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Dollar Thrifty Automotive Group, Inc. Business Information, Profile, and History

rental car company dtag

5330 East 31st Street
Tulsa, Oklahoma 74135
U.S.A.

Company Perspectives:

Dollar Thrifty Automotive Group, Inc. strives to offer the best personal service and value-priced rental vehicles to a wide variety of leisure and cost-conscious customers at major and suburban airports as well as at local market locations. The company strives to increase revenues and improve profitability by strengthening its value-priced brands.

History of Dollar Thrifty Automotive Group, Inc.

Dollar Thrifty Automotive Group, Inc. (DTAG), formerly known as Pentastar Transportation Group, Inc., a Chrysler Corporation subsidiary, owns two separate vehicle-rental companies, Dollar Rent A Car Systems, Inc. (Dollar) and Thrifty Rent-A-Car System, Inc. (Thrifty). These two companies function as separate vehicle-rental systems and also license independent franchisees to rent cars under the Dollar and Thrifty brand names. The businesses of Dollar and Thrifty complement each other but differ in their approach to the vehicle-rental market. Dollar and its licensees have suburban locations and on-airport locations at most major airports across the nation; their main focus is serving the leisure and international tour business. Dollar has more than 370 worldwide locations in 26 countries, including more than 230 locations in the United States. It is also significantly present in Australia, Canada, the Caribbean region, and Latin America. Through its alliance with Europcar International Corporation, Limited, one of the major European car-rental groups, Dollar offers services in 96 additional countries in Europe, the Middle East, Africa, and the Asia-Pacific regions. Thrifty, the only car-rental company with a franchising focus, derives its revenues primarily from franchising fees in both local markets and airports; it is a leading leaser of rental vehicles in North America. Thrifty offers its franchisees a full line of services and products not easily or cost-effectively available from other sources. Thrifty operates in 63 countries and territories in nearly 1,200 locations throughout the Americas, Africa, Europe, the Middle East, and the Caribbean and Asia-Pacific regions. The Dollar and Thrifty brands represent a value-priced rental vehicle meant to appeal to a cost-conscious, value-sensitive market: leisure and discretionary customers (who typically are spending their own money), domestic and foreign tourists, small businesses, and independent business travelers. DTAG's two subsidiaries administer a combined fleet of approximately 100,000 vehicles.

Background: 1989-97

During the 1980s and early 1990s Detroit's Big Three automakers--Ford Motor Company, General Motors Corporation, and Chrysler Corporation--raced into diversification to prop up meager income from flat sales of cars. According to Dave Phillips's story in the April 14, 1996 issue of the Detroit News, the automakers soon built and sold almost everything. For instance, a Chrysler marine division made boats and outboard motors; General Motors manufactured earth-moving equipment; and Ford produced lawn and garden tractor equipment. The automakers' varied assets ranged from ownership of a data processing company and a credit card company to missile launchers, software developers, and car-rental companies.

Automakers initially acquired rental-car companies because they were a substantial portion of fleet sales, gave added exposure to some car models, kept the manufacturers' assembly plants running during times of slow car sales, and were a convenient place to unload cars that did not sell. In 1989 Chrysler formed the Pentastar Transportation Group, Inc. to operate its rental-car subsidiaries, which included General Rent-a-Car and Snappy Car Rental, Inc. Then Chrysler strengthened its stake in the car-rental business with the purchase of Thrifty Rent-A-Car System, Inc. in 1989 and of Dollar Rent A Car Systems, Inc. in 1990.

Automakers soon discovered, however, that side businesses occasionally provided new automotive technologies and often improved the bottom line but they also diverted management's time and attention away from the main business of focusing solely on cars and trucks. Consequently, during the latter part of the 1990s, shareholder pressure, booming stock prices, and a desperate need for capital to expand overseas prompted Detroit's Big Three auto manufacturers to sell their noncore businesses, including their car-rental companies. General Motors sold its interest in National Car Rental in 1995 and divested itself of Avis in 1997. When Ford sold its interest in Budget Rent a Car in 1997 to a group of franchise holders and kept only a minor stake in the Hertz Corporation, Chrysler became the last of the Big Three to own car-rental companies.

In 1993 Chrysler merged the operations of its General Rent-a-Car subsidiary into those of Dollar and in 1994 sold Snappy Car Rental, Inc. Unable to find a buyer for Thrifty and Dollar as separate entities, Chrysler reorganized the two car-rental companies into the Dollar Thrifty Automotive Group, Inc. (DTAG), a wholly owned subsidiary of Pentastar Transportation Group, Inc. (itself a wholly owned subsidiary of Chrysler). Pentastar then was merged into DTAG, which became the surviving subsidiary corporation. In November 1997 Chrysler announced that DTAG had filed with the U.S. Securities and Exchange Commission to offer its common stock. On December 23, 1997 DTAG completed its initial public offering (IPO). The company was traded on the New York Stock Exchange under the ticker symbol DTG.

DTAG Business Strategy: 1997

Data from publicly held U.S. car-rental companies and DTAG's experience indicated that until 1995 their industry had not kept pace with rising fleet costs. Furthermore, several of the domestic automotive manufacturers of the major U.S. vehicle-rental companies had been sold and were now publicly held. These changes in ownership led to higher car-rental rates, as a result of increased industry focus on profitability and shareholder returns rather than on transaction volume and market share. How would DTAG succeed as a company? It developed and began to implement a six-point strategy to increase revenues and improve profitability by strengthening its value-priced brands.

First, to capitalize on the changing industry dynamics described above, DTAG identified the benefits that would accrue to smaller independent and regional rental operators that became franchisees of national brands, such as those of Dollar or Thrifty. These benefits included better access to vehicle supply, more attractive financing, national marketing programs, and new technology. Second, DTAG expanded the market niches already established by the national brands of its two subsidiaries, Dollar and Thrifty. Third, DTAG took advantage of the operating efficiencies resulting from its joint ownership of Dollar and Thrifty; namely, volume discounts for advertising, insurance, and information systems as well as the consolidation of some administrative functions and the sharing of facilities. Additional benefits resulted from the coordinated disposal of used cars, the transfer of vehicles between fleets to adjust to variations in regional demands, the development of joint training programs, and the referral of overflow customers from one system to the other.

Fourth, joint investments in strategic information and reservation systems enabled Dollar to introduce, and Thrifty to improve, customer-frequency and loyalty programs. Fifth, international operations were expanded by having Dollar and Thrifty accept rental reservations for each other in their respective geographical areas. In addition, both Dollar and Thrifty licensed foreign vehicle-rental companies as master franchisees for specific countries or regions. Sixth, to develop opportunities for business expansion into related areas, DTAG applied its experience in fleet leasing and management, used car disposal, and franchising. The company entered into joint ventures with new car dealer groups and used its existing telecommunications capacity to provide telemarketing services. Seventh, DTAG encouraged growth by linking incentive compensation to operating performance. DTAG implemented its business strategy through its two subsidiaries, Dollar and Thrifty.

Dollar Rent A Car Systems, Inc.: 1965-97

Dollar was incorporated in 1965 in Los Angeles, was acquired by Chrysler in 1990, moved its executive offices to Tulsa, Oklahoma in August 1994, and became part of DTAG in 1997. Focusing mainly on the leisure market and on tour operators, in 1997 Dollar had an average fleet of some 61,336 vehicles, compared with an average fleet of 52,571 cars in 1995. About 76 percent of Dollar's 1997 rental revenues came from operations in Florida, California, Hawaii, and Nevada. The company also provided a high level of service to foreign-tour operators, especially those in the United Kingdom. Dollar realized significant income from rentals to tour customers because they reserved vehicles for longer periods and canceled reservations less frequently. The many tourist attractions of central Florida made this area the most important leisure destination for rentals. Dollar operated a company-owned store at Orlando International Airport and a facility at the Orlando Sanford International Airport, located 25 miles north of Orlando. This facility, designed to serve mainly charter flights and to handle tour customers, had 42 rental stations and parking for approximately 1,600 vehicles.

Dollar's line of services and products included fleet leasing, centralized reservations, insurance, supplies (such as ski racks, mobile telephones, baby seats), and operational support. At year-end 1997 Dollar's vehicle rental system included 255 U.S. and Canadian locations consisting of 103 company-owned stores and 152 franchised stores. Dollar's total 1997 revenue was $617.53 million (of which 91 percent came from company-owned stores), compared with $499.17 million in 1996. Vehicle rentals by customers of foreign and domestic tour operators generated approximately 35 percent of these rental revenues. In 1997 Dollar was the exclusive U.S. car-rental company for three of its five largest tour-operator accounts.

To determine rental demand based on historical reservation patterns and adjust its rental rates accordingly, Dollar had an agreement with The SABRE Group, Inc. (SABRE), a leader in electronic-distribution systems for the travel industry. SABRE managed and monitored Dollar's data center network and its daily information processing. All of Dollar's key systems were housed in an Oklahoma underground SABRE facility designed to withstand disasters.

In December 1997 Dollar inked an alliance with Europcar International, one of the major European car-rental groups, to allow rental locations in the United States and in Europe to use both names, that is, that of Dollar Rent A Car and that of Europcar. In addition, Europcar agreed to reserve Dollar vehicles for its customers travelling to the United States, Canada, and Latin America. Dollar had operated under the name of EuroDollar in Europe, Africa, and the Middle East; however, the alliance with Europcar, effective February 1, 1998, ended the EuroDollar relationship and enabled travelers wanting to reserve rental cars in these countries to contact Dollar for Europcar rentals.

Thrifty Rent-A-Car System, Inc.: 1958-97

Thrifty (in this section, also referred to as the company) was founded in 1958 and in 1989 completed an IPO of common stock. Chrysler acquired Thrifty in 1991 and divested it as part of an IPO completed by DTAG. In contrast to major competitors who focused almost exclusively on the airport market, Thrifty concentrated on offering franchising and franchise-support services but it operated some company-owned stores in a few U.S. and Canadian cities. Typically, Thrifty established company-owned stores only upon the financial failure of a franchisee.

The company's approach to serving both the airport and the local markets within each territory enabled many of its franchisees and company-owned stores to have multiple locations: fleet utilization and profit margins could thereby be improved by moving vehicles among locations for better administration of differences in demand among their markets. As of year-end 1997, Thrifty's car-rental system comprised 636 U.S. and Canadian rental locations, of which 600 were franchised locations and 36 were company-owned stores. The Thrifty system also included 359 franchised locations in 63 other countries. In 1997 the company's total revenue reached $225.25 million, compared with $204.94 in 1996.

In addition to its U.S. suburban locations, Thrifty maintained a relationship with Montgomery Ward and operated rental facilities in many of the retailer's Auto Express Centers. In Canada, Thrifty had a similar relationship with Canadian Tire Corporation, Limited, a nationwide retail chain selling automotive products, sporting goods, home and garden hardware, and plumbing supplies. Thrifty Truck Rental and Ryder Consumer Truck Rental formed a North American alliance to recruit Ryder dealers as Thrifty franchise owners and vice-versa. Thrifty also functioned as the official car-rental company of the Black Coaches Association, an organization of minority basketball and football coaches, and of the United States Figure Skating Association, the national governing body for figure skating. This agreement expanded both companies' core services, access to new customers, and opportunities for location growth.

Although Thrifty operated company-owned stores in a few U.S. and Canadian cities, its main focus was on franchising and franchise-support services. In fact, franchises were essential to its profitability and growth. For example, franchisees paid Thrifty an initial franchise fee based on such factors as population, number of airline passengers, total airport vehicle-rental revenues, and level of any other car-rental activity in the franchised territory. During the past few years, the company's average annual turnover rate for franchisees was approximately ten percent, with an average of 17 terminations and 25 new sales. For 1997, Thrifty's five largest U.S. franchisees generated administrative, fleet-leasing, reservation, and other fees that accounted for about 18 percent of Thrifty's total revenue. Fleet also offered franchisees a fleet-leasing program that provided them with a competitive and flexible source of fleet vehicles. For 1997, fleet-leasing fees accounted for about 58 percent of Thrifty's total revenue. Approximately 70 percent of Thrifty's revenue came from its franchises.

Thrifty's franchisees benefited from the company's continuously staffed worldwide reservation center headquartered in Tulsa, Oklahoma. In 1997 that center processed more than 4.4 million telephone calls and 1.6 million reservations. The center was linked to all of the major U.S. airline reservation systems and, through them, to worldwide travel agencies. Like Dollar, its companion subsidiary, Thrifty engaged SABRE to manage and monitor its data center network and daily information processing. The company also negotiated national account programs to allow its franchisees to take advantage of volume discounts for materials and services, such as tires, glass replacement, long distance telephone service, and overnight mail. Thrifty helped new franchisees to develop revenue opportunities, such as airport parking, used car sales, and truck rentals. Thrifty locations across the United States offer customers access to more than 14,000 airport parking spaces.

DTAG: 1997 and Beyond

At year-end 1997, DTAG total revenue peaked at $843.94 million, an increase of 20 percent over 1996 total revenue of $705.59 million in 1996. Without sacrificing the separate operating and brand identities of Dollar and Thrifty, DTAG planned to continue making investments in reservation, tour, and other information system improvements during 1998.

In only a few years the $16.4 billion rental-car business had changed a great deal. "The big automakers, which owned the rental companies, realized that their subsidiaries made ideal captive customers for cars they couldn't sell, and they dumped vehicles on them. With so much excess inventory, the rental companies launched into a bloody round of competitive price cutting. Losses rocketed, reaching an estimated $150 million in 1995," wrote reporter Alex Taylor III in the May 25, 1998 issue of Fortune magazine. The automakers were also losers; the rental fleets on used car lots stole new car sales. The Detroit Big Three, among others, sold their car-rental companies, which became independent public companies who could no longer depend on subsidies and "remodeled their businesses along the lines of airlines and hotels by using yield management," Taylor commented.

In short, whereas between 1986 and 1996, car-rental companies had focused mainly on market share, they were now independent public companies that had to assure profits for their shareholders. DTAG, therefore, faced a formidable challenge: not only that of increasing the revenues and improving the profitability of Dollar and Thrifty, whose loss of consolidated net income had gone from $40.48 million in 1993 to $146.28 million in 1996, but also that of keeping their individual identities. Analyzing DTAG's performance during its first year as a public company, one can say that DTAG was ready to drive into the 21st century at a steady, profitable rate.

Principal Subsidiaries: Dollar Rent A Car Systems, Inc.; Thrifty Canada, Ltd.; Thrifty Rent-A-Car System, Inc.

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