Alamo Rent A Car, Inc.

Alamo Rent A Car, Inc.

The 110 Tower
110 Southeast 6th St.
Fort Lauderdale, Florida 33301
(305) 522-0000
Fax: (305) 527-6589

Private Company
Incorporated: 1974
Employees: 6,000
Sales: $600 million

Alamo Rent A Car, Inc., is the fifth-largest car rental company in the United States. It has a fleet of more than 127,000 cars at 102 locations in 38 states, and at 17 locations in England and Scotland through its London-based affiliate, Alamo Rent A Car (U.K.) Limited. Alamo has established itself as an inexpensive, off-airport car rental agency that caters to leisure travelers, but it also has sought business travelers and has become a viable competitor of the larger industry leaders.

Alamo began operations in 1974 with 1,000 cars at four Florida locations. Its name had been chosen for the position it would command in classified telephone directories, rather than for any historical reference. From the beginning, the company pursued a discount strategy, charging up to 20 percent less than its much larger competitors, offering free mileage, and using cheaper, off-airport sales locations.

In the mid-1970s Michael S. Egan left Florida-based Olins Rent-a-Car to join Alamo as the Miami-area manager for its owner, insurance billionaire John MacArthur. In 1978, after MacArthur died, Egan and several others bought the firm and began turning attention to markets overlooked by the more established car rental companies, starting with the vacation traveler. Alamo courted travel agents and paid them commissions for referrals. Sales in 1979—the first full year under the Egan group’s ownership—reached $30 million.

Just prior to this time, the Federal Trade Commission (FTC) sued the industry’s big three—Hertz, Avis, and National Car Rental—accusing them of rigging bids for airport sales counters and fixing prices at 10 to 40 percent higher than those charged by smaller competitors such as Alamo. The FTC discovered that airports had joined in pricing smaller companies out of space; in some cases airports had even forbidden airport advertising by off-airport companies. After the suit was settled, the end to such price-fixing led to considerable expansion into airports by the smaller car rental companies, most notably Budget Rent A Car.

Alamo, however, did not immediately follow other rental companies to airport locations. Egan reasoned that deregulated air passenger service would increase opportunities for travel by budget-minded vacationers. In order to exploit this market, Alamo chose to remain at less expensive, off-airport locations and concentrate on serving vacationers, not business customers, at lower prices.

In 1980 Alamo expanded beyond Florida, entering two major leisure markets by purchasing California company Trans Rent-A-Car and gaining operating rights in Hawaii. Alamo also opened a marketing and sales office in London. In 1981 Alamo made a tentative move to commercial sales, experimenting with an on-airport facility in Atlanta, Georgia. By the end of that year Alamo had 17,000 cars and 600 employees; by 1983 it had 1,300 employees. During this time, Alamo also expanded to such western cities as Denver, Seattle, Phoenix, and Portland, and moved eastward into the Boston market, all without a loss in profits. Still appealing heavily to leisure travelers, Alamo ran advertisements promising that “at Alamo, mileage is priceless. 0 cents a mile.”

Over the years Alamo’s sales practices came under periodic government review and censure. In June of 1984 the Florida attorney general charged Alamo with using “bait and switch” tactics and charging customers for unnecessary insurance. The Florida charges were dropped when Alamo agreed to obey the law concerning these matters and to reimburse customers who had legitimate complaints. In 1988 a similar investigation of industry pricing and advertising was conducted by the National Association of Attorneys General, which resulted in Alamo agreeing to mention extra charges—gas, insurance, etc.—in its advertisements.

In 1984 Alamo moved more decisively into the business market, which accounted for 65 percent of the $4.4-billion-a-year car rental market. Alamo was generating $125 million a year in business and was projecting $175 million for 1984. It was prepared to target the small-business customer, to whom savings would matter more than amenities such as airport location.

Egan decided to make a run for the new market, in part because of his confidence in Alamo employees who, coming mostly from outside the industry, were not overly specialized. Alamo had more than quintupled sales in five years with managers recruited from stock brokerage, retail sales, airline management, the U.S. Navy, and even the medical profession. The Alamo recruit was chosen for “iron-willed determination,” Egan told Inc. magazine in November of 1984. “We’re not smarter than our competitors, so we have to outwork them.”

Alamo employees were “gung ho, like Marines,” said industrial psychologist George Dunlevy, who tested new hires. Alamo employees had “almost a work sickness, a drive to succeed,” said Elizabeth Smith, a former naval officer and Alamo executive and company director. In hiring for Alamo, Smith looked for people with “a certain steel in the back,” she told Inc. Egan viewed the work environment as a new “centering force” in people’s lives, to replace religion, community, and extended families.

By 1985 Alamo had 43 locations in 12 states and was ranked a distant ninth among United States car rental companies, behind other mostly off-airport companies such as Thrifty Rent-A-Car, American International, Ajax, and General Rent A Car. But Alamo was quickly advancing; Fortune writer Edward Boyer labeled the agency “the fastest-growing rental car company in the United States.” Alamo seemed not to suffer from such singular policies as charging $9.95 for the half tank of gas it supplied and its refusal to reimburse the customer for what was left when the car was returned (a policy later declared optional, mostly because of business travelers’ objections). Alamo was now serving airports in Dallas-Fort Worth and Washington, D.C., among its other numerous locations.

Alamo’s service became even more appealing when on-airport locations started to become not as attractive as they had once been. Rental car lots for the larger companies had been moved farther from terminals, so that off-airport companies, requiring less space for their smaller fleets, were sometimes closer than on-airport ones. In addition, limited counter space for rental agencies in airports caused delays. The combination helped to make Alamo service more inviting.

Adding to the company’s success was a shift in the market. In Alamo’s first ten years of operation, Hertz and Avis’s combined share of airport business had dropped 13 points to 58 percent, with National, Budget, Alamo, and others picking up the difference. Alamo’s revenues did not suffer during this time, because industry revenues rose 14 percent a year. In the mid-1980s, though, price wars cut into leaders’ profits; this was due in part to pressure from companies like Alamo, whose fleet had risen from 7,900 to 30,000 cars in six years and who had expanded into the business market from its leisure travel niche.

Alamo’s rapid growth continued. By August of 1986 it had more than 50,000 cars in 57 cities and 2,500 employees or “family members,” as they were known within the company. Sales topped the $300-million mark, and Alamo passed other small companies to reach fifth place. It also had 100,000 customer companies enrolled in its corporate-rate program.

The price wars ceased early in 1986, and industry revenues jumped accordingly, more than 20 percent to $6.5 billion. Profits increased most notably for Hertz and Budget, the latter now one of the Big Four. Alamo and other second-tier companies—Dollar Rent A Car, Thrifty Rent-A-Car, and General Rent A Car chief among them—took advantage of the increased prices, raising theirs only slightly and thereby cutting deeper into the business travelers market. Alamo’s rates stood at $28 to $35 a day, about 30 percent lower than Hertz’s. In August of 1987 Egan boasted to Business Week that Alamo offered “free unlimited mileage in every U.S. city we serve.” Alamo had 60,000 vehicles in 65 United States locations, compared to Dollar, which had 46,000 in 450 locations, Thrifty, which had 24,000 in 360 locations, and General, which had 20,000 in 33 locations.

Hertz and Avis fought back by offering their own free mileage, seeking to capture more of the leisure market, which was worth an estimated $2.3 billion a year and was growing two to three times as fast as the business market. Alamo responded by extending its free mileage offer beyond weekly rentals and aggressively advertising the difference. Alamo’s share of the entire airport car rental market—both leisure and business—was an estimated 7 percent, compared with Hertz’s 25 percent, Avis’s 22 percent, and Budget’s and National’s 15 percent each.

Alamo had grown “dramatically over the past few years at the expense of its big four competitors,” industry analyst Charles Finnic told Ira Teinowitz in Advertising Age; Teinowitz noted that Alamo had “carved out a niche as the leading off-airport renter of cars to leisure travelers.” In 1988 Alamo opened rental facilities in London, and the next year in Glasgow, Scotland, as well as additional American cities. In 1990 Alamo bought a British company, Guy Salmon Service, Ltd., which offered luxury car rental and chauffeur services throughout the United Kingdom. As Alamo Rent A Car (U.K.) Limited, this firm consolidated Alamo’s operations in Scotland and England.

By 1989 Alamo’s revenues were more than $500 million a year. It had more than eight percent of the airport market, and profit margins ranged from three to five percent. Alamo management was “one of the smartest, most aggressive managements in the industry,” Finnic told Forbes. Its strategy was not only to rent cars at only the busiest and cheapest locations, but, according to various government agencies, to pressure customers into renting larger, higher-rate cars and taking expensive collision insurance. Perhaps due in part to this latter practice, Alamo received the lowest customer satisfaction rating among 11 companies reviewed by Consumer Reports magazine. Sales growth, however, was still high at 14 percent, partly because of business rentals, which were producing 30 percent of its revenues.

Clearly Alamo was not notably damaged by its bad publicity. Nonetheless, it started to retrain its 4,000 employees to emphasize courtesy (“Make your customers your best friends,” admonished Egan) and sent a corps of “phantom shoppers” into the field to check up on service and sales practices. Complaints dropped and reservations rose sharply.

Alamo’s collision-damage surcharge, though, was a matter more difficult for the company to deal with. It was netting around 20 percent of Alamo’s customers, and Egan was reluctant to give it up. Alamo developed a new waiver program offering price and coverage options costing $3 to $9 a day. There were also complaints about collision-repair charges billed to drivers. In July of 1991 Alamo agreed to refund $3 million to customers who had been overcharged for repairs in the 1980s. Federal prosecutors found a pattern of this overcharging from 1983 through 1989.

By 1991 Alamo had 100,000 cars at or near 92 of the busiest United States airports. Among them were 10,000 at its Orlando, Florida, car rental plaza, the world’s biggest with 52 counter positions. Built in 1983, the plaza is the largest concrete structure in Florida. Alamo gained five points of market share in the last half of the 1980s while the Big Four lost 20 points as a group. Alamo was grossing $600 million a year, with profit margins of around four percent better than Hertz’s and almost as good as Avis’s.

In the early 1990s Alamo continued its course of head-to-head price competition with Hertz and the other big companies. In April of 1992 it cut prices nationwide for several months, dropping its economy-car rate to a uniform $15 a day in all 102 United States locations, including 45 on-airport locations, while also offering discounts on mid-size cars and Cadillacs. Hertz responded on the same day with a similar announcement of reductions. Alamo’s intent in sweeping the country with this type of offer, a spokesperson told Michael J. McCarthy in the Wall Street Journal, was to fix itself in the business traveler’s mind as a national operation. The industry now had annual revenues of $11.4 billion in the United States. Alamo’s declaring nationwide rates, as opposed to locally structured ones, was described by a travel industry specialist as “interesting ... and ... definitely innovative,” as quoted by the New York Times.

Two weeks later Hertz, along with Alamo, again unveiled price cuts, this time for the small-business customer. The reasoning went that recent airline fare discounts were bringing small-business airline passengers back, so it was time to woo them with car-rental savings as well. Discounts in each case called for presentation of an airline ticket by the renter. Hertz required three days notice on the reservation, while Alamo required only one.

A much smaller company than Hertz, Alamo has provided considerable competition for the industry’s leader as well as for the other Big Four companies. Based on its history of innovative marketing and aggressive expansion, Alamo seems equipped to continue on its path of steady, profitable growth.

Principal Subsidiaries

Alamo Rent A Car (U.K.) Limited.

Further Reading

“Trying Too Hard?,” Time, June 23, 1975; Loomis, Carol J., “The Rumble in Rental Cars,” Fortune, March 7, 1983; “Hit ‘em First,” Forbes, July 30, 1984; Kolton, Ellen, “No Experience Required,” Inc., November 1984; Boyer, Edward, “Airport Rent-A-Car Bargains,” Fortune, February 4, 1985; Croghan, Lore, “Positioning Alamo as a Low-Price, Quality Rental,” Adweek, September 11, 1986; Ellis, James E., “Small Fry Start Nipping at the Whales of Auto Rental,” Business Week, August 31, 1987; Teinowitz, Ira, “Alamo’s Fighting Mad on Mileage,” Advertising Age, March 26, 1990; Poole, Claire, “Born to Hustle,” Forbes, May 28, 1990; Sullivan, Robert E., Jr., “Michael Egan Shrugs Off the H-word,” Conde Nast Traveler, March 1991; Santora, Joyce E., “Alamo’s Drive for Customer Service,” Personnel Journal, April 1991; Bryant, Adam, “Alamo Rent A Car Offering Uniform Rates Nationwide,” New York Times, April 21, 1992; McCarthy, Michael J., “Alamo Slashes Car-Rental Rates; Hertz Responds with Limited Cuts,” Wall Street Journal, April 21, 1992; “Hertz, Alamo Aim New Rate Plans at Small Businesses,” Wall St. Journal, May 5, 1992.

—Jim Bowman