8 Questions on the Dollar Thrifty and Hertz Merger
The devil is in the details, especially as it relates to Dollar and Thrifty licensees.
August 30, 2012
Now that the Hertz acquisition of Dollar Thrifty has been announced, the process of integration begins. How will all this affect Dollar and Thrifty licensees? Here are some thoughts on the matter, with input from some Dollar and Thrifty licensees themselves.
With a new corporate owner, could there be newfound competition between Dollar and Thrifty licensees and corporate stores in certain markets?
Those that remember the Avis acquisition of Agency Rent A Car, and then the continued fallout through the Budget merger, would be the first to ask such a question. The question becomes more pointed for markets in which a Dollar or Thrifty corporate store competes with a franchise location, such as in Seattle, Portland, Nashville and Boston.
Unlike those previous cases, the acquisition does not encroach on licensees’ territorial agreements, and the Hertz corporate-slash-premium customer does not compete with the majority of the Dollar and Thrifty leisure customer base, at least not enough to make waves.
On a brand level, Hertz has signaled its intent to move Dollar into the leisure brand category to compete with Budget and Alamo, while positioning Thrifty against the likes of Fox, Payless and Advantage. Thrifty’s newfound identity may work to licensees’ advantage — with separate identities, there would be less overlap of audience.
Chris Turner of Thrifty in Nashville thinks so. “We already compete with our sister company,” said Turner, referring to the corporate-owned Dollar store also serving Nashville’s airport. “Maybe that will be better in the future.”
What will happen to rental rates?
As a consumer, if you were told that three companies would control 95% of the hotels in America, you’d be concerned that hotel rates would go up. Such is the way the public is viewing car rental rates as a result of this merger.
This isn’t these licensees’ viewpoint. “[The merger] won’t have a real impact on the rates,” said Monty Merrill, a San Antonio-based Dollar and Thrifty licensee. “As we’ve seen consolidation in the industry, I haven’t seen any direct correlation with [a rate increase].”
“We don’t see this changing rates a lot,” said Brad Meyer, owner of Thrifty in Indianapolis. “Renting a car is still one of the best values in America. It’s crazy what you can rent a car for.”
In theory, Dollar and Thrifty’s separation of identities would also separate rates. But on a market-to-market basis, there are still many larger factors at play, such as vehicle supply, how much those vehicles cost and the used car market.
What back-office integration might cause pain?
These Dollar and Thrifty licensees don’t foresee any back-office integration issues in a general sense.
One issue could be the different operating systems and whether Hertz would ask to integrate its proprietary software with the licensees’. It is too early to tell if this will happen. Leaving well enough alone is just fine, Turner said, though he would welcome the ability to use his software to share fleet and better manage vehicle drops.
However, Dollar and Thrifty licensees do enjoy a strong working relationship with corporate through their licensee body. This is especially true on rate management, in which licensees work closely with corporate to set rates based on local market conditions and macro forces. “If they said we have to replace [the rate management team] in 30 days, that would be a very difficult transition,” Merrill said.
Could licensees take part in Hertz’s buying power?
Hertz has allowed its licensees in on good fleet purchasing deals before. Licensees can only hope this is part of the plan. As well, licensees do not expect to take part in Hertz’s financing at this point.
Could licensees see any benefit on the remarketing end?
Dollar and Thrifty licensees operate as separate entities when it comes to selling used fleet vehicles. This likely won’t change much under new ownership, though for licensees selling at auction, one result could be better auction fees if they are allowed to sell under the Hertz umbrella.
Where are the franchise opportunities?
While buying up franchises was all the rage a few years ago — especially around the time of the Enterprise acquisition of National and Alamo — today, Hertz’s mindset is that franchise business is good business. That shouldn’t change.
At this point, we do know that Franchise Services North America and Macquarie Capital, the companies that will buy Advantage, would take over some Thrifty corporate locations as new Advantage locations. (You can read more on this transaction here.)
On the conference call announcing the merger, Frissora was vague, but positive on franchising: “Yes it (the merger) does help us, in terms of the way we think about franchising and our ability to talk about a franchise model to multiple business parties. It does nothing but enhance our efforts in that area.”
Hertz may be opening the door for a new licensee — an outsider — to come in and convert some corporate Hertz on-airport locations. We’ll see what comes to pass. But will existing franchisees have an opportunity to buy any locations Hertz needs or wants to sell? Right now, the answer is unclear.
(Update: Hertz has begun its franchising initiative by signing a franchise agreement with Penske. Click here for details.)
Could we actually see a Dollar or Thrifty television ad soon?
Dollar Thrifty Automotive Group doesn’t spend a lot on marketing, and in the past 10 years, nothing on television ads. Some licensees see the new corporate ownership as an opportunity to build some brand identity for both Dollar and Thrifty that has been lacking.
What’s the overall mood post-merger announcement?
The mood is upbeat. Turner saw Hertz’s brand identity as a positive. Merrill is excited, especially if there are opportunities to buy stores, though he wondered what the next 60 days will bring. There are unknowns yet to sift through and not a lot of firm answers yet.
And as the unknown always comes with change, good or bad, it is a time for pause.
Meyer wondered about the friends he’s made at Dollar Thrifty corporate over the last 20 years. “I don’t know what their futures are,” he said. “It’ll be sad if those relationships go away, but everything changes. It’s a new chapter. There’s excitement and all the other emotions that go with it.”
Author: Chris Brown | Posted @ Thursday, August 30, 2012 12:00 AM