Enter Enterprise: Replacement Car Renter Revs Corporate Engine With National, Alamo Buy

Enterprise Rent-A-Car is poised to become a prime player in the corporate car rental market later this year, following the recent announcement of its planned acquisition of Vanguard Car Rental Group. Buyers and analysts said the deal, if approved, could be a double-edged sword for car rental negotiations, giving buyers a stronger sourcing option but perhaps less strength in controlling rates.

St. Louis-based Enterprise announced late last month that a "definitive agreement" was in place to acquire the Tulsa, Okla.-based Vanguard, parent of the National Car Rental and Alamo Rent A Car brands. Pending regulatory approval, the deal—the financials of which were not disclosed—is expected to close in the third or fourth quarter of this year.

"As the dynamics of our industry continue to evolve, it's clear to us that the future belongs to the service providers who offer the broadest array of services for anyone who needs or wants to rent a car," said Enterprise chairman and CEO Andrew Taylor. "Joining forces with National and Alamo will enable us to do just that, from replacement and leisure rentals to small-business and corporate customers."

Although Enterprise is the largest car rental company in North America, its presence in the corporate market has been limited, as it primarily has focused on off-airport car rentals, particularly the insurance replacement business. National has a large share of corporate negotiated rentals, and Alamo serves primarily the leisure on-airport market.

Avis Rent A Car and Hertz, National's two major competitors in the corporate car rental arena, both have been adding off-airport locations as part of their growth strategy, but neither of Vanguard's brands has been pursuing that method.

Enterprise, meanwhile, has made progress in securing more corporate contracts at its off-airport locations, and the strength of the acquisition lies in the ability to offer strong airport and off-airport rental option to the two companies' combined corporate accounts, Enterprise spokesperson Christy Conrad said. Off-airport rentals can be a cost-saving option for corporate travel buyers because they do not carry the high taxes usually associated with on-airport rentals (BTNonline, Dec. 12, 2006).

The acquisition announcement came as a surprise to many analysts, as speculation had pointed toward a merger of Vanguard and Dollar Thrifty Automotive Group, with Vanguard as the dominant player (BTN, March 5).

That merger would have been more about cost savings and convenience than growth, said. Mike Lynch, who manages the travel procurement practice for King of Prussia, Pa.-based ICG Commerce. Like Alamo, both Dollar Rent A Car and Thrifty Car Rental focus largely on the leisure customer, and both companies are based in Tulsa. The big gain there would have been the savings from combining offices and fleets.

"The Enterprise announcement, if it happens, is much more from a growth and marketing perspective, and Enterprise's ability to grow in the marketplace," Lynch said. "With Dollar Thrifty, it would have been about merging facilities."

Enterprise's acquisition plans are the latest car rental industry ownership move. Late last year, Europcar bought the European operations of Vanguard while entering a partnership that gave Europcar corporate clients access to the National network in North America. Avis Budget's parent company Cendant Corp. spun off its hotel and other travel operations into separate businesses, leaving Avis Budget as a stand-alone company.

Hertz, fresh from its sale to private equity firms by Ford Motor Co., went public with an initial public offering last year. Vanguard, too, had filed for an IPO last summer, but that apparently is off the table, now.

Neil Abrams, president of Purchase, N.Y.-based Abrams Consulting Group, said a merged company would be wise to keep its three brands focused on their respective niches. Ultimately, the deal could be a particular boon for the Alamo and National brands, which were in bankruptcy only a few years ago but since have strengthened to their strongest position in decades.

"The National and Alamo brands take on a more formidable presence now that they have the new money and manpower operating on the sidelines with a seasoned management organization," Abrams said. "They've got tremendous financial strength."

In recent negotiations, car rental companies have pushed for rate increases as they face tightening margins due to higher fleet costs from the struggling auto manufacturing industry. By and large, buyers have been successful in avoiding significant rate increases as compared with what car rental companies have achieved in non-negotiated rates (BTN, April 2).

Taking one player off the market shifts the balance, however. With Enterprise already the industry giant, taking in two of the seven remaining leading brands gives it an enormous slice of the market, Abrams said. "You're talking about a company that has combined sales of $13 billion in an industry that does about $20 billion in sales," he said.

ICG's Lynch said Vanguard's technology capabilities are advanced, which also will be an asset to Enterprise. The resulting potential for better data would be a plus to corporate customers, he said.

There is still, however, one area of concern to buyers with the acquisition: pricing. "From the sourcing perspective, it's convenient, but from the pricing perspective, it's a nightmare," said former National Business Travel Association president Kevin Iwamoto. "Any time you take away choice, you also take away the potential for reduced pricing."

ICG's Lynch said pricing should not become a major issue because Enterprise has not been particularly aggressive with rates in the past, and with the brands each remaining distinctive, there shouldn't be any less competition.

"I don't see them going in over the next year and increasing rates," Lynch said. "There's not less competition, because if Enterprise started to get greedy with pricing, you still have Hertz and Avis out there on the prowl. If anything, we now have more of a solution with the technology to back it up, so it could be corporate-customer-friendly."