation fee," he said.

Enterprise began its foray into the corporate travel sector about 15 years ago, but its corporate sales force has grown by 25 percent in the past two years to 350 people. Hibbard said the company is carving a niche in the corporate travel market by offering large corporations services in their home cities. It claims to have relationships with the vast majority of Fortune 500 companies, most of which use Enterprise as primary providers of off-airport services and as secondary providers at airports.

One such corporate account is Pepsi, which signed an agreement with Enterprise in January. "We chose Enterprise to be our secondary provider for a number of reasons, especially for their very large number of suburban and rural locations. We found a lot of our folks were using them on an ad-hoc basis because they liked the variety of the different vehicles they have," said Eric Boulter, Pepsi senior group manager and category leader for travel. "You can get whatever car you need delivered to a plant or field location, and you don't have to go to a city-centric location. So we decided to put the right corporate arms around it to make it a formal program to everyone's benefit. As a new supplier, they've done a very credible job fulfilling the role we expected."

"The way we differentiate ourselves from the traditional car providers is that we're interested in being a secondary provider at the airports—in fact, we encourage it—but we want to be the primary provider in the home city," Hibbard said. "We think that's a smart way for a corporation to approach its car rental needs."

Hibbard said Enterprise also has found success in obtaining contracts with small and medium-size companies, which rent from as few as four to up to 100 times each month. The company offers deep discounts for companies that need extended rentals, with $25 off the monthly rental rate for two months, $50 off rentals for three months and $75 less for each month after that.

Still, Neil Abrams, president of Abrams Consulting Group, said Enterprise will not threaten the premium rental car companies and their big corporate clients. "In the short term, there's not a great deal of concern for Hertz, Avis and National. Their customers are big core customers, for which they provide specialized and unique services," he said. "Enterprise is not going to go after big box corporations, and the companies that serve them won't be threatened anytime soon, but Enterprise has the money to put into any initiative they want to."

Where Enterprise can compete, Abrams said, is in the second tier of corporate rental car providers that include the value, regional and independent brands. Yet, that sector also is growing, and Abrams said there is enough business out there that it won't adversely affect second-tier brands, but rather, enhance the market. "It's Budget and Thrifty that Enterprise would be pecking away at," Abrams said. "They'd go after the lowest hanging fruit."

By the same token, many of the on-airport, corporate travel brands have made some efforts to get into the neighborhood rental and replacement markets. While Enterprise historically has had a stronghold in that sector, Abrams believes it can be a profitable growth area for any rental car company that aggressively pursues it.

"There's a great deal of upside to the off-airport business companies that are nimble and make the investment of time, resources and capital and go after it with vengeance and passion," Abrams said. "There's plenty of room out there, but Enterprise has become the 1,000-pound gorilla in that room.

"It's tough. All the major rental companies in the past 10 years or so have made efforts in varying degrees of commitment and success to go into the replacement market. Today, only Hertz seems to be making a concerted effort to chip away at Enterprise's core business, on a relative scale," Abrams said.

The Cendant Rental Car Group, parent company of the Avis and Budget brands, is also an active player in the replacement market, according to Bob Lambert, senior vice president of sales for the company. "We are a sister company to Cendant Mobility, one of the largest relocation companies in the world and primary car rental supplier to many of the largest U.S. corporations. Therefore, the relocation business is an important part of our business."

Bob Thunell, staff vice president of national sales for Thrifty Car Rental, said his company has pursued the replacement market, but on a location-by-location basis. "Because Thrifty has historically been a franchisee-based system, the insurance replacement market is one that has been handled on a market-by-market basis. Those franchises that have wanted to be aggressive have done very well, but it has definitely been a local market proposition, so there is not a really global strategy."

Dollar Rent A Car, sister company with Thrifty under the Dollar Thrifty Auto Group umbrella, has a similar approach to the replacement market. "It's a smaller portion of our business. Nonetheless, it is an important one," said Nick Barron, Dollar director of sales development. "It's done on a market-by-market basis, and it's probably designated to our licensees. Most of our corporate locations are on-airport.

"Corporate-wise, it's not really stressed because we're not out there," Barron said, "but Enterprise is a very key player. They've made it apparent that they're going to make everyone else competitive in their arena."

Enterprise built itself up by concentrating on the local market, non-airport- driven business of commercial accounts and retail customers. This was a segment ripe with customers who needed vehicles to replace their own vehicles that are out of service or unavailable. The company also caters to local body and service shops, which recommend Enterprise while cars are serviced.

"They swooped in and captured a market that was literally abandoned by the major rental companies going back to the '60s and '70s, and they recognized the opportunity," Abrams said. He added that Enterprise set up shop on main streets and densely populated areas near dealerships and body shops to be highly visible to its existing and potential customer base.

"We grew up as a neighborhood rental car company," Hibbard said, "but now our locations put us within 15 miles of 90 percent of the U.S. population. That, coupled with our pickup service, made us highly convenient to deal with within neighborhoods." The company expanded by negotiating with major auto insurers to be the main supplier for customers who were entitled to rental cars while their cars were in the shop. This allowed Enterprise to access millions of customers by negotiating just one contract. After locking in these deals and developing technology that seamlessly connected the car owner, insurance company and Enterprise location, the company became a force.

Enterprise also aggressively went after car dealerships to supply customers with rental cars while cars were being serviced. Because many dealerships offered car loaner provisions to customers and because Enterprise needed to buy cars for its own business from some of these dealers, it had a competitive advantage when it came to negotiating contracts. "They buy so many cars, and that's good leverage," Abrams said.

Still, Abrams said there is still business to be found in the off-airport arena, and traditional car companies have the opportunity to get their piece of the pie. "There's more creativity and ingenuity and overall opportunity to carve out your share of the market as opposed to fighting over passengers deboarding planes at the airport," he said. "The best competitors of Enterprise are not the major companies, but the regional players, independents and franchisees that are embedded in those markets and have the knowledge of their area."