Enterprise

Rent-a-Car

Kimberly Swan
Lou Marino
The Universiy
The Univemiiy o[ Alabama
o[ Atabama
R. Glenn Richey
The University o[ Alabama
principles. The company received numerous awards

hen Jack Taylor founded the Executive
for customer satisfaction
and for being one of the
Leasing Company in St. Louis in 1957,
best employers. As a tribute
to the companys cus-
based his business model on a very
tomer service, in November 2006 J. D. Power named

simple concept: Take care of your
customers and
auto rental company with the high-
employees)rsi, and growth and profits will follow.'

Enterprise the
est customer satisfaction, a distinction the company

simple philosophy was imprinted
across the
This
eight years.
company and became the foundation for the compa-

had achieved for seven of the previous

Enterprise
In February 2007, Media Metrix ranked

nys strategic operations. Over the next 50 years, the

2006
grew to as the leading auto rental company in its
company, renamed Enterprise Rent-a-Car,
Hospitality Awards, a distinction it had achieved
17
the largest and most prosperous auto rental
become
out of a total 18 times. The company
was similarly
in America, achieving approximately $9
company
its employees
its multinational opemtions.
In 2007, recognized for the way it treated
billion from
recognized in 2006 by Business lFeek

as the
leading auto rental company in being
Enterprise was the
in which to start a career, and in

more than 6,900 local mar- fiffh best company
North America, with
2003, 2004, and 2006 as one of the 50 best employ-

locations and more than
ket and on-airport rental
Canada. The Princeton Review additionally

878,000 rental and fleet service vehicles. The com-

ers in
pany operated through an extensive network of local
neighborhood offices, each powered by small, highly
entrepreneurial teams that had a high level of auton-
omy. Enterprises network consisted of offices in the
United States, Canada, the United Kingdom, Ireland,
and Germany, where they handled tens of millions of

Enterprise as one of the best entry-level em-
rated
ployers for college graduates and as the largest col-

lege recruiter in the United States.
companys outstanding perform- Despite the
rankings, Enterprises chairman and
ance and top
officer, Andrew Taylor, remained
chief executive
constructively paranoid about his rivals. He was

annually. Eventually
the company had
transactions
committed to continued growth to remain on top of

a domestic saturation rate in the United
achieved
the auto rental industry.' In early 2007, several de-
States that put an Enterprise location within

15 miles
velopments in the auto rental industry indicated that

Of 90 percent of the U.S. population.
Taylors concems for the activities of his rivals were

of the auto rental indus- In its drive to the top
justified. These developments included

a possible
true to Taylors founding
try, Enterprise remained
between Dollar Thnfty Automotive Group
merger
(owner of Dollar and Thrifty auto rental companies)

2007 by Lou Marino and R. Glenn Richey. All

rights
Copyright
reserved.
Vanguard Car Rental (owner of National and
and
C-323














Milestones
4 Enterprise Rem-a-Car h:hibit
-BI
P*

1F&t O
tha 0.OOO
gj
ffices
6oo,ooo renta
Fleet Services
First
lnternationa
office open
VVindsor,
Canada; over
FBTTtBl OCQtioT
Expands
bevond
St. Louis
uner the
Enterprise
name
Jack Tav!
founds
Executive

added io
Denver
International
Airport; more
than S2B in
ra
hes5OO
Leasing
Company in
St. Louis
|ocatons and
over5O,OOO
vehicles
b
2OO,OOO rental
and
vehicles and
vehicles
1,BOO locations
1B9S
1957
Over S1B in
annual
revenues,
leasing
sion
becomes
Enterprise
Fleet
Service
Pursues
growth in the
hometovvn
segment,
avoiding the
highly
competitive
on-airport
market
National
Reservation
First
Adds
rental car
E

opened
inR8edine.
England
Center is
opened;
Fleet
reaches t
Sales
d 6,OOO
vehicles
di on
_ (accessed March 3, 2007).



Seattle, Las Vegas, New York City, Orlando, Atlanta,

and Washington, D.C.
Enterprise Rent-a-Truck was Enter-
a second policyworry-free
ownership.
developed
Each Enterprise vehicle passed a 109-point inspec-
tion conducted by an ASE-certified
technician and
carne with a seven-day repurchase agreement. Dur-
1999, the division
puses newest division. Opened in
ing this time, customers could return the vehicle for

served businesses with replacement or supplemental
reason, no questions asked. Enterprise also of- any
transportation needs. As of 2006, Enterprise Rent-
limited power
fered buyers a 12-mouth/l2,000-mite
a-Truck had 105 locations throughout 23
states.
train warranty and one year of roadside assistance.
Enterprises climb had made it the largest buyer

were available for daily, weekly, or monthly Trucks
rentals and included three-quarter- to one-ton
pick-
of cars in the world (in fiscal year 2006, the com-
i ps, cargo vans, box trucks, and stake bed trucks, all

specifically equipped. fr. commercial use. Similar to

pany purchased more than 800,00 vehicles), giving
the company strong buying power over suppliers.

the consumer auto rental business, customer service
offered consoli-
Used Car Sales was one of the largest
Enterprise
was top priority and the company
Sllers ofcertified used vehicles.in-the United States.

dated and customized illing, special delivery,
and
solil around 775,000 During fiscal 2005, Enterprise
24-hour roadside assistoilce.
which
across
cars through its referral auto sales division,
The first Enterprise operated more than 175 auto sales locations iteniiona/ Op rioiis
the United States. Enterprise offered customers one
States opened in Windsor, office outside the Unitc
of the industrys most diverse, continually
revolv- 5. In 2007, En-
Canada, in 1993, as seen in Exhibit
ing inventories and had been aivarded a 97 percent
terprise had more than 900 international branches
customer satisfaction rating two years
in a row. The
with more than 7,000 employees. In 2006, Enterprise

division created value-added parttierships with na-
generated a record $819 million in revenue outside
tional and local financial institutions, such as credit
the United States, representing a 13 percent increase
unions, that provided members
high-quality used vehicles.
with easy access to
in its international business. Each international office

operated with the same coinmitment to the commu-

nity as the U.S. locations. The
offices hired locally,
Vanool Services Founded in 1994,
California
provided comprehensive bought cars locally,.. and
Rideshare was headquartered in Orange Enterprise
service to the neighborhood markels they served.
County, California, and specialized in providing van-

Enterprises international focus was also primarily
carpool commuter services to individuals
pool and
marIet, providing temporary re- on the off-airport
Southern and companies throughout Northern and
corporate travel vi:hicles, and fleet placement cars,
operated over 700 California. In 2007, Enterprise
transportation
management to firms with temporary
vehicles and transported more than 7,000 commut-
needs and serving local dealerships and service shops
for loaner purposes."
ers daily. Enterprises pricing varied according to the

Size of the van, the round-trip distance, and the type
of equipment in the van. The average cost per rider

WS $75$125/month. Enterprises California Van-
and Values Mission
pool Services competed with Midway
which operated in several metropolitan
Ride Share,
areas includ- When Jack Taylor founded Enterprise, he clearly ar-
ticulated his business philosophy: San Francisco, Los Angeles, Chicago, ing Houston,
Enterprise Rent-a-Car lnternaonal Operations
E:x:hibit 5
More than 380 branch offices including several airport locations
More than 300 branch offices including locations at Heathrow
and Gatwick airports
More than 150 branch offices
More than 20 branch offices
Canada (opened in 1993)
United Kingdom (opened in 1997)
Germany (opened in 1997)
lreland (opened in 1998)
(accessed February 20, 2007). r !
Company Web site











mids, with managers at any given leve

over 8,000 new graduates and had a new-hire reten-

centage ofall that was made below them.

tion rate ranging from 50 to 70 percent.

While Enterprise
encouraged an entrepreneurial
spirit among its employees, the company still enforced
some corporate control over branch operations to en-

system often resulted in em-

The compensation
ployees being willing to work more than the compa-

Some workers
overtime pay.
workweek.
nys 49fi-hour maximum

had sued, claiming that they deserved
corporate goals.
and to implement
sure consistency
However, for those employees who made it into the

to be in
were required
staff members
For example,
managerial
ranks, the compensation
could be signifi-
cant. The vast majority of Enterprises top managers

business dress and Enterprise closely monitored pric-

custom- most valuable the firms
ing to ensure that

in a branch, and at

had started their careers working
were
that their rivals
ers. insurers, did not complain

managers could
the upper echelons
of the company

Additionally,
the sense
prices. better rental
getting
a year through the compa-

of dollars
earn millions
in its em-
sought to instill
Enterprise
of ownership
system.
compensation
nys hierarchical
ployees could lead them to become very vocal when

started to
by headquarters
costs imposed overhead
Information
Technology

cut into branch profits or when strategic change man-
dated from corporate cut personal eamings.

Rental Management
Enterprise
used the Automated

1980s, when Jack Taylor thought
the firm

In the
linked
system that
a proprietary
the field System (ARMS),
television,
advertise on national
needed
aryued
to
using simple desktop

all of the companys
locations
that the expense was unnecessary. Taylor still

update and send vehicle

to automatically
hired a technology
program
carne
and
with the to go ahead
decided
status reports directly to insurance
companies via the

the
the
up with
agency
that
New Yorkbased
Internet. Enterprise
had grown by focusing on insur-

paper.. While
vvrapped in brown
Enterprise
campaign
auto
auto repair shops,

close collaborators,
ers and their
branch maagers
was .successful,
some
and currently received one-third
of its total revenue,

that it only served to make fums such as

complained
around $3 (billion) from U.S. insurers. Enterprise was

Hertz aware that Enterprise was a serious corn@toi.
of the biggest
for dozens
the preferred
provider
employees
im-
and even had
companies insurance
and Incentivos
Compensation
planted full-time in many of the insurers offices. The

insurers wanted alterna-

firm had gotten
so big that
striicture and incentix e

compensation
Enterprises
were keys
tive providers, which gave competitors such as Hertz
an opportunity to move in. Nevertheless,
for the past

an entrepreneurial
spirit
pronloting in
started out
new hircs
the company. All

throughout
had used the ARMS,

the insurance
industry
washing cars and earning anywhere
from $30,000 to

decade
which worked by facilitating and streamlining three-

a year and
company
$38,000. Alter being

with the
insurers, Enterprise,
communication
between
promoted to way
to be
employees
were eligible
a half,
and auto repair shops. The ARMS initiated auto rental

com- their total
manager,
where
assistant branch
monitored
repairs, and authorized
pay-

of the reservations,
included a salary plus a percentage
pensation
up
funds transfer,
speeding
through electronic
branchs profits at the end of each month. However,

ment
customer satisfac-
and increasing
the entire process if his or her
not be promoted
employee could an
tion. Over 60,000 adjusters and more than 500 world-

score was not at or above the corpo-

ESQi branchs
wide insurance companies
currently use the ARMS.
In February 2006, Enterprise
announced a stra-

rate average.
In Etlterprise
s COmpensation
system, each branch

with FIX AUTO Network, one of

tegic partnership
was treated as a profit center and the total compensa-
solution technol-
of business providers
and assistant manager

the biggest
manager
tion of each branch

reacb
expand the
the collision
industry to
profitability. to
on the branchs
ogy
largely contingent was
this agreement, Through
companys
ARMS.

that this strongly aligned

the of the
The company believed

Enterprise
planned to integrate
its ARMS with FIX

interests ofthe employees with those ofthe company.

AUTOs technology
system to create a more efficient

From this level all the way to the top of the company,
repair and rental status

collision
of streamline
individuals
salaries were tied to the performance

way to
reports for monitoring by insurance
companies.

operations
for which they were responsible.
In effect,























2004-2006
($ in millions)

First Six Months.
2006
2,701.6
2,891.1
1,496.6
Total revenues
Costs and expenses
Direct vehicle and operating costs

Selling, general, and administrative expenses
Vehicle depreciation and lease charges
Vehicle interest expense, net

Non-vehicle interest expense, net
Net (gain) loss from derivatives
Other (income) expense, net

Income before provision for income taxes

Provision for income taxes

Net Income
Selected balance sheet date
Cash and cash equivalents
Total assets
Total debt
Stockholders equity
Selected operating data
Rental revenue per day

Rental revenue per vehicle per month

Average paid fleet
Rrital days
1,215.2
487.8
595.0
162.1
41.2
2.0
(3.4)
201.7
KJ.0
$171.7
1,279.1
469.4
688.9
231.9
39.6
o- t
(1.8)
184.8
79.5
$105.3
690.8
239.9
381.5
119.9
17.8
(10.6)
2.8
54.5
15.9
$38.6
$172.6
5661.7
4,487.2
182.2
$253.9
6,547.9
5,107.7
279.0
7,101.7
5,709.2
291.2
$41.08
$990.83
236,760
68,521,486
$42.33
$1,007.93
240,885
34,416,332
63,642,013
Source: Vanguard Car Rental Group Inc.. Form S-1/A filed September 20, 2tXJ6.

the top 75 stores in
with company-owned brands
offered customers not enrolled

in the
service, which
airport markets and key leisure markets in the United

counter by
ability to bypass the
Emerald Club the
States and the top 8 airport markets in Canada under

completing their rental transactions
online.

In an effort to fund future growth and offset in-

two brands were
operated
Canada. While the
DTG
a single corporate
they shared vehicles, separately,
from automobile
and pressure
creasing fleet costs
where available,
back-
structure,
and,
management
registered for an initial
Vanguard
inanufacturers,
office employees and facilities.

August
of $300 million
in
offering (IPO) public
originally focused on
brand was
The Thrifty
IPO, rumors of a poten-

Despite the planned 2006.
franchising and franchise support services. In 2003,

tial merger between Vanguard and the Dollar Thrifty

Thriftys strategy changed and began to focus on ac-

March
in late 2006. In
began to circulate Group
company-owned and operating
quiring franchises
for a merger had
been
definitive
plans
2007 no
stores. By 2007, Thrifty was operating
approximately

scheduled for
was still
announGed
an IPO.
and Vanguard
States and Canada with

478 locations
in the United

company-owned and 207
franchise locations 271
located at
locations, 109 were
stores. Of these 478

Dollar/Thrifty
in the United
States. In 2006,
locations in-terminal
Thriftys total revenue was $616 million forthe entire

the Dollar
Group (DTG) operated

The Dollar/Thrift
year, with 80 percent ofthe revenue coming from the

as separate value
rental car companies
and Thrifty



these markets. Intemationally, both the Thrifty and airport market and the remaining 20 percent derived
from the local market.
The Dollar brand had the majority of its loca-
tions at or near airports and was primarily focused on
serving business and leisure travelers in the airport
vehicle market. In 2007, the company had 358 loca-
Dollar brands offered master franchises, generally
on a couiitrywide basis. As of December 3 l, 2006,
Thrifty had fmnchised locations in 66 countries and
Dollar had franchised locations in 51 countries. The
master franchisee in a giveii country could either op-
erate all of the locations in a given country or award
subfmnchises. Total revenues from franchise loca-
tions outside the United States and Canada in 2006
tions (200 company-owned stores and 159 franchise
locations) with 107 in-terminal airport locations. In
fiscal year 2006, Dollars total revenue at compaiiy-
osvned stores was $923 million.
In the United Sates there was some duplication
of coverage between the Dollar and Thrif ty brands.
totaled $8.2 million. The income stateinent for the
Dollar Thrifty Group is presented in Exhibit 13.
Heading into 2007, three of the primary con-
cems of the DTG included overreliance on rev-
For exainple, while Dollar operated in 55 of the top
enues from airport locations; high concentration 75 U.S. airport locations and Thnfty operated in 53,
in key leisure destinations (over 60 percent of total
both brands operated in direct competition in 47 of
Selected Income Statement Data, Dollar Thrifty
($ in millions)
Group, 2004-2006 './// /?
\7ehicle rentals
- Vehicle leasing
Fees and services
Other
Total revenues
DStS Brtd Expenses
rect vehicle and operating
Vehicle depreciation and lease charges, net
Selling, general and administrative
.lnterest expense, net of interest income of $29,387, $18,388 and 56,929
Total costs and expenses
acrease) decrease in fair value of derivatives
frjicome before income taxes
ktsome tax expense
k9come before cumulative effect of a change in accounting principle
UlTlUlttiV ffect of a change in accounting principle
Net income
Basic Earnlngs Per Share
Income before cumulative effect of a change in accounting principle
CUfTlUl6ltive effect of a change in accounting principle
Net income
Dlluted Eernlngs Per Share
IftCOlTle before cumulative effect of a change in
accounting principle
CUlTlUlative effect of a change in accounting principle
Net income
$1,539
57
47
18
1,661
$1,380
63
50
15

1,508
$1,256
80
54
13

1,403
827
380
260
96
1,563


9
788
295
236
88
1,407
30
131
693
316
91
1,323
24
104
42
62
4
89
37
52

$52
77

$77 $66
$2.14

$3.04

$3.04
$2.51

0.15
$2.66
$2.14
2.39 2.04

$2.04
0.14
$2.53 $2.89
223








threat to Enterprise. Through consolidation, however,

Hawaii, Cali-
derived from Florida,
revenue was
company
they would be the third
largest auto rental
fornia, and Nevada); and increased pressure from ve-

in the United States. A second challenge was that in
response to Enterprises significant growth in the on-

In response to these pressures,

hicle manufacturers.
a merger with Vanguard.
the DTG was exploring
Hertz had made concerted efforts to
airport niarket,
DTG management
perceived that the two companies

expand into Enterprises lucrative off-airport market.

operations and that administra-

had complementary
While Enterprise had a big market-share edge in the
off-airport market segment and was the leader in this
segment by a tony margin, Hertz grew its off-airport
since both compa-
tion could be easily rationalized

nies were headquartered in Tulsa, Oklahoma.

and 2005.
46 percent between 2004
revenue by
Additionally,
increase
and Budget planned to Avis
by 20 percent annually.
their off-airport locations
svorking to break Enter-
Finally, Hertz was actively
RENT--6AR
Iii early 2007, there were several challenges eiuerging

prises hold on renting vehicles to people whose car in-
surance paid for car rental charges while their vehicles

it had been
repaired due to an accident; were being
making some progress with major insurance carriers,
including State Farm. In response to these challenges,

caused Enterprise
concern. The
on the horizon that
potential DTG/Vanguard
merger
first was that the
CEOAndy Taylor stated: We own the high ground iii
this business, and we arent going to gix e it up'"'

face of the industry. Separately,
could change the
represented a significant
neither of these companies
Endnotes
Loomis, The Big Surprise ls Enterprise."
'Company press relaase, January 2, 2006.

"Chad W. Autry, Patcia J. Daugherty, and R. Glenn Richey.

the Challenge of Reverso Logistics: Electronico Catalog Retailing"
international Journal of Physical Distribution and Logistics
Managament 3 , no. 1 (2001), pp. 26-37.

(accessed February 27, 2007).
Rediscovering Customer Satisfaction,"

.... . , (accessed February 21,


_ . ,'.
Brs/ress fforzons 46, no. 5 (September/october 2003), p. 3.
'lbid.
'lbid.
20, 2007).
Loomis, de Big Surprise ls Enterpsej p. 142.
Enterprise Rent-a-Car Company Web site,

'Loomis, Vhe Big Surpse ls Enterprise," p. 142.
'lbid.
(accessed February 20, 2007).

Enterpse Rent-a-Car Career Web site.


February 20, 2007).









Assignment Questions
1. What are the key elements of Enterprises strategy? Which of the five generic strategies is the
company employing?
What has Enterprises management done to implement and execute the strategy? What
policies, practices, support systems, and management approaches underlie Enterprises
strategy execution efforts?
2.

3. What is your assessment of Enterprises culture and the role it plays in the companys
success? What impact did Jack Taylor, the founder of Enterprise, have on the companys
culture? How important is the Cultural Compass displayed in Case Exhibit 7? What are the
chief elements and characteristics of the companys culture?
How well is Enterprise performing as compared to its key rivals? Which of the rivals is in the
best strategic and financial position? You should consider using the financial ratios presented
in Table 4.1 of Chapter 4 to guide your calculations and reach conclusions about the caliber
of the financial performance of Enterprises competitors.
What accounts for Enterprises success over the past 20 years? Is it a great strategy, superb
strategy implementation and execution, great leadership, or uncommonly good luck?
Based on the categorizations presented in Chapter 8 of the text, what type of industry
environment does Enterprise compete in? Which stage of the industry life cycle best
describes the current state of the automobile rental industry? Which market position (industry
leader, runner-up, etc.) best describes Enterprises position? What are the strategic
implications of this industry type and market position?
How significant is the threat posed by the proposed merger between the Dollar Thrifty Auto
Group and Vanguard Car Rental? What are the implications of this potential merger? How
significant is the threat posed by the expansion of Avis and Hertz into the off-airport car
rental market?
Can Enterprise continue to be successful? What issues does management need to address?
What recommendations would you make to Andy Taylor to best position Enterprise for
continued
success?
4.
5.
6.
7.
8.
9.