Avis Group Holdings, Inc.

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Avis Group Holdings, Inc.

6 Sylvan Way
Parsippany, New Jersey 07054-3826
U.S.A.
Telephone: (973) 496-3500
Fax: (888) 304-2315
Web site: http://www.avis.com

Wholly Owned Subsidiary of Cendant Corporation
Incorporated: 1946 as Avis Airlines Rent-A-Car System
Employees: 18,000
Sales: $2.57 billion (2004)
NAIC: 532111 Passenger Car Rental; 532112 Passenger Car Leasing

Avis Group Holdings, Inc. and its subsidiaries own and operate or franchise approximately 1,900 car rental locations in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina, Australia, and New Zealand. Avis Group is one of two companies that comprise the Avis System, which ranks as the second largest general use car-rental business in the world, trailing Hertz Corporation. (The independent Avis Europe Holdings Ltd. is responsible for the Avis System in Europe, Africa, the Middle East, and parts of Asia, where it owns or franchises more than 3,000 locations.) Known throughout its history for quality service, Avis Group caters primarily to business travelers (who account for about 65 percent of the company's domestic revenue), and has therefore traditionally concentrated on airport rental locations. Although, as a result, 84 percent of revenue is still derived from the airport sites, the company in the early 21st century has made a concerted effort to target the local market and to this end has opened numerous off-airport locations. Avis Group has been owned by Cendant Corporation since March 2001, but late in 2005 Cendant announced that it intended to split itself up into four separate companies. One of the four would focus exclusively on the car rental business and would be comprised of Avis Group and its sister company, Budget Rent A Car System, Inc. This would mark only the latest of more than a dozen ownership changes for Avis over a convoluted six-decade history.

Early History

Avis Airlines Rent-A-Car System was founded in 1946 by Warren E. Avis, a former Army Air Corps flyer. The owner of an automobile dealership in Detroit, Avis had the idea of providing car-rental services at airports, surmising that air travel would quickly become more popular than travel by rail. Using savings, dealership profits, and a $75,000 loan, he opened Avis Airlines Rent-A-Car System in two locations, at Willow Run Airport near Detroit and at Miami Airport in Florida. Avis's idea proved successful and his business grew quickly. Airports in New York, Chicago, Dallas, Washington, Los Angeles, and Houston were soon serviced by car-rental franchises licensed to use the Avis name.

By 1948, Avis was nationally known. In that year, the company dropped the "airlines" designation from its name, expanding operations beyond airports to serve hotels and businesses in urban areas. During the next six years, Avis also expanded internationally. In addition to its 185 locations in the United States, Avis acquired ten in Canada and one in Mexico, and established ties with car-rental agencies throughout Europe and the United Kingdom. Warren E. Avis sold the company in 1954 to Richard S. Robie, a car-rental system owner operating in New England. Robie encouraged continued expansion, introducing a one-way car-rental system and a company charge card. Although Avis had revenues of $4 million in 1956, Robie was plagued by problems of cash flow incurred during his expansion efforts, and was forced to sell the company that year. Avis's new owners, the Amoskeag Company and other investors, continued to foster its growth, creating a new entity, Avis, Inc., as a holding company for the various operations. Business operations were consolidated through the formation of a wholly owned subsidiary, Avis Rent A Car System, Inc.; electronic data processing was introduced to facilitate the company's innovative corporate charge card billing system; car leasing was established; and the licensee system was extended to include markets in Austria, Belgium, Norway, and Spain.

By 1962, Avis owned a fleet of 7,500 vehicles generating annual revenue of $25 million. The company was purchased that year by Lazard Freres & Company, an investment banking firm in New York City, and its corporate headquarters was moved to Garden City, New York. Under the direction of newly appointed President Robert Townsend, Avis launched a highly successful advertising campaign emphasizing its status as number two contender for car-rental market share. The slogan "We're only No. 2. We try harder" appealed to the public and contributed greatly to Avis's subsequent growth. In 1965, having attained annual revenues exceeding $74 million, Avis was acquired by International Telephone & Telegraph Corporation (ITT); Winston V. Morrow, Jr., was appointed chief executive officer. During this time, international expansion again assumed paramount importance, and Avis increased its operations throughout Europe and Africa, becoming the leading car-rental company in Europe within eight years.

Strong Growth in the 1970s

Keeping pace with technological advances, in 1972 Avis introduced the first and largest computerized information system to be used in a U.S. car-rental business. The Wizard System, subsequently overhauled several times, made reservations and processed rentals, maintained preventive maintenance schedules for Avis's vehicles, and generated for auto manufacturers lists of customers who purchased Avis's used cars. The system also provided electronically transmitted billing reports for use with corporate accounts.

During the same year, Avis became a public company when ITT was ordered to sell several of its businesses. Forty-eight percent of Avis's shares were sold to the public; the balance was held in trust by a court official. During this time, Avis, along with other car-rental companies, began to sell their used cars directly to the consumer rather than to wholesalers. This became a lucrative source of income; by 1987, Avis was marketing approximately 50,000 used cars each year. In 1976 Colin M. Marshall became chief executive officer of Avis, and in the following year the company was purchased by Norton Simon, Incorporated for $174 million. James F. Calvano succeeded Marshall as chief executive officer in 1979; that same year, Avis concluded an advertising and marketing agreement with General Motors Corporation, agreeing to feature GM cars in its worldwide fleet. The 1970s was a decade of enormous growth for Avis both domestically and internationally. Several factors, including greater airline use, airline deregulation, and the increasing strength of Avis's European, African, and Middle Eastern operations, contributed to its jump in revenues from $162 million in 1970 to $673 million in 1979.

1980s: Difficulties, Leading to Several Ownership Changes

The strong growth of the 1970s slowed in the early 1980s as high oil prices, soaring interest rates, and inflation plagued the global economy, reducing the volume of air travel and weakening the closely connected car-rental market. Price competition among the leading car-rental companies contributed to a $50 million loss for Avis in 1982; 2,400 jobs were cut as a result. J. Patrick Barrett, who became chief executive officer of the company in 1981, along with Joseph V. Vittoria, who became president and chief operating officer in 1983, and Alun Cathcart, who became group managing director and chief executive of the Europe/Africa/Middle East Division in the same year, provided new direction for the company. They reorganized management, reemphasized the company's "We try harder" image, and introduced new technology, such as Avis Express service. Designed to facilitate fast passage through airline terminals, Avis Express processed rental agreements before customers deplaned, allowing the consumer a speedy departure from the airport. Earlier, Avis had introduced a computerized checkout system to its operations in Europe; by 1983, after further enhancements, only a few seconds were required for this system to produce a completed rental agreement. In 1984, Avis introduced Rapid Return, an automated self-service check-in device, to its U.S. franchises. A similar innovation called Rapid Rental, a credit-card prompted, computer-assisted transaction, followed shortly thereafter at testing locations in the United Kingdom and France. By 1987, all Avis's domestic and international operations were connected to its main computer in Garden City, New York.

Avis also changed owners a number of times in the 1980s. After being acquired by Esmark, Inc. in 1983, Avis was purchased along with Esmark by Beatrice Companies in 1984. Kohlberg Kravis Roberts & Co., a New York investment firm, acquired Beatrice Companies and Avis the following year in a leveraged buyout. In another leveraged buyout in 1986, Kohlberg sold Avis to Wesray Corporation, a New Jersey-based investment company, and its partner Avis management for $265 million and the assumption of $1.34 billion in debt. Avis's revenues for that year were $1 billion, a 26.2 percent share of the car-rental market. Wesray next sold Avis's domestic car leasing fleet to PHH Group, Incorporated of Hunt Valley, Maryland, the industry leader in corporate car leasing, for approximately $134 million. During 1986, Avis sold 65 percent of its European operations, known as Avis Europe PLC, to the public on the London Stock Exchange for approximately $290 million. Alun Cathcart remained as group managing director and chief executive of what was now a public company, becoming chairman in 1988. Under his direction, Avis Europe grew tremendously, diversifying and updating its services by purchasing such related companies as car leasing businesses and distributorships. In the United States, Avis introduced another technological advance in 1987 with Roving Rapid Return, a portable computer with a printer that allowed Avis employees to move around a rental lot and assist customers at their cars in easy, one-step checkout procedures. Also at this time, Avis's Wizard computer system developed the capacity to allow travel agents direct access to Avis rental vehicles for their customers through computerized communications with airline reservation centers.

Company Perspectives:

Our mission: We will ensure a stress-free car rental experience by providing superior services that cater to our customers' individual needs … always conveying the "We Try Harder" spirit with knowledge, caring and a passion for excellence.

Era of Employee Ownership, 1987–96

Avis was sold once again in 1987, this time to an employee stock ownership plan (ESOP) for $750 million and the assump-tion of $1 billion in debt. Under the plan, both buyers and lenders received tax breaks, and employees of the company became its owners, with Wesray retaining a 29 percent stake. Financing for the ESOP was provided by General Motors Acceptance Corporation, Chrysler Credit Corporation, and Pittsburgh National Bank, who loaned a combined $395 million; Irving Trust Company and a group of banks, who loaned $1 billion; Drexel, Burnham, Lambert, Incorporated, and Kleinwort, Benson Limited, who advanced a $255 million bridge loan; and stockholders, who purchased preferred stock for $135 million. A trustee, Citizens & Southern Trust Company of Atlanta, now known as NationsBank, held employees' shares.

The ESOP proved highly successful, boosting employee morale and prompting better service to consumers. When the plan went into effect, Avis's management introduced employee participation groups whose members included workers from all levels of the company. These groups met periodically, generating ideas that were frequently implemented to improve Avis's operations. For example, Avis employees suggested that the company provide managers with Avis charge cards for their expenses, which would save the cost of fees normally paid to charge card creditors. They also suggested such innovations as rental cars to be used specifically for nonsmokers and compilations of traffic law tips for each rental area. Joseph V. Vittoria, who became chairman and chief executive officer of Avis in 1987, commented enthusiastically about the ESOP in Fortune: "Believe me, the ESOP works, and it works very well." In another Fortune article Charles Finnie, an analyst at the Baltimore brokerage firm of Alex, Brown & Sons and an expert on the car-rental business, concurred: "Right now Avis is on a roll. The ESOP has really improved their morale and productivity and service." Robert W. Anderson, a director of corporate travel for Unisys Corporation, said in the same publication: "Employee ownership has got to be a winner. Avis is absolutely superior in customer service, though they were pretty good to begin with." Official figures underscored the success of the ESOP. Profits for the first half of 1988 were 35 percent higher than those of the same period a year earlier, market share increased to 27 percent, and customer complaints were down 35 percent from 1,918 in 1987 to 1,238 in 1988.

Key Dates:

1946:: Warren E. Avis founds Avis Airlines Rent-A-Car System at Willow Run Airport near Detroit.
1948:: Company is renamed Avis Rent-A-Car System.
1954:: Avis sells his company to Richard S. Robie.
1956:: Robie sells the firm to an investment group led by Amoskeag Company; new owners reorganize the operations under a new holding company, Avis, Inc.
1962:: Lazard Freres & Company purchases Avis and moves its corporate headquarters to Garden City, New York.
1963:: The company slogan "We try harder" is used for the first time.
1965:: Avis is acquired by International Telephone & Telegraph Corporation (ITT).
1972:: Company introduces its Wizard System; ITT takes Avis public.
1977:: Norton Simon, Incorporated acquires Avis.
1979:: Avis enters into a worldwide advertising and marketing agreement with General Motors Corporation (GM).
1983:: Avis becomes a subsidiary of Esmark, Inc. after that firm acquires Norton Simon.
1984:: Rapid Return automated check-in system is introduced; Avis becomes subsidiary of Beatrice Companies following that company's takeover of Esmark.
1986:: Kohlberg Kravis Roberts & Co. takes over Beatrice, then sells Avis to Wesray Corporation; Wesray sells Avis's domestic car leasing fleet to PHH Group, Inc.; Avis sells majority stake in its European operations, Avis Europe, to the public.
1987:: Avis becomes employee owned.
1989:: A 29 percent stake in Avis held by Wesray is sold to GM.
1996:: HFS Incorporated acquires full control of Avis in an $800 million deal.
1997:: HFS creates Avis Rent A Car, Inc. (ARAC) as a system franchisee and spins it off to the public; HFS retains rights to the Avis name, the Wizard system, and reservations operations; ARAC acquires the number two Avis franchisee in North America, First Gray Line Corporation.
1999:: Avis acquires the vehicle-leasing unit of Cendant Corporation.
2000:: Avis Group Holdings, Inc. is set up as a holding company for the various Avis operations.
2001:: Cendant acquires the 88 percent of Avis it did not already own in a $937.4 million deal; Avis moves its headquarters from Garden City, New York, to Parsippany, New Jersey.
2002:: Cendant acquires Budget Group, Inc.; certain operations of Avis and Budget are later integrated.
2005:: Cendant announces plan to split up into four firms, one focusing on car rentals and comprising Avis and Budget.

As the 1980s drew to a close, Avis, which had been exhibiting greater profit-sales ratios than Hertz Corporation since 1984, challenged Hertz's position as the number one car-rental agency in the United States. Internationally, relations between Avis, Inc. and Avis Europe PLC remained strong, as the companies' shared resources contributed to growth and prosperity for both. In addition, such programs as Avis Europe's "Avis in Touch," which provided travelers with travel planning guides, an answering service, and toll-free information numbers, and Avis, Inc.'s Preferred Express, which expedited rental procedures for frequent renters, enhanced customer service throughout the world. In 1987 Avis began to market its computer technology to the hotel industry through a newly formed subsidiary, WizCom International, Limited. The following year, Avis purchased its licensee in New Zealand, broadening the company's influence in the Pacific. Avis Europe became private in 1989, when it was purchased by Cilva Holdings PLC, comprised of Avis, Inc., which owned 8.8 percent of the shares; General Motors, 26.5 percent; and Lease International SA, 64.7 percent. Also in 1989, General Motors bought out Wesray's 29 percent stake in Avis, Inc.

Avis continued to emphasize innovation as it entered the 1990s. Company training programs in customer service, as well as comprehensive vehicle safety checks, were implemented. Meanwhile, the recession of the early 1990s initially provided benefits to the rental-car industry in North America as automakers, saddled with large inventories of cars they could not unload, sold the vehicles to Avis and other car renters at steep discounts. This in turn, however, brought numerous new competitors into the industry, which drove down rental prices. When the economy recovered in 1993 and 1994, the automakers were able to increase the prices they charged rental-car companies for the cars the companies needed. Rental-car companies in turn raised their rental rates, which dampened demand, leading to heavy losses by Avis and other companies and to an industry shakeout.

It was in this environment that after nine years under employee ownership Avis changed hands yet again. HFS Incorporated, the largest hotel franchiser in the United States and a franchiser of real estate companies as well, paid $800 million for Avis in October 1996, purchasing both the ESOP interest and that of General Motors to gain full control. The buyout provoked controversy among some Avis employees who felt that their shares were being undervalued, but the deal went through nonetheless.

Brief Period As Public Company, 1997–2001

As a franchiser, HFS from the start planned to spin off the company-owned car-rental operations gained from the purchase of Avis, while retaining the rights to the Avis name and control of WizCom and the Wizard System. Along these lines, a new stripped-down company called Avis Rent A Car, Inc. (ARAC) was soon created, which comprised the company-owned car-rental operations. At the same time, HFS set up subsidiary HFS Car Rental, Inc., to which it assigned the rights to the Avis name and which thus became the franchiser of the worldwide Avis rental system. Avis Rent A Car then entered into a 50-year franchise agreement with HFS Car Rental, thereby becoming an Avis system franchisee, the largest in the world. In return for the right to use the Avis name, ARAC agreed to pay HFS a royalty fee of between 4 and 4.5 percent of its revenues. WizCom International and Wizard Co., Inc. became subsidiaries of HFS; Avis Rent A Car thereby entered into a 50-year computer services agreement with WizCom for use of the Wizard System.

As HFS was laying plans for an initial public offering (IPO) of Avis Rent A Car stock, Vittoria retired as head of the company in February 1997. The following month R. Craig Hoenshell, a former American Express executive, was named chairman and chief executive of ARAC. In August 1997 ARAC acquired First Gray Line Corporation for about $195 million in cash. First Gray Line was the second largest Avis franchisee in North America, having 70 locations in southern California, Arizona, and Nevada.

In September 1997 Avis Rent A Car went public through the long-planned IPO, with about 75 percent of the company sold to the public and the remaining 25 percent staying in HFS's hands. The resulting $330 million proceeds were mainly to be used to pay down ARAC's large long-term debt of nearly $3 billion.

Avis Rent A Car began its new era as a public company with public relations problems and investigations hanging over it. From November 1996 to October 1997, accusations that Avis franchisees racially discriminated against minorities who sought rental cars were raised in North Carolina, Florida, and Pennsylvania. In October 1997 the U.S. Department of Justice launched an investigation into these allegations, as well as into Avis management knowledge of the accusations, the latter being an issue that had the potential to raise uncomfortable questions about the IPO. This issue was quickly resolved, however, after ARAC agreed in December 1997 to pay nearly $3.3 million to settle a class-action lawsuit that had been filed by minority customers and the Justice Department ended its investigation the following May without taking any legal action.

In both 1998 and 1999 Avis Rent A Car made several purchases of Avis franchisees, significantly expanding its operations. The most significant of these was Hayes Leasing Company, Inc., which operated a fleet of about 8,000 cars in Dallas, Fort Worth, San Antonio, and Austin, Texas, and was acquired in 1998. Hoenshell resigned abruptly in December 1998, ushering in an 11-month period of interim leadership at the company. During this period, in June 1999, Avis acquired the vehicle-leasing unit of Cendant Corporation for $1.8 billion in cash and preferred stock and the assumption of $3.2 billion in debt. Cendant had been formed in December 1997 from the merger of Avis's former owner, HFS, and CUC International Inc., and it still owned the Avis brand name and reservations system. Its stake in Avis jumped from 19 percent to 34 percent when Avis's purchase of the vehicle-leasing unit was complete. Among the assets Avis gained were PHH Vehicle Management Services Corp., Cendant's fleet-leasing business, and Wright Express Corp., a fuel-card management services firm. PHH was the world's largest fleet manager, with 700,000 cars and 1998 revenues of $425 million.

In November 1999 Avis filled its vacant CEO position by naming A. Barry Rand to that post and the chairmanship as well. Rand was a 31-year veteran of Xerox Corporation, having left that company in January 1999 as executive vice-president for worldwide operations. In early 2000, soon after Rand took over, Avis restructured itself to reflect its wider range of operations. Avis Group Holdings, Inc. was created as a holding company for the car rental operations, PHH, Wright Express, and other subsidiaries. Also in 2000, Avis sold an 80 percent stake in its U.K. fleet-management business to BNP Paribas SA for $800 million.

Subsidiary of Cendant: 2001–06

In March 2001 a new chapter in Avis's history began, one with reverberations from the recent past. Cendant, successor to HFS, former owner of PHH, and owner of a travel empire that included the Travelodge, Days Inn, and Ramada lodging brands, acquired the 88 percent of Avis it did not already own in a $937.4 million deal. Rand resigned upon completion of the deal; David N. Siegel, a former executive at Continental Airlines, Inc., was named Avis CEO in September 2001. One month later, Avis shifted its headquarters from Garden City, New York, to Parsippany, New Jersey, the base for most of Cendant's operations. At this time, Avis was managing a system of 1,700 rental locations, including about 900 company-owned outlets.

The new era at Avis got off to a rough start. Siegel left the company in March 2002 to become president and CEO of US Airways Group, Inc. F. Robert Salerno headed Avis as president, a position he had held since 1996. Salerno, who had spent his entire career in the car rental industry, was named CEO in June 2003. In November 2002 he was also given responsibility for Budget Group, Inc., which Cendant bought out of Chapter 11 bankruptcy. At the time, the entire travel industry, including the car rental sector, was in a severe slump because of the drop-off in corporate travel that accompanied the recession and followed the terrorist attacks on the United States on September 11, 2001.

Avis responded to the tough times by initiating cost-cutting measures such as slashing its workforce by 10 percent and its fleet by 20 percent. The company also pushed to pick up more business from vacationers and at-home leisure renters, and toward that end began an aggressive expansion program concentrating on opening new locations in local residential markets. By 2004 Avis had committed itself to opening 100 new locations per year.

During this same period, Cendant was working to wring efficiencies out of its dual-brand car rental operations. Cendant positioned Avis as its premium brand and Budget its value-oriented brand, and the two companies continued to operate separate counters. By 2004, however, Cendant had integrated a large portion of their operations. Avis and Budget now shared a common rental system, fleet, and back-office operation, and field maintenance support had been partially integrated. This integration yielded annual cost savings of $100 million. In another important development, the PHH and Wright Express businesses were separated from Avis Group Holdings, and in early 2005 PHH was spun off to Cendant shareholders and Wright was sold off via an initial public offering.

But Cendant had even more earth-shaking plans for Avis and all of its many other subsidiaries. In October 2005 Cendant announced plans to break itself up into four publicly traded companies. One of the four would focus exclusively on the car rental business and be comprised of Avis Group and Budget. Ronald L. Nelson, the president and chief financial officer of Cendant, was slated to become chairman and CEO of this company, with Salerno serving as president and chief operating officer. Its headquarters were to remain in Parsippany. The breakup was expected to be completed in the summer of 2006, ushering in yet another new era in the ever shifting history of Avis.

Principal Subsidiaries

ARAC Management Services, Inc.; Avis Asia and Pacific, Limited; Avis Car Holdings LLC; Avis Car Holdings, Inc.; Avis Car Rental Group, Inc.; Avis Caribbean, Limited; Avis Enterprises, Inc.; Avis International, Ltd.; Avis Management Pty. Limited (Australia); Avis Rent A Car de Puerto Rico, Inc.; Avis Rent A Car Limited (New Zealand); Avis Rent A Car System, Inc.; Aviscar Inc. (Canada).

Principal Competitors

The Hertz Corporation; National Car Rental System, Inc.; Alamo Rent-A-Car, Inc.; Dollar Rent A Car, Inc.; Thrifty Rent-A-Car System, Inc.; Enterprise Rent-A-Car Company.