At the recent ACRA convention, AF editors sat down with Dick Gillis, ACRA's new president, to talk about the American car rental industry. The following interview provides not only an analysis of recent developments but projections of future challenges and growth.
AF: What have the major trends been in the car rental industry in the last five years?
Gillis: The biggest change in the industry, as I see it, has been the stabilization of rates. By stabilization of rates I don't mean that rates are between $25 and $30 a day or $40 and $50 a day but that the industry has settled on flat daily states. The customer doesn't like plus-mileage rates; he appreciates knowing what it's going to cost him when he enters into the rental.
Hertz, Avis, National, Budget, and companies like my own, American, have all pretty much stabilized on an unlimited mileage rate so that it's very predictable.
The other thing that's happened is that the cost of borrowed funds has come down and stabilized, and car prices have stabilized. You can normally expect 3 to 5 percent increases annually, whereas in the past you never knew what was going to occur. Not only did you have an intro price increase, but you had a series of increases on a quarterly basis. You had to keep feeding the increases into your rates. Furthermore, you never knew what the cost of money was going to be a day-today; money might have been 15 percent when you ordered the car, and it was 17 percent when the car came in. It was very unpredictable. So I believe we've seen stabilization in the price of cars and of money. Couple this with the stabilization in rates and the confidence of the business and touring public in using rental cars. I believe we have a very good future.
Another aspect is this: it's nice to hear the travel industry compliment the car rental industry, saying in a survey they took of over 100 travel agencies nationwide that most travel agencies are most complimentary of their relations with car rental companies, and they feel the car rental industry has done a tremendous job in cleaning up their act. Rates are understandable, and the service is better. They're receiving their commission and saying they have no problems working with the car rental industry. It's incumbent upon any company that wants to grow and prosper during the balance of the eighties to realize that the travel agent is a very vital part of their plans for growth in the future.
AF: In the next five years, what do you think the major challenge facing the American car rental industry will be?
Gillis: You heard some speakers from the travel industry give out their predictions that they thought the car rental industry will be growing at a rate of 7 to 8 percent per year through 1990. I believe that's going to be the case. I don't think we're going to see the wild swings in inflation and recession that we just went through; hopefully, our government has learned to control these swings a little better, and things can be more predictable. I believe a 7 to 8 percent annual growth is realizable now.
Internally, within our companies, the biggest challenge we all have is with our people -getting our people more involved in the business so we can continue to grow with a base of people we have now and can bring new people into the industry. Traditionally, car rental companies hired at near minimum wage and had a high turnover. Now, we're looking for talent we can grow with, and we'll spend money to hire and train this talent and get them very much involved in the automated industry that we have.
AF: A couple of things that you just mentioned were artfully brought out in the film Megatrends, with which ACRA opened the convention. One of the topics that the film specifically mentioned was the shift from a hierarchal structure to a networking structure. How do you see that manifest?
Gillis: We're going to start hiring people with higher job skills than in the past. We'll be looking at information specialists, travel specialists, management specialists- people who are going through high school and college today are coming out much more sophisticated in in formation management. And I think they'll be more productive people, enabling us to grow because we can do it through automation with less emphasis on manpower. So I think the move is very positive.
AF: In a different vein, rental cars are now available at every airport and major downtown area. Do you think they compete with rapid transit?
Gillis: No, to the contrary, I believe that rental cars complement rapid transit. We have a very unique phenomenon in Washington, D.C., where our Metro system is about 60 percent complete. We're finding a lot of people coming into the area to take jobs with the government or in government- related fields, and choosing to find their first apartment near a Metro stop, saving their money to eventually buy a piece of real estate, as opposed to putting it into a car, and saying, "I can take the Metro downtown for $.75 each way, and I can pick up a rental car on the weekend when the rates are much more favorable."
AF: The car rental industry, as a part of the travel industry, depends to a large extent on the corporate traveler. Would you expand on the relationship and where it may be going?
Gillis: Statistics that I've seen indicate that probably 70 percent of the car rental business is generated at airports, so we could safely assume that probably 85 percent of that 70 percent is probably business-oriented.
I don't believe we're going to see much growth in that figure because the real growth is going to come from the leisure and travel user. Did you realize that only 13 percent of that group has ever rented a car? That's where the real growth will be, both on- and off-airport, for the balance of the eighties.
There's also a growing demand for rental cars in the suburbs, and that market is best served by the smaller companies such as our own.
AF: What are some of the biggest challenges the car rental industry faces?
Gillis: The biggest challenge we have at the moment is to make sure that H.R. 1415 doesn't get any further in this or any future Congress. I believe it's incumbent upon our industry members to spread the word about the flaws in H.R. 1415. It's just not good for the consuming public, the fleet industry, or the manufacturers - it's just plain special-interest legislation. So I'm going to spend a lot of my time during the next year making sure that special-interest legislation doesn't get passed. You might be interested to know that in our legal and legislation committee at ACRA, we've passed a motion to put into action an ad hoc coalition against H.R.1415, and this coalition will consist of representatives from other allied trade associations such as AALA and the state CATRALAs. It will also involve the manufacturers. And this may seem a bit strange to you, but we're also going to ask for U.A.W. support. The car rental industry will go to labor and say, very simply, that if less cars are sold, that means less jobs. I believe that in the end, common sense will prevail and the legislators will see. H.R.1415 for what it is, special-interest legislation.
AF: What are the best ways for different subgroups in the American automotive industry to work with the government?
Gillis: Trade organizations are very important. When you show numbers to the legislators and show them the numbers you represent, you gain more credibility than if just you and I were to go into our congressman's office and voice our opinions on some issue. When you do it with such credible association backing, manufacturer backing, and labor backing, the legislators listen to you. I think you'll see that our associations will no longer sit back and watch bills like H.R. 1415 mushroom into something dangerous. We are going to become much more active in the Washington scene, and we'll be heard from on H.R.1415 and any other ill-conceived legislation that could be detrimental to our industry.