National Car Rental System, Inc.
National Car Rental System, Inc.
Sales: $700 million
SICs: 7514 Passenger Car Rentals
National Car Rental System, Inc. (or National Interrent, the corporate tagline), is one of the foremost car rental businesses in the world. Privately held National features vehicles made by General Motors (which owns an 81.5 percent share in the company) and functions as a leading partner—with Tilden Interrent, Europcar Interrent, and Nippon Interrent—of the Interrent network, with more than 5,000 rental locations in 130 countries. Over the years, National has bounced from owner to owner, but perhaps no transition proved as unsettling as the leveraged buyout (LBO) engineered by former National chairman Vincent A. Wasik in 1986. Ultimately forced out by GM executives in 1992, Wasik left the company as it was losing market share and $100 million annually. National was still in the midst of turning itself around in 1994.
National was formed in St. Louis, Missouri, on August 27, 1947, by 24 independent car rental operators who hoped to broaden their market influence by teaming together. Among the original owners was Joe Saunders, who is generally credited with launching the car rental business back in 1916. One of National’s most important early moves was the international service agreement it formed with Tilden Interrent, the largest and oldest Canadian car rental firm, in 1959. Two years later National’s headquarters were moved to Jackson, Mississippi, when a Minneapolis-based investment group took charge of the corporation. In 1965 National relocated to Minneapolis and was a less-than-promising, seven-employee operation with $12 million in annual revenues and $2.77 million in losses.
However, National was in improved financial shape by 1968, the year in which it became the first car rental company to install a centralized computer system. This same year, National, then held by Greatamerica Corporation, was purchased by Ling-Temco-Vought (LTV Corporation), a Dallas-based conglomerate. National closed the decade with yet another change in ownership, this time by Illinois-based Household International. Revenues and earnings for the subsidiary stood at $71 million and $5 million, respectively.
In 1970 National created its own subsidiary, National Car Rental System International, Ltd., in order to accommodate the company’s growing international business. By the end of 1972 National was operating 1,700 rental stations nationwide and also had licensing agreements with a network of 700 locations in 57 countries around the world. Two years later National signed its first agreement with Europcar Interrent, the largest car rental network outside the United States, serving all of Western Europe and much of Eastern Europe, as well as Russia, the Middle East, and Africa. A number of other ventures characterized the decade, including the operation of an EZ Haul Division of trucks and trailers, and a growing emphasis on fleet sales to the general public.
By 1980 National was selling approximately 20 percent of its fleet annually, or about 12,000 cars per year, compared to just 5 percent in 1974. Assessing the situation in 1980, Bob Tamarkin wrote: “For years the car rental companies were content to wholesale the used cars from their fleets ... at any prices they could get in order to make way for new models.” However, soaring car prices during the 1970s, coupled with wholesalers’ tendencies to pay below fair market price for late-model rentals, spurred first Hertz, and later Avis and National, to approach used car sales as a profit-making sideline. The practice continued until it ultimately threatened new car sales and led GM and other carmakers to extract concessions in the form of buy-back requirements from the rental agencies before the delivery of new fleets. When an economic recession hit, National was forced to sell its 120 used-car lots for a write-off of $90 million.
In 1985 National’s owner, Household International, began a large-scale and probably overdue divestiture program so that it could refocus on its original financial services businesses. The investment firm Paine Webber recruited Vincent A. Wasik to head a leveraged buyout of National, for which his reward was a 25 percent equity stake and chairmanship of the company. According to David Brauer, Wasik increased his holdings to 36.5 percent the following year by orchestrating the sale of Paine Webber’s interest to General Motors. When the original deal was completed in 1986, National was in an apparently strong number three position, with earnings of $16.2 million on revenues of $889 million (including franchisees, which accounted for around 25 percent of sales) and a reputation as the industry’s service leader.
However, the company had its problems, according to Steve Weiner, “As operated by Household, National sometimes was profitable mostly because of tax breaks.” During his first year, Wasik, a former vice-president and director of Hertz, chopped a whopping $1.6 billion in debt in half and also ruthlessly cut expenses through fleet reductions, closings of unprofitable locations, and other measures. Although Wasik claimed credit for “a phenomenal turnaround in profits,” Weiner pointed out that the company had given up market share; in particular, airport market share, a key index, was down from 20 percent to 17 percent.
Wasik’s core strategy was to boost sales to the business segment, especially those customers renting 10 or more times per year. To this end, he launched the Emerald Club, a pioneering frequent car renter program that charged an up-front fee and then rewarded members through free trips, cars, and other prizes for their amount of rental usage. In 1987 this group represented 10 percent of National’s revenue. This same year the company dramatically streamlined its rental agreement, foreshadowing the Emerald Aisle, which offered “entirely paperless transactions” through Smart Key Machines.
In 1988 National solidified its worldwide network through an agreement with Nippon Interrent, which brought the company into contact with Japan, Asia, and the Pacific Rim. National closed the decade on a high note by expanding its relationship with Disney, which stretched back to 1975. The new, 10-year agreement named National the official car rental company of Disney and the beneficiary of high-profile exposure not only at the entertainment giant’s resorts but also, periodically, in its movies (in the film Beaches, for example, the character played by Bette Midler rented a National car).
Despite such publicity coups, National was suffering internally from the effects of the 1987 deal between Paine Webber and GM. Aside from creating annual interest payments of $100 million, part of that agreement obligated National to purchase a fixed number of vehicles from GM, whether the company required them or not. Other costly situations included failed ventures in limousine and classic car rentals. “To careful observers,” wrote David Brauer, “the first clear sign that National was failing to meet the GM loan covenants came in early 1991, when the rental company signed a 10-year, $500 million contract to have the GM unit Electronic Data Systems Corporation (EDS) manage its data processing and communications services.” The contract was unnecessary from National’s standpoint, for information systems was one of its greatest strengths. However, GM needed to stem the losses caused by its troubled holding.
Until 1992, according to Brauer, Wasik ruled National autocratically. Ultimately, GM executives forced his resignation, though not until the company had fallen to fourth largest and was losing $100 million annually. In 1992 GM bought out Wasik’s Fidelco Capital Group for $28 million and took a $744 million restructuring charge; this same year, National regained its third slot in the industry.
In early 1993 Jay Alix, a turnaround specialist, was brought in to join newly installed chairman and CEO Thomas Murphy (who had earlier served as a GM executive-on-loan) to return National to profitability. In April 1993 Murphy stepped down as chairman and was replaced by fellow GM executive William Hoglund. Alix was named CEO at the same time. By December 1993 National had found a new advertising partner in W.B. Doner & Company and was charting a renewed, high-profile course with greater attention to finding the right balance between the business and leisure markets. Some observers predicted a sale of National, but whether it would occur remained to be seen in mid-1994.
Brauer, David, “Taken for a Ride,” Corporate Report Minnesota, January 1993, pp. 31-35.
Heitzman, Beth, “U-Turn: National Car Rental System Inc. Changes Its Decision on Media Advertising,” ADWEEK Eastern Edition, September 27, 1993, p. 1.
Hirsch, James S., “Renting Cars Abroad Can Drive You Nuts,” Wall Street Journal, December 10, 1993, pp. B1, B7.
“In Brief: National Car Rental/Interrent,” Minneapolis Star Tribune, April 6, 1994, p. 3D.
Levin, Doron P., “GM to Post $23.5 Billion Loss for 1992,” Minneapolis Star Tribune, February 2, 1993, p. ID.
Magenheim, Henry, “National Car’s ’Global Deal’ Expands,” Travel Weekly, June 20, 1991, p. D3.
Peterson, Susan E., “National Car Rental System Names Thomas Murphy as Chief Executive,” Minneapolis Star Tribune, January 28, 1993, p. ID; “After 3 Months as CEO at National Car Rental, Thomas Murphy Steps Down Amid Restructuring,” Minneapolis Star Tribune, April 8, 1993, p. ID.
Tamarkin, Bob, “Buy Where You Rent?” Forbes, February 18, 1980, pp. 150-51.
Teinowitz, Ira, “National Car Rental Eyes Consumers,” Advertising Age, June 15, 1992, p. 54.
Underwood, Elaine, “Budget, National Take Different Directions,” Brandweek, July 27, 1992, p. 5.
Weiner, Steve, “First, Kick the Tires,” Forbes, October 5, 1987, pp. 50, 52.
—Jay P. Pederson