One-on-One: A National Commitment To Service

By BTN / December 06, 1998

One-on-One: A National Commitment To Service

As president and CEO of Republic Industries' automotive rental group, William E. Lobeck, former head of National Car Rental, is responsible for running National and also its sister companies, Alamo Rent-A-Car and Car Temps USA, Republic's insurance replacement car rental business. BTN contributing editor Lynn Woods recently spoke to Lobeck at Republic's Fort Lauderdale, Fla., headquarters about new developments at National and Alamo.

BTN: Has National embarked on any new service initiatives related to its corporate business?

Lobeck: This quarter we are beginning the rollout of Odyssey. This is a huge commitment to an all new, ground-up IT system, with a $300 million investment. Some of the old hardware and software that National has been running is 25 years old. The new system will give us the ability to do a whole lot better job.

We'll have the ability to do more things than before in terms of rates, terms and conditions. We'll have complete flexibility with respect to customer-specific demands. In this industry, there's always the service challenge, but we also have to overcome the problems at our airports. The airports aren't getting any bigger, and they're stretched beyond capacity. We believe that technology is going to enable us to increase the level of service to the customer within the constraints of the existing facilities at the airports, and certainly enable us to grow.

Demand forecast will be enhanced greatly. With a couple of our accounts we said, 'Look, we know your demand in key cities well enough that you don't need to call and make a reservation. We can forecast how many cars you'll need on a given day, and we have the capacity to handle that.' That's a cost savings on both sides, and I think we'll have more demand to do that. We're encouraged by a lot of things we'll be able to do.

BTN: Will the system be global?

Lobeck: Yes, the whole United States gets on the system before the end of this quarter. The global aspect is 24 months away.

BTN: And it will enhance your database of customer information?

Lobeck: Yes, or keep a lot better track of it. As of today, we've got customer information in 40 databases. The new system incorporates all the data into one database, which gives us incredibly expanded flexibility and the ability to do things we've never done before.

BTN: Such as?

Lobeck: Some of the real buttons and whistles will come out the first or second quarter of next year. Right now we're training 5,400 people on an entirely new system--740,000 man-hours of training since June. It's a Herculean undertaking.

BTN: Will Odyssey result in any enhancements to Emerald Aisle, National's express rental program?

Lobeck: It brings us a much enhanced and quicker rental and return process. Our thrust is going to be getting the customer in and out of the facility quicker and more efficiently than ever before.

BTN: As you noted, space is getting tight at major airports. Do you think shared ground transportation facilities among car-rental companies and sharing common airport buses are desirable?

Lobeck: The industry has accepted that in some places but rejected it in others. We don't object to it in most places. But if we had a facility that was two minutes from the terminal and the competition had a facility that was 15 minutes from the terminal and the bus went to them first, that would be a disservice to our customers. But at some of the major airports, like Dallas/Fort Worth, the bus drops people off 50 feet from their choice of car-rental companies. In that case common busing is not a disadvantage, it's a service because the frequency is much much greater.

BTN: To eliminate bottlenecks that were occurring at the Emerald Aisle exits on some lots, National attempted to build more exits, but at some airports the number of exits was limited by airport authorities. Is there any way around this problem?

Lobeck: The speed of Odyssey will overcome 100 percent of that. The problem was data capture, inputting and processing at the gate. If you could swipe a card and have a customer gone in three seconds, boy you could get a lot of cars out of the gate. Swipe technology is there today. One of the things that slows us down is in some states you're required to show a driver's license. Technology is helping us comply with the laws in faster ways.

BTN: Is National passing along airport concession fees to its corporate customers?

Lobeck: No.

BTN: Would you consider doing it?

Lobeck: At the end of the day, this is a very price-sensitive industry. If somebody offers to cut an account's rates from $40 to $30 and then turns around and adds an airport pass-through, while someone else offers a $40 rate and no pass-through, there's a perceived price difference. You've got to be competitive. So we end up playing me-too in a lot of cases even though it's not the thing we're most comfortable with.

BTN: A recent American Express survey found that car rental costs to corporations increased 19 percent in the first half of 1998, with much of the increase consisting of "extras," such as taxes and city surcharges. Does this concern you or your customers?

Lobeck: We don't have control over a lot of the pass-throughs. The municipalities view the surcharges they can tack onto a car rental transaction as almost free money. The car rental companies have no choice but to impose them. It's just as bad in the hotel industry. In some cities in this country, the surcharges and municipal, state and local taxes come out to 21 percent of the rate.

BTN: How much are rates increasing?

Lobeck: Roughly 3 percent. A couple of years ago people were talking about 3 to 5 percent, but I don't subscribe to that.

BTN: You see the increases continuing?

Lobeck: Right. We still have significant cost pressures. The cost of cars is going up.

BTN: Is pressure from shareholders a factor in these increases as well?

Lobeck: The biggest impact is that the automobile manufacturers got out of the car rental business in the middle of this decade, after owning them for years. Their interest was selling cars. They didn't care if the companies made a little money, a lot of money or none at all. Today, in order to get the capital to grow, you've got to be profitable. No capitalist in the world is going to invest money into an entity that is fundamentally a break-even operation. There's no incentive. So in order to grow and continue to offer the services that are demanded by the customer you've got to be profitable.

BTN: What is the future of the car rental companies' partnerships with airline frequent flyer programs?

Lobeck: Frequent flyer programs are still an important benefit to a great many commercial as well as leisure travelers. But I don't think the importance is as great as it was four years ago. High-frequency travelers have miles sitting in their accounts; they don't have time to use them. Miles are still a significant motivator and we're not going to do anything to prevent our frequent travelers from using us. But people are more into getting off the plane and on their way rather than earning mileage.

BTN: National has reduced the amount of miles earned on business rentals. Would you consider dropping out of the frequent traveler programs entirely?

Lobeck: If other people in the industry drop out, we will, but we're not going to be the leader in this.

BTN: Is National developing a direct booking link for corporate accounts that would bypass the global distribution systems?

Lobeck: Yes. It would be available to our major corporate users and they would book direct to National. Everybody is looking at this. I'm not sure that anybody has found a vehicle that they're comfortable with yet. There are products out there today that are not refined, but you can book air, car and hotel on the same screen and part of the transaction goes to the GDS and part is a direct link. I think there will be more of that available in the not-too-distant future. But today it's more than leading edge, it's bleeding edge technology, and there are still some hiccups with it.

BTN: So a year from now, National will have a direct booking product we could talk about?

Lobeck: Yes. When you look at the transformation of electronic commerce over the last couple of years, a year ago I might have said that process is three to five years away. Today I'd say it's a year or two away.

BTN: What about using National's Website as a vehicle?

Lobeck: Alamo has the best car rental Website in the industry. There's no reason that National can't get to where Alamo is. To replicate Alamo's Website for National is a high priority, which will come to the front burner as soon as Odyssey is rolled out.

BTN: Does National's Website currently have booking capabilities?

Lobeck: Yes, but through a third party. The new Website will be much faster and more informative.

BTN: Overseas, National has been attempting to establish itself as a global brand. How are you progressing with this?

Lobeck: In Europe, all the EuroDollar locations--which were purchased by National in 1997--have been rebranded and are up and running as National locations. Australia, where earlier this year National acquired Dasfleet Rentals, also is operating as National. We're continuing to look for opportunities overseas. Although that arena moves at a slightly slower pace than the domestic business, we are on schedule for what we wanted to accomplish and are continuing down that road. There will be Emerald Aisle service in some key international cities in 1999. We have the service at Heathrow now, although it's a start-up situation. Offering a choice of cars is not feasible right now, but we will get there.

BTN: What are your plans for Alamo?

Lobeck: Alamo has always been a price-sensitive company. Over the last six or eight months we've spent a great deal of time on what customers expect from the service and what we can deliver. The company has been repositioned to offer greater value to leisure as well as business travelers. The business traveler who does business with Alamo is a price-sensitive traveler. We're going to improve service to those people, who are not necessarily interested in the so-called buttons and whistles that the majors provide.

BTN: Earlier this year, Alamo's True Blue frequent renter program was discontinued. Any plans to replace it?

Lobeck: No. The difference between the frequent Alamo traveler and the frequent National business traveler is significant. Alamo customers don't rent as frequently. They'd rather have good value than some of the amenities that come with a National, Hertz or Avis brand.

BTN: What about your strategy for Alamo overseas?

Lobeck: We will be announcing shortly a couple of new overseas locations. Alamo is going to continue to expand to those destinations that are leisure oriented. The chances of seeing an Alamo location in the south of Spain are substantially greater than in the north of Germany.

BTN: Are there any benefits to a corporation that uses National as its primary vendor and Alamo as its back-up supplier, since both companies have the same owner?

Lobeck: Not yet, but when the technology is right, yes. A similar product to Odyssey will be rolled out at Alamo in 1999, and there'll be links between the two products, which could result in synergies between the two companies. For example, there might be a leisure product from Alamo available to the corporate business traveler who rents from National eight or 10 times a year.

BTN: Are you exploring the possible synergies with Republic's used-car sales business?

Lobeck: The operations are fairly separate, but there are some synergies: Virtually 100 percent of our fleet comes through our dealerships and that helps us. In the future, the automation of the used-car side will probably play a more important role. Our long-term view is that the percentage of repurchase cars will drop as manufacturers get out of that business. As that happens, Republic gives us the largest and most efficient used-car disposal network in this nation.

BTN: How does business look in the near future?

Lobeck: I think the economy is in a lot better shape than Wall Street's reactions lately. Advanced bookings look good.

BTN: What are the main challenges for the industry in the next couple of years?

Lobeck: One continuing challenge is to increase the level of service with the space constraints at the airports. Also, this industry still is dealing with global consolidation. At the end of this decade there probably will be fewer car rental companies than there are today, as there will be fewer airlines and fewer hotel companies. Once you reach a certain capacity and level, the efficiencies of getting bigger are pretty darned significant, and that's going to be attractive.

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