Nortel Partnership With Car Firm Yields Cost Savings

<B> Nortel Partnership With Car Firm Yields Cost Savings</B>

By Lynn Woods

<I>Brampton, Ontario, Canada</I> - The solid relationship that Nortel has established with car rental company Budget Rent a Car over the past decade has led to innovative approaches in attempting to streamline costs.

Last year, for example, Nortel embarked on a driver-safety program in conjunction with Budget that was designed not only to heighten safety conditions for Nortel renters, but also to reduce the amount of Nortel's insurance claims. The companies agreed to split the benefits on any savings that might result from the program.

Budget began hanging flyers listing safe driving tips on the rear-view mirrors of cars rented to Nortel employees.

The effort paid off. Having just tallied the numbers, Budget discovered that Nortel reduced its insurance claims for 1997, though both declined to cite the exact savings. The companies now are deciding whether the money should be returned to Nortel in the form of a rebate or a rate reduction, said Budget vice president of sales Charles Piranian.

Of course, with annual revenues of $15.5 billion, 73,000 employees scattered over more than 100 countries, and a spend of $20 million a year in car rentals, Nortel is one of Budget Rent a Car's largest accounts. Yet Nortel's contract with Budget is surprisingly simple. And despite the gigantic scale of its business, its relationship with Budget is more akin to a partnership, said Nortel's travel manager, Ken Rayner.

To begin with, Budget is Nortel's exclusive car rental supplier. "We have one car rental contract, although we negotiate the rates country by country," Rayner said. To ensure that a Nortel employee is never stuck without a car, Budget is required to provide one anywhere in the world within two hours. This guaranteed availability clause is extended to franchisees, said Rayner, and is always honored--even if it means that on a rare occasion a Budget employee has to cross the street and obtain a car from a competitor.

Secondly, all rates include insurance, a requirement that simplifies the rental process for employees. "Our travelers are instructed to always use Budget and always refuse the insurance"--an approach that Rayner theorized accounts for Nortel's 99 percent-plus compliance on car rentals.

Another cost that the partners are examining is refueling charges, which Rayner called "the next big breakthrough." Like other car rental competitors, Budget charges an average $3 per gallon premium for refueling vehicles or offers a prepayment option, in which renters purchase a tank of gas in advance at the standard price of $1 to $1.15 a gallon. But neither really benefits corporate travelers who only plan to drive a short distance.

In an effort to reach a compromise, "We're currently in the process of identifying the key markets where Nortel spends a lot on fuel," said Piranian, and will consider whether it makes sense to offer "a more standard fuel rate that's closer to the pump price" at those locations.

The companies also are talking about synergies with the related services available from Budget Group Inc. For example, Rayner said that Nortel currently utilizes Budget's airport parking lots at some locations and is investigating the possibility of a special discount tied to its car rental contract. Special deals for employees on used cars sold at Budget's retail lots is another possible perk that interests Rayner.

More generally, Piranian said Budget's van-pooling company, VPSI, represents another opportunity for its corporate customers. VPSI provides vans--but not drivers--to a cluster of employees who live within a certain radius of each other. Budget corporate accounts that have facilities where car pooling makes sense might benefit from a special deal with VPSI, he said. And companies that send out key employees on the road for an extended period of time might consider renting an RV at a discounted rate from Cruise America, another Budget subsidiary.

In the past, Nortel negotiated a lower rate in exchange for exclusion from Budget's frequent-renter program. However, Rayner said the current agreement allows for free enrollment to any Nortel employee in Perfect Drive, Budget's new loyalty program, at no extra cost to the company.

Another area under discussion is a direct booking link through the Internet that would benefit both companies by reducing distribution costs, such as CRS fees, which amount to $3 to $4 per rental, Rayner said. Nortel is in the process of rolling out American Express' automated booking tool, AXI, which will reside on the company's intranet and allow agents to book Budget cars. However, since AXI uses a CRS, Rayner said it will offer little in terms of reducing car rental distribution costs.

Both Rayner and Piranian noted that a number of stumbling blocks need to be overcome for a direct booking link to be beneficial. Unlike car rental reservations booked by travel agents through a CRS, such a booking wouldn't be attached to the complete itinerary, said Rayner. For its part, Budget is interested in exploring ways "we can change or enhance the way travelers book their cars" without cutting travel agents out of the loop, Piranian said.

While Nortel generally is satisfied with its Budget contract, things don't always go exactly according to script. One of the major challenges of a global car rental contract is compliance from franchisees located in remote corners of the world. "Because of the vast scope of the arrangement, there are some franchisees in out-of-the-way places who aren't aware of our agreement with Budget," said Rayner--a misunderstanding that always has been cleared up with a phone call or two.

Piranian underscored the overall ability of Budget to service global accounts through its worldwide network of locations, but acknowledged the challenge and importance of communication between the corporate parties that negotiate the global deal with different localities. "Our sales director is going out with Ken to spread the word. However, you also have to be able to get two people who are local to talk about the contract to make it work," he said. This is also important in determining the particular needs of a locality--for instance, whether Nortel employees in a certain U.K. city want pick up and delivery, a standard service in Europe.

Besides communication among all the parties involved, from corporate negotiators to local representatives, Piranian stressed the centrality of the travel manager's role in forging a global contract. "Ken wants to fully implement a program worldwide," he said. "This gives us the ability to take the negotiations in Ottawa and implement them throughout the world.