Budget Rent a Car Corporation

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Budget Rent a Car Corporation

4225 Naperville Road
Lisle, Illinois 60532-3662
(708) 955-1900
Fax: (708) 955-7799

Private Company
Employees: 10,400
Revenues: $2.2 billion
Stock Exchanges: New York
SICs: 7514 Passenger Car Rental

In the early 1990s the Budget Rent a Car Corporation ranked as the worlds third largest car and truck rental system, with company-owned and franchise operations in more than 110 countries and in all 50 of the United States. The company has grown steadily throughout its 35-year history and has solidified its position within the increasingly important service sector. Though the company was founded as a service to budget-minded leisure travelers, Budget has recently increased its selection of available automobiles and has made considerable inroads into the business market. The company operates a fleet of approximately 232,500 cars and trucks from more than 3,200 locations including 825 airports in over 100 one hundred countries.

Budget was founded in Los Angeles in 1958 when Morris Mirkin opened a small rental car company for personal renters seeking an inexpensive automobile. The company consisted of Mirkin and his wife; together they managed a fleet of ten cars, originally available at the rate of four dollars a day and four cents a mile. By 1960, Mirkin had established the Budget Rent a Car Corporation and laid the foundation for a system of corporate and licensee-owned operations.

Budget maintained a tight market focus on value-oriented leisure travelers throughout the 1960s and 1970s. The company grew by more than 20 percent every year in the leisure market during its first two decades. In addition to consumer markets, Budget began to develop policies and programs designed for smaller businesses and medium-sized corporate accounts, and the car renter moved into limited national accounts. Following an industry-wide trend, much of Budgets rental business grew to revolve around national and international airport locations.

Budget remained a predominantly franchise-operated rental company until the late 1970s. As the rental firm planned for a shift in focus as it headed into the 1980s, it began to experience turbulent times. The companys franchising business formula propelled much of Budgets growth and commanding position in certain markets during its first 30 years. With the initiation in 1983 of a program to convert from a franchising to an operating company, however, the company began to fidget with their winning formula. The change in management policy was attributed to the companys desire to ensure greater efficiency and consistency in service, communications, and procedures throughout its expanding, worldwide system of rental agencies. The decision, however, meant breaking from Budgets history of concentrating on the interests of smaller businesses and medium-sized corporations. These changes, along with the repeal of the federal investment tax credit in 1986, signaled the restructuring of Budgets management. Repeal of the tax credit law meant that owners of the rental-car companies were no longer the recipients of tax exemptions for new car purchases.

The company underwent a complete change in ownership in 1986 when the New York-based investment firm Gibbons, Green, Van Amerongen purchased Budget for over $200 million in a leveraged buyout. Twenty-nine percent of Budgets stock was purchased just one year later in a public offering. In early 1989, Beech Holdings Corp.a holding company comprised of Budget management, Ford Motor Co., and Gibbons, Green, Van Amerongenpurchased 100 percent of Budget stock for $333 million.

Budget, like all U.S. rental companies, routinely upgrades its fleet, selling older cars and supplanting them with newer models. Consistent with nationwide trends in the U.S. car rental industry, Budget entered into purchasing agreements with a major U.S. automaker, in this case Ford, which had gained non-voting stock in Budget in the 1989 sale to Beech Holdings Corp. Following the reorganization under Beech Holdings, Budget replaced its entire U.S. fleet (composed of Ford and Lincoln-Mercury models) every six months. In addition, much of Budgets rental fleet was upgraded to include more luxury vehicles.

Business travelers comprise car rental companies largest customer base: fewer than 2.5 million frequent business travelers account for nearly 50 percent of all car rentals at U.S. airports, the industrys most important market. Following the restructuring of Budgets management in 1989, the company began a concerted drive toward gaining more corporate and Fortune 500 accounts with the goal of further penetrating that business market. By 1991, Budget was the primary or secondary provider of rental vehicles to 210 of the Fortune 500. Instrumental to this shift in the companys focus was William N. Plamondon, who was promoted to senior vice president of marketing in 1989 and named executive vice president and general manager, North America in December of 1990. In 1993, Plamondon became Budgets president and chief executive officer.

Budgets drive to gain blue chip accounts was linked to the companys 1980s campaign to gain corporate control over its franchised licensees. With greater corporate control, Budget could guarantee the availability of more luxury automobiles and services, such as the availability of cellular phone service in rental cars, that were targeted toward business travelers. These changes culminated in late 1990 when Budget gained corporate control over its largest licensee, Diversified Services of Fort Lauderdale, Florida. The buyout gave Budget direct access to seven additional high-traffic airport sites, including key locations in Los Angeles and Floridathe two largest car rental markets in the United State Budgets acquisitions in domestic markets were paralleled by a similar expansion in foreign car rental markets during 1990 and 1991.

While many major car rental companies experienced a downturn in foreign operations during 1991 because of the Persian Gulf War, Budget did not. In fact, Budget executive Bob Wilson insisted in the May 23, 1991, Travel Weekly, The big story for Budget over the last two years is its corporately acquired locations in Europethe U.K., Belgium, France, Spainwhere Budget owns the outlets rather than franchising them. In line with the companys domestic policy of corporate-run outlets, Budgets foreign rental outlets provided the same corporate-designed services and automobiles tailored to business clients.

In recent years, Budget Rent a Car has followed a growing trend in service-oriented companies to make use of newly developed information technologies. Budget pursued new communications developments in an effort to integrate their car rental system into a growing, computerized info-environment and designed a diverse range of interactive services which allowed customers to access information concerning Budgets rental services. Initial services of this sort centered on the availability of telephone information lines, but soon expanded to include on-line information services as well.

In 1990, Budget introduced Remote Transaction Booths (RTBs) into several major North American cities. The RTBs operate very much like automatic bank teller machines, allowing clients with a drivers license and a major credit card to rent from high-activity locations such as hotels and shopping malls. In 1991, Budget introduced Point to Point Directions to twenty-seven of its airport locations. The multilingual system offers customers directions to any city address within the airports metropolitan areaa function traditionally fulfilled by service representatives at the rental counter.

In 1992, Budget considered a joint development project between itself, Hilton Hotels, Marriott Corporation and AMR Information Services called Intrico. The venture originally aimed at development of a reservations information network called Confirm that would be used by the hotel and car rental companies. Budget announced its decision to drop out of the systems development in July of 1992 because of the projects uncertain future.

The car renter began contracting with TML Information Services Inc., a New York company that performs searches of driver-history databases in an effort to cut liability insurance costs. The rental company determines whether a renter constitutes a high risk based on information from TMLs computers and, if so, refuses the companys rental services. TML Information Systems, Budgets link to the driver-history databases, accesses Florida, Maryland, New York, and Ohio record keeping systems, and is also seeking access to records in other states.

Budget Rent a Car stands in a solid position to expand its services worldwide. With the increased reliance of U.S. automakers on rental fleets for domestic sales, Budget and other rental companies face a relatively steady futureunless used car markets fail to absorb the rapid turnover of rental fleet cars. Currently, the rental car industry purchases approximately 10 percent of cars made by American companies. In addition, Budgets increased corporate control over its worldwide operating outlets puts the company in a position of greater flexibility in the face of changing customer and corporate needs.

Further Reading

Rental-Car Industry: A Tumultuous Giant, Automotive News, March 27, 1989.

Car Rental Companies Checking Records, Detroit Free Press, October 8, 1993.

Car Rental Terminal, Fortune, November 5, 1990.

Budget Acquires Largest Licensee, Travel Weekly, September 3, 1990.

Car Rentals on Rebound After War, Travel Weekly, May 23, 1991.

Budget Mapping, Travel Weekly, July 15, 1991.

Thomas Bohn