Alamo Rent a Car
Alamo Rent A Car
Wholly Owned Subsidiary of Vanguard Car Rental USA Inc.
Employees: 12,600 (est.)
Sales: $2.9 billion (2005 est.)
NAIC: 532111 Passenger Car Rental
Alamo Rent A Car is among the largest car-rental companies in the United States and worldwide. Along with its sister company, National Car Rental, Alamo is a wholly owned subsidiary of Vanguard Car Rental USA Inc., which has an average daily U.S. fleet of 217,000 vehicles. Alamo primarily targets leisure travelers and boasts locations throughout the world, offering service in North America, Central and South America, Europe, the Caribbean, Africa, the Middle East, and the Pacific Rim. Established in 1974, Alamo grew rapidly to become a significant presence in the rental-car industry. Still known as a value brand, the company began as an inexpensive, off-airport car-rental agency. After decades of steady growth, Alamo entered a turbulent period beginning in the late 1990s, experiencing financial difficulties and multiple ownership changes. The company recovered, however, and remains a top competitor in the rental-car industry, billing itself as the "official rental car of the American vacation."
IN THE BEGINNING: 1974–83
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 Its name had been chosen for the position it would command in classified telephone directories, rather than for any historical reference.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 less expensive, 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, and the company grew to 11 locations.
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 airports had joined in on pricing smaller companies out of space; in some cases airports had even forbidden onsite 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 the 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, and Phoenix, 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. Zero cents a mile."
GAINING AND KEEPING MARKET SHARE: 1984–87
Over the years Alamo's sales practices came under periodic government review and censure. In June 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. A later 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, and the like—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 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, somewhat controversial "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 U.S. car-rental companies, behind other mostly off-airport companies such as Thrifty Rent-A-Car, American International, Ajax, and General Rent A Car. However, 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 serving airports in Dallas–Fort Worth and Washington, D.C., among other locations.
Alamo Rent A Car is one of the nation's largest rental car companies that services the most popular domestic and international travel destinations by providing quality vehicles and service to leisure, business, and local customers.
Alamo's service became even more appealing when on-airport locations started to become less attractive. Rental car lots for the larger companies had been moved farther from terminals, so off-airport companies, requiring less space for their smaller fleets, were sometimes closer than on-airport ones. In addition, limited counter space for airport rental agencies caused lines and delays, making 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 the leaders' profits, due in part to pressure from companies like Alamo, the fleet of which had risen from 7,900 to 30,000 cars in six years and which had expanded into the business market from its leisure travel niche.
Alamo's rapid growth continued, and by August 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. In addition, it had 100,000 customer companies enrolled in its corporate-rate program. The price wars had also ceased earlier that year, and industry revenues jumped accordingly, rising 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. The next year, 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 U.S. locations, compared to Dollar's 46,000 in 450 locations, Thrifty's 24,000 in 360 locations, and General's 20,000 in 33 locations.
A MAJOR COMPETITOR: 1988–92
Hertz and Avis fought back by matching Alamo's free mileage, seeking to capture more of the leisure market, worth an estimated $2.3 billion a year in the late 1980s and 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 Finnie told Ira Teinowitz in Advertising Age; Teinowitz noted 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 in additional American cities. Within two years, Alamo expanded its presence further with the acquisition of 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.) Ltd., this firm consolidated Alamo's operations in Scotland and England.
- Alamo Rent A Car, owned by billionaire John MacArthur, opens at four locations in Florida.
- Michael S. Egan leads investors in purchase of Alamo.
- Alamo is charged by the Florida attorney general with unethical practices.
- Alamo agrees to refund $3 million to customers overcharged for repairs during the 1980s.
- Alamo is purchased by Republic Industries, later renamed AutoNation, Inc.
- AutoNation spins off Alamo, National Car Rental, and CarTemps USA into ANC Rental Corporation.
- ANC enters bankruptcy reorganization.
- Alamo becomes the official rental-car company of the Walt Disney World and Disneyland resorts.
- Alamo and National are purchased by newly created, privately held Vanguard Car Rental USA Inc.
In 1989 Alamo's revenues were more than $500 million a year. It then possessed more than 8 percent of the airport market, and profit margins ranged from 3 to 5 percent. Alamo management was "one of the smartest, most aggressive managements in the industry," Finnie told Forbes. Its proven strategy was to rent cars at the busiest and least expensive locations. According to various government agencies, however, Alamo went further than that, pressuring 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 negative press; 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 more difficult matter for the company; it netted 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. Federal prosecutors found a pattern of such overcharging from 1983 through 1989, and in July 1991 Alamo agreed to refund $3 million to customers overcharged for repairs during that period.
By 1991 Alamo had 100,000 cars at or near 92 of the busiest U.S. airports. Among them were 10,000 at its Orlando, Florida, car-rental plaza, the world's biggest with 52 counter positions, and new locations including Chicago, Fresno, Albany, Sacramento, and Dayton. Alamo gained five points of market share in the latter 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 4 percent better than Hertz and almost as good as Avis.
Alamo continued its course of head-to-head price competition with Hertz and the other big companies; in April 1992 it cut prices nationwide for several months, dropping its economy-car rate to a uniform $15 a day in all 102 U.S. locations, including 45 on-airport locations, while also offering discounts on midsize cars and Cadillacs. Hertz immediately responded 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 at a time when the car-rental industry had annual domestic revenues of $11.4 billion. Alamo's declaration of nationwide rates, as opposed to locally structured ones, was described by a travel industry specialist in the New York Times as both "interesting" and "innovative." Two weeks later Hertz, along with Alamo, again unveiled price cuts, this time for the small-business customer. The reasoning went that 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.
MORE THAN PRICE WARS: 1993–95
In 1993 Alamo added a strategic location in Los Angeles, considered the world's largest rental car market, along with several other on-airport locations in Palm Springs, San Francisco, Dallas, and Jackson Hole, Wyoming, and metro locations in Atlanta, Chicago, and Minneapolis. Overseas, Alamo established three new on-airport sites in Ireland, and one in Amsterdam. According to the Automotive Fleet Factbook, industry figures for leased or rented automobiles hit 4.86 million for 1993, with business and corporate leasing as the top form of auto renting/leasing with 44.6 percent of the market. Alamo's slice of the pie was growing with $1.1 billion in revenues, which ranked it as the fifth largest private company in Florida, according to Florida Trend magazine.
As in previous years, Alamo continued to add locations throughout the world—new on-airport stations in Belgium, England, and Germany opened in 1994, while in the United States, Alamo conquered its 42nd state by opening a plaza in Rhode Island. Towards the end of the year Alamo acquired a majority stake in Autohansa Autovermietung, bolstering its European presence. Year-end figures climbed to $1.3 billion in systemwide revenues, behind Hertz ($4.8 billion), Avis ($3 billion), Budget ($2.3 billion), and Enterprise ($2 billion), but ahead of National ($1 billion), a company that would play a significant role in Alamo's future.
By 1995 Alamo had opened in another major venue, Chicago's O'Hare airport (the company already had a station at Midway), while expanding globally into Greece, Portugal, and the Czech Republic, and adding more sites in the Netherlands and Switzerland. Back in North America, Alamo finally tapped its neighbor, Canada, by opening several locations in Montreal. In a Wall Street Journal ranking of the top car-rental agencies in the airport market, Alamo's fleet of 150,000 vehicles came in at number three, just under Avis's 165,000 and Hertz's 215,000. Yet behind the glare of competition, each of the top car-rental companies was experiencing trouble in an industry-wide slump. Both Budget and Alamo had been forced to lay off workers and had announced losses—for Alamo, its first ever. In a shuffle to shore up the company, Egan relinquished his CEO duties to D. Keith Cobb, who shared vice-chairman duties with Roger H. Ballou; Ballou had joined the company in May from American Express Travel Related Services. Contributing to Alamo's financial woes was the climb in fleet costs, which had doubled in the previous three years, a cost that could not be offset by increasing car-rental rates when competition remained so fierce. Alamo was also smarting from a failed attempt to buy National Rental System Inc. from General Motors; it may have lost that particular battle, but circumstances later gave Alamo an upper hand in the war.
A NEW ERA: 1996–2000
In the late 1990s, the national car-rental industry was rife with "merger mania," as Avis was bought by HFS in 1996, and Ford Motor Company was interested in selling Budget Rent A Car. Alamo, too, fell into the fray by becoming a wholly owned subsidiary of Republic Industries, Inc., a diversified conglomerate of automotive, solid waste, electronic, and media segments with revenues of just under $6.1 billion for the year. The merger complemented both companies, since Republic's automotive division included hundreds of new and usedcar dealers under the AutoNation USA banner (the largest in the U.S. industry), as well as auto parts and insurance services.
Republic was on the prowl in 1997, consolidating its automotive rental division with five strategic additions: National Car Rental System Inc., one of Alamo's nemeses, in February; Spirit Rent-A-Car in April and Snappy Rent A Car in July, both of which specialized in insurance replacement rentals and were soon operating under the CarTemps USA name; Value Rent-A-Car in June; and two months later, EuroDollar Rent A Car, the second largest renter in the United Kingdom. Yet partnering the power of Alamo in the leisure market and National in the business market was Republic's diamond in the rough—by merging two of the top five car-rental giants, Republic was able to topple Avis from its berth as second largest national auto-rental chain. Alamo and National's combined fleet topped 225,000, and the duo were expected to generate revenues of $2.7 billion for 1997.
In 1998 Alamo promotions included a memorable national television advertising campaign from Foote, Cone & Belding New York called "Drive Happy." The ads incorporated the tune of Bobby McFerrin's "Don't Worry, Be Happy" and included a tie-in to a merchandise giveaway. Accompanying the ad campaign were myriad perks for Alamo customers, including discounted merchandise from Bloomingdale's, airline mileage tieins, and special programs for leisure travelers from Latin America and the Caribbean. Although Alamo was still smaller than major competitors like Hertz and Avis, having National as a complementary sibling helped position both companies to remain stiff competitors in the nearly $15 billion car-rental industry.
With the power of Republic Industries' vast automotive holdings behind Alamo, the company had the freedom to pay less attention to its bottom line and concentrate more fully on competing with Hertz and Avis. In addition, with access to new car dealerships owned by Republic, which was renamed AutoNation, Inc., Alamo could slash its biggest expense—fleet costs—and continue to move forward with aggressive expansion. The plan looked good on paper: AutoNation would lease new cars to consumers and, when those leases ended, add the vehicles to the fleets of their car-rental companies. After a period of time, these vehicles would then be sold by AutoNation's used-car dealers. The management of a massive inventory of used cars, however, proved unwieldy, and by the end of the 1990s AutoNation had decided to divest itself of its used-car dealerships, thus making it unnecessary to own rental-car companies.
By mid-2000, Republic had spun off Alamo and National—as well as CarTemps USA—into an independent new company, ANC Rental Corp. (The ANC name was derived from the first initials of each of its three companies; by early 2001, however, CarTemps had been absorbed by Alamo.) The timing of the spinoff turned out to be nearly disastrous for ANC, as analyst Betsy Snyder pointed out in a New York Daily News article: "The car rental business is extremely capital intensive," she explained, and ANC became an independent entity "just as the industry was headed into a down cycle." The sluggish economy hit travel industries hard; Tom Stieghorst of the South Florida Sun-Sentinel wrote that, as of early 2000, "business travel fell off the charts." No longer able to fold some of its operating expenses into the budget of a corporate parent, ANC struggled. In August 2001 ANC announced its intention to seek a buyer or a third-party investor. The events of the following month, however, caused those plans to be put on hold.
CATASTROPHE AND ITS AFTERMATH: 2001 AND BEYOND
On September 11, 2001, the terrorist attacks on the World Trade Center and the Pentagon shocked the world and shook the confidence of American citizens. Reeling from the attacks, the U.S. economy suffered immediate and lasting consequences, with particularly significant impact on travel-related industries. In the aftermath of the attacks, the number of people traveling, especially by air, dropped off sharply, and car-rental companies experienced dramatic losses. Alamo's parent company, ANC, was hit particularly hard: the company derived about 90 percent of its revenues from airport rentals, and the abrupt decline in air travel affected ANC heavily. While ANC had been experiencing financial difficulties before September 11, the catastrophic impact of that event added significantly to the company's woes. Before the end of 2001, ANC Rental Corp began bankruptcy reorganization.
The company immediately took steps to lower its costs, reducing both its work force and its fleet by about 20 percent. Analysts projected that the company would survive the bankruptcy proceedings and remain a contender. Consultant Neil Abrams explained his reason for optimism to Business Travel News: "ANC's brands are strong globally. They are good systems, they just have to get their financial house in order." In 2002 a new deal with a powerful partner signaled a rosier future for Alamo: the company signed a deal with the Walt Disney Co. to replace National as the official rental-car company of the Walt Disney World and Disneyland resorts. National had held its preferred position with Disney for 22 years, but ANC supported Disney's switch to Alamo as part of ANC's move to define Alamo as, in the words of the company's new slogan, "The Official Rental Car of the American Vacation."
In late 2003, ANC Rental sold Alamo and National to the newly created company Vanguard Car Rental USA. The purchase was funded by Cerberus Capital Management, a private investment group based in New York, which paid $230 million for the two divisions. William Lobeck, who had previously helmed Alamo and National when they were part of AutoNation in the late 1990s, was named Vanguard's chief. An initial priority for Vanguard involved distinguishing between the two brands for consumers, emphasizing National as the preferred brand for business travelers and Alamo as the cost-conscious leisure traveler's choice. While ANC had consolidated the rental sites for Alamo and National in some airports as a cost-saving measure, Vanguard opted to separate the two. "Our job," explained Lobeck in Travel Weekly, "is to restore the confidence the high-frequency business traveler had in National and to make sure Alamo is positioned as the value brand."
With the purchase by Vanguard, Alamo emerged from bankruptcy protection. In the years following, Alamo focused on establishing partnerships with major tour operators as well as inking marketing and distribution deals with such travel web sites as Expedia, Travelocity, and Priceline. In addition, Alamo, along with other travel-related industries, benefited from a steady increase in U.S. air travel during the years following decline after the September 11, 2001 terrorist attacks against the United States. During the summer of 2006, Vanguard announced plans to sell $300 million in common stock as part of an initial public offering. Vanguard stated it would use the funds for corporate expenses and to help pay off an $800 million loan. The shift from private to public company for Vanguard marked a trend among major car-rental companies, many of which had become publicly traded companies independent of a larger corporation.
Updated, Taryn Benbow-Pfalzgraf;
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