The Chapter 11 bankruptcy filing by Fort Lauderdale, Fla.-based ANC Rental Corp. on Nov. 13 is the most dramatic example of difficulties confronting the car rental industry in the wake of the Sept. 11 attacks. Given the company's struggles prior to the disaster, however, the move hardly comes as a surprise. And far from signaling the eventual demise of ANC's Alamo Rent-A-Car and National Car Rental brands, the encouraging consensus among corporate customers and industry observers is that the filing may well provide the breathing room needed by the troubled company to turn itself around.
"ANC's brands are strong globally," said Neil Abrams, president of Abrams Consulting International in Purchase, N.Y. "They are good systems, they just have to get their financial house in order. I believe they will survive."
To reassure ANC customers, Lawrence Ramaekers, the turnaround specialist who was hired recently as ANC president and COO, said the company had more than $100 million in cash and lender support to ensure its operations through the winter. To reduce ANC's high fixed costs, he said the company was attempting to negotiate the minimum annual guaranteed payments it owes to the airport authorities as rent for its on-airport locations.
Because the payments are tied to car rental volume levels that declined precipitously in the wake of Sept. 11, the car rental firms are forced to pay a proportionately greater chunk of their dwindling revenues toward the fees. The car rental industry has been lobbying for government assistance to help pay the levies, and the airline security bill, recently signed into law by President Bush, includes a provision—admittedly rather vague—directing the airport authorities to discuss "adjustments of the rent" with their tenants.
Thomas F. McCabe, director of global travel services at PerkinElmer Inc. in Wellesley, Mass., which has been a National customer for 20 years, said he was hopeful the Chapter 11 proceedings might provide some relief in this direction. "We think the filing does provide an opportunity for them to build in some synergies. Maybe with the bankruptcy, ANC can renegotiate with the airport authorities. It might open some doors."
He added that National's sales reps had done an excellent job of communicating the situation to PerkinElmer. "I was called the moment they filed," he said. "They explained what they did and that it was related to Sept. 11 and the declining economy." McCabe subsequently sent out a letter to his senior managers and travelers, reassuring them and noting PerkinElmer's renewed commitment to National.
The other major car rental firms—Hertz Corp., Avis Rent A Car System, Budget Group and Dollar Thrifty Automotive Group—managed to squeak through the third quarter with modest to paper-thin profits. According to the 3Q earnings statement released by its parent, Ford Motor Co., Hertz had a profit of $26 million, a drop in the bucket compared with the $143 million it made in 3Q00.
Dollar Thrifty had a net income of $6 million—an 83 percent drop from a year ago. Budget, in contrast, did surprisingly well, considering that it has lost money for the past three years. Bolstered by its local market and truck rental business, the company made $48.2 million, an improvement over the $11.3 million profit of 3Q00. Cendant, which owns Avis, reported car rental revenues of $649 million, but didn't break out the profits.
In its Chapter 11 filing, ANC noted that it had $6.48 million in total assets and $5.95 million in liabilities. It owed its leading creditor, Lehman Brothers, $203.5 million, followed by $35.67 million owed to General Motors. With 75 percent of its domestic fleet consisting of GM cars, ANC is a major customer of GM, and for that reason alone, won't be allowed to go under, said JPMorgan Chase car rental analyst Dean Gianoukos: "GM wouldn't want ANC to fail. It sells them too many cars."
With 91 percent of the company's business consisting of airport rentals, ANC has been particularly hard-hit by the falloff in airline travel. To cut costs, ANC has closed its Charlotte reservation center, which accounts for one-fourth of car rental transactions, and laid off approximately 20 percent of its work force. It has consolidated its Alamo and National field and sales management, reducing its sales regions from 12 to six—sales reps now pitch both brands—and shrunk its fleet by about 20 percent.
Ramaekers said National is reevaluating its popular refueling option, in which Emerald Aisle customers can refuel their rental cars at the National lot for market prices. However, Ramaekers said that improving and maintaining service standards was a prime initiative.
Long term, the company is considering combining the Alamo and National locations, a strategy the company has pursued in Europe. However, both brands in Europe remain separate entities. Besides allowing the two brands' separate automated systems to be more smoothly integrated, this also would save costs and improve service by, for example, enabling ANC to provide one shuttle bus at the airport for both brands, Ramaekers said.
Warning signs of the company's dire financial straits began over the summer, when the company reported a $23.6 million 2Q loss and ANC chairman and CEO Michael Egan announced the possible sale of the company. In October, Karen Beard, who was president of North America for Alamo and National, left. William Plamondon, a former president of Budget, and Ramaekers—who had successfully turned around National several years earlier—were hired to restructure the company, and ANC announced it was seeking to defer payment of a $70 million debt. There also were rumors that Cendant was in discussions with ANC about the possible purchase of Alamo. Cendant and ANC spokespeople have refused to comment.
Industrywide, the falloff in rentals now is estimated to be 15 percent to 20 percent compared with pre-Sept. 11 levels, and the fourth quarter—always one of the weakest periods of the year—is expected to be bleak. Budget predicted a 4Q loss and its fourth year in the red. Spokeswoman Kimberly Mulcahy said the 4Q loss was expected to range from $40 million to $44 million, compared with a $162 million net loss in 4Q00, before one-time items.
Despite the narrow profit margins of this traditionally price-competitive business, which often has put car rental companies in a precarious position, analysts were confident that most firms would survive. "Maybe we'll lose one or two car rental companies, but the industry has gotten through downturns before," said Gianoukos.