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Hertz deal won’t hinder Enterprise’s path to growth, analysts say

By Lisa Brown, St. Louis Post-Dispatch –

ST. LOUIS — When Hertz in August announced its plans to acquire the Dollar and Thrifty car rental brands, the news caused hardly a ripple at the Clayton, Mo., headquarters of rival Enterprise Holdings, the world’s largest car rental company.

Hertz Global Holdings’ $2.3 billion dollar deal to buy the Dollar Thrifty Automotive Group, subject to antitrust approval, will boost New Jersey-based company’s fleet of cars and trucks by about 17 percent, to 720,000, and solidify its place as the world’s second-largest rental car company. Enterprise has a fleet surpassing 1.2 million vehicles.

Hertz had long sought the car-rental company, even after a failed bid to buy Dollar Thrifty in 2010. And analysts don’t expect the deal to hinder Enterprise’s ability to grow its three major car rental brands: Enterprise Rent-A-Car, National Car Rental and Alamo Rent A Car.

“(Enterprise) has always done a good job differentiating themselves from the competition,” said Nima Samadi, an analyst with Santa Monica, Calif.-based business research firm IBISWorld. “Enterprise’s advantage is leveraging their existing strength — their number of locations. This won’t create a sea shift, other than it puts Hertz clearly ahead of (No.3) Avis Budget.”

While Hertz picks up a long-sought-after target, Enterprise executives say they don’t plan on deviating from a long established strategy of focusing on key fundamentals — customer service and giving employees training and advancement opportunities — that has led the privately held company to command a dominant position in the industry over five decades.

“We don’t really focus on competitors,” said Greg Stubblefield, an executive vice president at Enterprise who oversees strategy, global sales and marketing.

In his 30-year career at Enterprise, the company has succeeded best when it made its own path rather than follow industry trends, he said. Even in the face of economic head winds, Enterprise reported record revenue in its 2011 fiscal year, $14.1 billion, a 12 percent increase from 2010.

“The differentiation of our service levels will always be there,” he said. “We don’t look at what the industry does.”

Hertz’ acquisition of Dollar Thrifty would boost Hertz’s U.S. market share from 19 percent to 24 percent, narrowing the gap between it and Enterprise, which holds 39.3 percent of the market, according to IBISWorld. The firm doesn’t track global market share information.

The acquisition also would decrease the number of major players in the car rental business from four to three, with Avis Budget Group rounding out the third spot with an 18.5 percent market share.

Samadi said he doesn’t expect the Hertz deal to lead to higher prices for customers as the number of brands would remain the same.

“It won’t have a profound effect on pricing,” he said. “What will is growing demand, as business and leisure travel increases.”

Hertz and Enterprise have competed for customers’ business for decades. Hertz’s history renting cars dates back to 1918. With the addition of Dollar Thrifty, its combined sales would total $10.2 billion.

Enterprise got its start in 1957 at a St. Louis car dealership with seven cars available for lease. Led by its founder, Jack Taylor, the company began renting cars five years later to people whose cars were being repaired at dealerships. In its 55-year history, the company has had just two CEOs, its founder, and his son, the current chairman and CEO, Andy Taylor.

Enterprise set itself apart from competitors in its early years by building rental car branches in downtowns and neighborhoods — markets other rental car companies ignored — and away from airports, where rivals fought aggressively for the lucrative business traveler.

That strategy paid off, and by the mid-1990s, Enterprise surpassed Hertz as the largest rental car company, based on fleet size.

“We opened locations that were very convenient to where people worked and lived,” Stubblefield said. “We made it easy to access a rental car, and we made it affordable on a consistent basis.”

Enterprise opened a branch servicing Denver International Airport passengers in 1995, marking its first airport location. The company added more locations near airports in the following decade, and increased its presence at airports significantly with its 2007 acquisition of the National and Alamo brands from Cerberus Capital Management.

The acquisition of National and Alamo strengthened Enterprise’s ability to offer diverse services and pricing for different customers. National focuses on business travelers and Alamo is geared toward vacationers who are looking for value deals.

But Hertz has been making gains in adding off-airport locations, and the addition of Dollar Thrifty — which caters to value-conscious leisure renters — to its portfolio could put pressure on Enterprise.

“Hertz has the ability to attempt to move the millions of Dollar and Thrifty customers through their off-airport distribution channel,” said Neil Abrams, president of Abrams Consulting Group, consulting and research firm based in Purchase, N.Y. “Enterprise is clearly the leader in the off-airport space, but Hertz has grown its number of off-airport locations.”

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