Car Rental Industry Marked By Management Shuffle
<B> Car Rental Industry Marked By Management Shuffle</B>
By Lynn Woods
In recent months, so many management changes have been announced in the car rental industry that it seems like the companies have been playing their own version of musical chairs, creating a position here, eliminating one over there and making replacements.
"There's still a lot of shakeout in the industry, in terms of technical integration, big management turnovers, outsiders coming in and industry veterans leaving," said Jon LeSage, vice president and director of research at Abrams Travel Data Services, a car rental consultancy. Don't expect the turmoil to calm down any time soon. In both the United States and Europe, LeSage foresees "more mergers and acquisitions" in the coming year.
In late August, AutoNation Inc. abruptly announced that William Lobeck, president of the company's auto rental division, consisting of National Car Rental, Alamo Rent-A-Car and CarTemps USA, was stepping down. The announcement came in the wake of AutoNation's decision to separate its auto rental division from its main auto retail business, with a distribution of stock in the new $3.5 billion company scheduled to take place in late January.
Hertz Corp. in October noted the retirement of long-time president Frank A. Olson, who will be replaced by Craig R. Koch, Hertz's president and chief operating officer, at the end of the year. Shortly after, Budget Group Inc. announced the appointment of David N. Siegel, formerly president of Continental Express, as president and chief operating officer (<I>BTN</I>, Nov. 1), effective Nov. 15.
Long-time Hertz veteran Koch is not expected to implement any major changes at the industry's number-one company, and in any case Olson will continue to wield an influence through his presence on the board. Budget sees Siegel's appointment as a boon for the company, bringing much-needed operational expertise to the struggling firm (see story below).
Meanwhile, the Board of Directors at Avis Rent A Car Inc., which has been without a president ever since R. Craig Hoenshell left in December 1998, noted that the company had given up its search for a new CEO. Instead, it will be run by a management team, consisting of two executives overseeing the rental car group, R. Robert Salerno, president and chief executive officer, and Kevin M. Sheehan, president of corporate and business affairs. A third person on the team, Mark E. Miller, will oversee the PHH vehicle management and card services division, which Avis recently acquired from parent company Cendant.
Since the PHH acquisition, Avis has seen the value of its stock drop by half, although the company's performance has been strong. Analysts said the acquisition made no sense from Avis's point of view and probably was motivated by Cendant's desire to shift the burden of PHH's debt from its balance onto another company's. As a franchised division of Cendant, Avis also must pay a fee to its parent company.
The decision not to hire a bona fide CEO reflects the fact that Cendant CEO Henry Silverman "runs the company anyway," said one analyst.
Of all these changes, the biggest surprise was the departure of Lobeck, a long-time car rental industry veteran who had served as head of National Car Rental before his promotion as president of the auto-rental division at AutoNation earlier this year.
"Lobeck is one of the smartest business guys in this business, and he's done a great job," said Neil Abrams, president of Abrams Consulting Group. "His departure is a big loss."
No official reason was given for the executive's dismissal, although one analyst speculated the company, feeling that the auto-rental division was a drain on its retail business, might have been looking for a scapegoat.
Revenues from the automotive rental division have declined. The division accounted for 14.8 percent of total revenues in the first quarter of 1999, a 10 percent drop from the first quarter of 1998, when it accounted for 24.9 percent of the total. In comparison, the proportion of revenues from car retails, the main focus of AutoNation's business, had grown, accounting for 85.2 percent of total revenues in first quarter 1999, compared with 75.1 percent in first quarter 1998.
The rental division's operating income was also down. It was just over a half percent in 1999, a decrease over the 2.5 percent increase in first quarter 1998. In contrast, the retail division had a 2.3 percent increase in operating income, about the same as it had experienced in first quarter 1998.
AutoNation indicated in its quarterly report that one factor that had an adverse impact on the rental division was the deployment of Global Odyssey, National's new automated system, which represented a huge investment and has been plagued with glitches. Alamo originally planned to begin implementing the system by the end of this year, but analysts said it was questionable whether Alamo could afford to sign on.
Lobeck might have made a mistake in announcing the system too quickly, said an analyst, noting that AutoNation "promoted Odyssey and its virtues before it was ready." However, the analyst said that despite the problems, Odyssey ultimately would pay off. "It's a good long-term strategic move for National."
Another area in which Lobeck might have erred was pricing. Dean Gianoukos, equity car rental analyst at J.P. Morgan, said National and Alamo had been undercutting prices in some markets as a way to gain market share--a tactic viewed as damaging to the industry's overall attempts to raise rates and hence gain the confidence of Wall Street. "As soon as AutoNation got rid of Lobeck, the pricing began to change," said Gianoukos.
The result has been "improvement for everybody" (for everyone, that is, except customers). In the past few months, car rental rates have increased 3 percent to 5 percent, a welcome departure from last year's stagnating prices, which increased only by 1 to 2 percent.
Besides the fact that real numbers for National and Alamo now will be available--previously, AutoNation did not break them out separately from its overall figures, making it difficult for analysts to gauge the car rental companies' performance--the spinoff also should benefit the companies, said Abrams. Under AutoNation, "One would wonder if the decisions made were for the best interest of the car rental company or AutoNation," he said. "In the public sector, National and Alamo will be more independent and have the overall capability to manage their business smartly and for their own better interests.