Exclusive Avis Interview With Automotive Fleet

How big are Avis' markets?

There are no really accurate figures. We believe the U.S. rent a car industry probably has revenues of $1 billion annually and has been growing at the rate of 10-percent to15-percent a year over the past decade or so. The domestic car leasing and truck leasing industries are very large, perhaps grossing as much as $5 billion annually, and they appear to be growing from 12-percent to 15-percent a year. The overseas rent a car market is somewhat more dynamic than the domestic one. It has been growing at an annual rate of more than 20-percent in recent years. As for car leasing and truck leasing overseas, the surface has barely been scratched.

We are interested in developing our ability to generate steady earnings growth. In some cases, this may mean limiting our upside potential a bit in order to lessen downside risks. We see a very large potential in rental and leasing, both in the U.S. and abroad, and we know that we can grow as fast as we are able to develop the management required and arrange the necessary financing.

What are the critical variables of your business?

In daily car rental - our major business - location, service and financing are extremely important. Since a big part of our revenues comes from the business traveler, convenient locations at airports or hotels are crucial. We provide service at approximately 1,300 airports worldwide - more than any other company according to published reports - and we intend to keep our leadership in this field. Second, when a customer comes to us, we must be able to provide him with quick, efficient and friendly service. There must be cars when people want them. Avis' innovations, such as the Wizard system and the Red Box, are important in providing excellent service. Flexible financing arrangements are critical so we can purchase vehicles when we need them. We also never forget that we are very much concerned with futures in used cars. Our fleet programs are as much involved with how and when we sell or turn back cars as with our purchases.

On a more general level, air traffic rates and levels are important, especially in Europe where half of our business comes from vacationers. The position of the U.S. dollar could affect travel by U.S. citizens overseas. On the other hand, the bulk of our business in Europe is, in fact, done with Europeans and their travel, of course, is not affected by the American situation. Incidentally, our business from European visitors to the U.S., although small, went up nearly 100-percent last year, and we estimate that it will go up by a like amount this year.

There has been some talk that the U.S. car rental market is beginning to flatten out. What is your opinion?

To the contrary, we see the market beginning to broaden to encompass a new leisure boom. With the exception of places like Florida, Hawaii or the ski areas, most of the U.S. market is still business-oriented. However, this is beginning to change. The major reason is cheaper air travel through package programs and, I suppose, more leisure time. The packages offered by airlines usually include car rentals.

In the United States, it's about 75-percent business and 25-percent pleasure. In Europe, it's about half and half.

Avis has done some advanced work in fleet planning. Would you describe it?

The fleet represents a major portion of rent a car expenses. It takes considerable analysis to ascertain the correct number of purchases at the best prices, having them when and where they are needed, and then being able to dispose of cars at the time of the most favorable market. We have developed a mathematical linear programming model to help us plan our fleet. With it, we can more accurately assess the hundreds of economic factors and market conditions. It is working well in the U.S. and we have exported it to Europe.

How does Avis finance its vehicles?

In the case of our U.S. rent a car fleet, we lease over half of it from Chrysler Leasing Corporation, typically on six-month contracts. This enables us to replace much of our fleet twice a year. We purchase the balance of our rental cars, as well as our trucks and lease cars, using bank lines of credit.