Hertz announces acquisition of Dollar Thrifty
On 26 April 2010, Hertz Global Holdings Inc announced it will acquire Dollar Thrifty Automotive Group for US$1.2 billion. The deal will create a company with revenues of US$9.8 billion with 9,800 locations. Hertz believes the deal will close in the fourth quarter of 2010.
Hertz fills brand portfolio gap…
With the acquisition, Hertz joins its rivals, Enterprise Holdings and Avis Budget Group in offering multiple brands with clear customer segments and price points. The Hertz brand will remain the premium brand for corporate and high end leisure travellers. The Dollar and Thrifty brands will be mid-priced brands, mostly at airport locations. The Advantage brand, which Hertz acquired in 2009, will target price-sensitive leisure travellers at airports.
The multi-brand strategy offers an array of advantages. Utilization of Hertz cars is higher during the week due to business travel demand while the Dollar and Thrifty brands have higher utilization on the weekends thanks to leisure travel.
Combining fleets will help maintain a high utilization throughout the week. Furthermore, Hertz gains access to new customers without diluting the Hertz brand. It could also position Dollar as a less expensive corporate brand to large corporate travel buyers looking to cut travel costs and to expand its presence among small and medium sized businesses.
…and becomes the number two player in the US
With value sales of US$20.5 billion in 2009, the US is the largest car rental market and accounts for 40% of global sales. The acquisition of Dollar Thrifty Automative Group will bump Hertz from third place to second in the world’s largest market. It will also leave the market concentrated among the top three companies.
While some analysts are concerned that the Federal Trade Commission will block the acquisition, Hertz is confident that the acquisition does not pose any anti-trust issues, especially since the FTC approved Enterprise’s acquisition of Vanguard in 2007.
The acquisition gave Enterprise 46% of the market in 2007, which the company has steadily increased. It is important to note, though, that FTC was under a Republican-controlled government in 2007, which was friendly to acquisitions. The current FTC under the Democrats has tended to scrutinize acquisitions.
The acquisition also would make Hertz the largest car rental company at the top 190 airports in the US. According to industry sources, the company would have a 38% market share followed by Enterprise Holdings and Avis Budget Group with 31% and 29% respectively. The outlook for increasing its position in the airport is uncertain. According to Euromonitor International, car rental value sales at airports fell by 14% in 2009, hit hard by the decline in passengers carried. Value sales are only predicted to grow by a total of 5% over the next five years, with the leisure segment driving the growth with an increase of 5.6%. The acquisition will help Hertz benefit from the stronger leisure segment, but growth in the airport market is likely to be sluggish as airlines restrain their capacity growth.
While all operators cut fleet size to increase revenue per day, not all of Hertz’s price increases stuck. Industry sources speculate that Enterprise continues to be very competitive in the on-airport segment, especially with its National and Alamo brands in the corporate market. Enterprise has increased its on-airport market share from 25.8% in 2004 to 29.2% in 2008. It is uncertain if Hertz will be able to flex its top-dog status to drive more price increases if Enterprise remains focused on gaining share. The key to being successful in this segment will be cost synergies that arise from the merger, which Hertz estimates to be at least US$180 million per year.
Dollar Thrifty brings with it around 340 off airport locations in the US and Canada to add to Hertz’s 1,700 off airport locations in the US. This will contribute to Hertz’s strategy to diversify into the off-airport location segment, which is expected to grow by a total of 5.8% over the next five years.
No significant gain internationally
Hertz will retain its second place market share globally after the acquisition, but only benefit from a gain of an 3.1 percentage point increase. Dollar Thrifty is not among the most international car rental companies with 85% of its global sales coming from the US. Hertz sees opportunity to grow Dollar Thrifty, especially the Thrifty brand, in the European leisure market. However, Dollar Thrifty has a 0.1% market share in Western Europe. Hertz will certainly face an uphill battle against incumbents Europcar, D’Ieteren SA and Sixt AG and it is unlikely to gain a significant presence.
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