Hertz's copycat actions may be flattering, but they're also a serious challenge to the family-run business. Lucky that they only need to make themselves happy rather than testy shareholders.
Enterprise Holdings Inc. managed to become the world’s largest rental-car company by sales without actually spanning the globe. The chief executive officer says he knows that has to change.
Until recently, there wasn’t an Enterprise rental counter in China, Spain or France. Malaysia and Korea, a couple of the world’s fastest growing markets, remain untapped. So to meet the global needs of international corporations, Chief Executive Officer Andy Taylor, son of founder Jack Taylor, has had to do something they have been loath to try in the 56 years they’ve controlled the closely held St. Louis area company: franchising.
“Years ago, the thought of licensing was absolutely abhorrent,” Andy Taylor, 65, said in an interview. “We want to control that customer experience. We want our people taking care of customers. But we’re learning that if we’re going to be a global brand, and we need to be competitive in the future, we’ll have to do it a different way.”
Just not too different. While he’s willing to give up a little control over customer contact to gain local insights, Enterprise isn’t interested in going public or making any other radical changes after the merger of Hertz Global Holdings Inc. and Dollar Thrifty Automotive Group Inc. last year or the rise of Zipcar Inc. and its acquisition by Avis Budget Group Inc., announced in January.
With a strong family culture and tight control over practices that set the industry’s benchmarks, Enterprise has been able to call its own shots. It even set off this latest, and presumably last, round of major industry consolidation with its acquisition of the Alamo and National brands before the worst economic downturn since the Great Depression.
While those additions made Enterprise bigger, they didn’t make it global. That’s what CEO Andy Taylor is addressing now. He discussed the company’s outlook in an interview at his fourth-floor office in the St. Louis suburb of Clayton, near where his dad started the company more than a half-century ago.
These days, Enterprise’s corporate customers want a rental- car company with a matching footprint, Andy Taylor said. Avis operates in 175 countries and Hertz, the second-largest U.S. rental-car chain, is in 150. Enterprise is in about 40.
Some corporate customers want Enterprise in every corner of the world, others just in the biggest countries, Taylor said. He aims to get Enterprise in as many as 90 in three to five years.
In December, Enterprise signed its first franchisee, Guerin Car Rental Solutions, in Portugal, expanding the brand’s European presence to six countries. It has since added a franchisee in Italy, Locauto Rent, and another in Greece, and it acquired local chains Citer, in France, and Spain’s Atesa. Enterprise entered China in March 2012, taking a 15 percent stake in eHi AutoServices.
The company’s main global brand will be Enterprise, Greg Stubblefield, chief strategy officer, said in an interview. The new locations in France and Spain will take the Enterprise name, while counters in China, Italy and Portugal will use Enterprise in conjunction with the local brands.
“We realized that maybe our start-from-scratch business model that worked in the U.S. maybe isn’t going to work in another country,” Taylor said. “It’s not a question of capital, it’s about home turf. If you’re going into Poland or Finland or Brazil, you need a hometown team of locals who understand the rules.”
Enterprise has been led by a Taylor since 1957, when Jack began leasing a seven-car fleet out of an office at Lindburg Cadillac. Now 90, he ranks 63rd on the Bloomberg Billionaires Index, with an estimated net worth of about $14.2 billion. Jack splits time between St. Louis and Palm Beach, Florida. His worth has climbed $3.7 billion, or 35 percent, this year.
Andy entered the family business at 16, helping his dad repossess cars. He joined the company full-time in 1973 and was named CEO in 1991. Andy Taylor, who said he has no plans to retire, says it’s no certainty that his successor will be a Taylor. Of the 13 directors who eventually would choose the next CEO, four are members of the family and directors can’t vote for themselves, he said. Besides son Andy, Jack and his ex-wife Mary Ann have a daughter, Jo Ann, and five granddaughters.
“The CEO title is frankly less relevant inside our business,” Andy Taylor said. “We only get things done here as teams and I’m going to carry on for a while anyway.”
Enterprise, named for the Navy ship on which Jack served in World War II, started slowly on its journey. The business didn’t reach beyond St. Louis until 1969. It expanded to Canada in 1993 and England a year later. In 2007, Enterprise added the National and Alamo brands, rapidly expanding its business and leisure operations, making it the world’s largest rental-car company.
Revenue rose from $78 million in 1980 to $6.5 billion in 2002 and $15.4 billion last year, all as a closely held company. Based on valuations of Hertz, which trades at about 80 percent of estimated 2013 revenue, Enterprise is valued at about $13.5 billion, according to Fred Lowrance, a Nashville, Tennessee- based analyst at Avondale Partners LLC. The Bloomberg Billionaires Index estimates the company’s value at $14.2 billion.
Keeping control in the family has been critical to helping the company and its 74,000 employees stick to the four-part Taylor family business philosophy of customer service, employee development, expansion and, the lowest priority, a “reasonable” bottom line.
“I love to compete with companies, particularly the ones who are public, who have our balance reversed,” Taylor said.
With that approach to service first, Enterprise has topped J.D. Power & Associates’ North American rental-car satisfaction study for eight of the past nine years. National and Alamo began to scale the rankings after Enterprise Holdings acquired them, and last year, for the first time, Enterprise, National and Alamo took the top three spots.
“Enterprise is the model organization,” Lowrance said in an interview. “When you listen to what other rental-car management teams say about how they manage their business, you say, ‘Oh, yeah, that’s what Enterprise does.’”
Consider several recent moves by Hertz.
It strengthened its position with leisure travelers with its purchase of Dollar Thrifty, much like Enterprise’s addition of Alamo and National. Hertz has also been expanding away from the airport. That 35 percent chunk of the $30.5 billion U.S. market has been dominated by Enterprise. Excluding auto leasing, the rental industry in the U.S. is $23.6 billion, according to Auto Rental News.
Hertz has even begun buying more cars from automakers on a “risk” basis, something Enterprise had always done, Lowrance said. Instead of selling a car back to the automakers at a guaranteed price, the rental company sells it for whatever the market fetches, taking the potential upside, or risking the downside.
“Everything I look at that Hertz has been doing, moving off the airport, selling direct to retail, moving the vehicle mix toward risk, it all smells like and looks like Enterprise,” he said.
Except for the ownership. From mid-2007 to early 2009, Hertz tumbled by almost 90 percent. It has since rebounded and the shares are the highest they’ve been since 2007. That kind of ride — and the shareholder pressure that comes with it — doesn’t appeal to the Taylors.
Enterprise flirted with the public markets a few times, most recently in the late 1990s as way to manage estate-planning. Andy Taylor even included a top-shelf boardroom when the headquarters was built in the early 1990s, just in case. That boardroom is now Jack’s part-time office.
At this point, Andy Taylor is firmly against selling stock to the public. He sat on the board of St. Louis-based Anheuser-Busch Cos. for 13 years until it was taken over in 2008 by Leuven, Belgium-based InBev NV, which then renamed itself Anheuser-Busch InBev NV. Taylor said being private is a “huge” competitive advantage in a cyclical industry.
“It’s off the table,” Taylor said, when asked if Enterprise would consider going public. “That’s a long way of saying, absolutely not.”
If he wavers, he said he can always call Ed Whitacre, the former CEO of AT&T Inc. and General Motors Co., to talk him out of it. The two spent more than a decade together on the Anheuser-Busch board. Whitacre stepped down as CEO of GM on Sept. 1, 2010, rather than lead the company through its IPO, which took place 11 weeks later.
“Ed would occasionally look at me and say, ‘Andy, If you’re ever thinking about going public, call me first.’”
Editors: Jamie Butters, John Brecher, Bill Koenig. To contact the reporters on this story: Mark Clothier in Southfield, Michigan, at firstname.lastname@example.org. To contact the editors responsible for this story: Jamie Butters at email@example.com.
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Photo Credit: Enterprise's CEO Andy Taylor speaking at Fortune Brainstorm Green 2012 conference. Fortune Live Media / Flickr
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