The Car Wars Get Local

By Barbara Kiviat

Don Keenan and the six auto-body shops he owns in suburban Philadelphia may look unassuming, but they are, in fact, battlegrounds in the latest incarnation of the rental-car wars--a fight to grab neighborhood business from market leader Enterprise Rent-A-Car. For years, Keenan was a loyal promoter of Enterprise rentals to customers who needed a replacement car. Then he got a call from Hertz, which was looking to branch away from Philadelphia's airport and downtown and into the local market. After thorough negotiating, including a driving tour to show a Hertz executive the locations of his stores, Keenan leased Hertz space in or adjacent to four of his shops. Now almost all his customers drive away with loaners from Hertz.

Say rental car, and most people picture the airport. But that's only about half the $17 billion industry--and not the half that's booming. Airport sales are increasing minimally, if at all, while business at local rental shops, which serve folks looking to replace a car in the shop or to rent wheels for business and leisure travel, is growing 5% to 10% a year. That's why airport heavyweight Hertz, a Ford subsidiary, is making an all-out assault on the slice of the business that Enterprise dominates with about 5,200 shops and two-thirds market share. Hertz, with about 1,300 nonairport locations, is expanding the number of its neighborhood locales about 25% a year and projects that by the end of next year, annual sales will hit $1 billion, or about 12% of the local market. Feeling the same industry pressures, Avis, owned by Cendant, is also making a suburban push; it plans to add 500 shops over the next three years.

Competitors have tried--and failed--to break Enterprise's lock on nonairport business before. Hertz and Avis as well as Alamo retreated from expansion efforts after underestimating how difficult the local market is. While airport locations simply collect deplaning customers, local shops have to make tough decisions about where to build storefronts. National advertising spurs airport rentals, but generating neighborhood sales often requires a more personal touch, starting with national insurance companies and working all the way down to local operators like Keenan. In the late 1990s, Hertz tried to blanket the country, then pulled back when the company couldn't open locations quickly enough to be successful.

Why should Hertz succeed now? "It took a while, but we've learned what it takes to do this," contends Brian Kennedy, Hertz's executive vice president of marketing and sales. The company is focusing on hiring sales-minded managers and building relationships with insurance companies like Allstate and State Farm. This time Hertz is expanding region by region, getting to know each area as it goes. Keenan experienced Hertz's aggressive push firsthand. Replacement cars are an important part of his business, so the decision to partner with Hertz was a big one. "I kept asking, 'How long is your commitment?'" Keenan recalls. "They assured me that they're committed to this marketplace for the long term."

But the outcome is far from a sure thing. Enterprise executives say their deep network of relationships in the replacement market and the company's service-focused culture will help it prevail. "Competition isn't a bad thing," says Jim Runnels, senior vice president of rental at Enterprise. "I've seen a lot of companies come and go. One of the reasons we've done as well as we have is that customer service has been our primary focus, and that isn't something that just happens. You have to work very hard at that." Clearly, Hertz doesn't have an easy road ahead.