Enterprise Rent-A-Car (ERAC) maintains a unique selling proposition in the rental automobile industry, describing its “greatest idea [as] personal service.” This proposition is built into every facet of ERAC’s operations, from point-to-point car delivery to a 427,000 rental-vehicle fleet. This is clearly seen in president Andy Taylor’s welcoming message on the company’s website (www.enterprise.com):

They say the greatest ideas are the simplest ones. They’re right, and our greatest idea was personal service. It was so page 114easy because it simply required people to act like people. To treat people in a business environment the way you’d treat them if they were your neighbors. You see, our business has been shaped by this very concept. Treating our customers like good friends and neighbors has enabled us to grow to a point where our automotive operations have annual revenues in the billions, a fleet of cars and trucks numbering hundreds of thousands, and thousands of employees—each dedicated to providing personal service.¹⁶

BACKGROUND

Enterprise Rent-A-Car began life in 1957 as a leasing company in St. Louis, Missouri, with a fleet of 17 cars. Founder Jack Taylor soon found that his customers needed short-term rentals to cover times when their leased vehicles were in for maintenance or repairs. Although it was a relatively successful operation, it wasn’t until the 1970s that the business took off. That was when a court ruling held casualty insurers liable for an insured motorist’s loss from being without a car. ERAC became a major player almost overnight, and rapidly grew to a 10,000-vehicle fleet by 1977. By 1993, ERAC began serving Canada and competing internationally. At this time ERAC had more than 200,000 units covering 1,500 locations. Overseas expansion continued in the United Kingdom a year later, bringing the total operation to more than 300,000 rental units and 50,000 lease units in more than 2,500 locations. Today, ERAC operates 7,200 offices in 30 countries around the world. The company has a domestic rental fleet of almost 1.2 million vehicles and annual revenues of $13,880 million.

Now that ERAC has become the industry leader in terms of fleet size and market presence, management faces the challenge of maintaining its performance level as the company’s domestic markets approach saturation.

SERVICE CONCEPT

Andrew Taylor, the second CEO and son of the founder, said, “My father instilled his business philosophy in me, and it’s very simple. When my father started the business, he said that you put customers first because if they are satisfied, they’ll come back. Then come the employees. By making sure they are happy, well informed, and part of a team atmosphere, they will provide the best service possible. If you put the customers and the employees first, the bottom line will happen.”¹⁷

Enterprise claims to offer the perfect rental package, as symbolized by its now-famous wrapped car. The focus is on three key benefits for the customer:

1. Extraordinary convenience in the form of nearby locations and picking up and dropping off customers at their homes, offices, or repair shops free of charge.
2. Excellent rates made possible by the operating strategy.
3. Exceptional selection of vehicles with something for every occasion.

From the first days of the rental business, ERAC’s market focus has been on the local rental segment rather than following the “suits & shorts” emphasis on the business and holiday segment of the established players. This “hometown” rental market now includes the replacement segment (i.e., customers who need a car because of an accident, routine maintenance, or theft) and the discretionary segment (i.e., short business and leisure trips and other special occasions). ERAC relied on the pickup and drop-off components of its service to help set the company apart from the competition. This focus on convenience is now facilitated by a network of offices located within 15 minutes of 90 percent of the U.S. population.

As ERAC began to take on the commercial market, the company maintained some airport locations, especially through its acquired holdings of Alamo Rent A Car and National Car Rental. Consistent with its original market focus, customers are picked up and taken back to the office to settle the paperwork and take possession of the car. Still, according to Taylor, the focus is on the customer: “After all, other companies rent, lease and sell pretty much the same cars as Enterprise. The difference is, their business is cars and ours is people, which explains why so much of our energy goes into recruiting, hiring, and training.”¹⁸

CULTURE

A combination of unusual hiring practices and relatively strict promotion-from-within drives the company’s culture. Virtually every employee is a college graduate; Enterprise claims to be the top recruiter of college graduates in the United States. This factor is out of sync with the labor-intensive car rental industry that seeks to keep employee wages of a unionized workforce low.

The recruiting itself is rather nontraditional, also. “Brainy introverts need not apply,” says Donald L. Ross, ERAC’s chief operating officer. “We hire from the half of the college class that makes the upper half possible,” he adds wryly. “We want athletes, fraternity types—especially fraternity presidents and social directors. People people.”¹⁹ The company finds that social directors make good salespeople because they are more readily able to chat up service managers and to calm someone who has just been in a car wreck.

The focus on athletes also has a noticeable impact on the company’s culture because it fosters a competitive atmosphere to go along with the emphasis on teamwork. Starting pay varies around the country, and ERAC’s reward system feeds this competitive drive because employees don’t receive regular pay raises. They are compensated in part according to the profit earned at their particular location. Financial results by location and region are made available for everyone to see, which further fuels the competition.

The “bottom half of the class” also tends to bring a work ethic akin to the zeal of a reformed smoker, because its alumni have been sobered by a scarcity of career opportunities. Jeffrey M. Brummett, vice president for daily rental operations and a onetime semipro baseball player, comments, “Nobody ever went to college planning to go into the car rental business [an often repeated comment among Enterprise employees]. Then a time comes when that’s the opportunity that presents itself, and you grab it.”²⁰

New management trainees are welcomed by long, grueling hours, during which they spend most of their time cleaning cars and shuttling vehicles to customers. Still, almost every page 115employee, including top executives, start this way. Conscious of the bond this creates, senior officers routinely get involved in the dirty work, and even CEO Andy Taylor used a vacuum. “We were visiting an office in Berkeley and it was mobbed, so I started cleaning cars,” he says. “As it was happening, I wondered if it was a good use of my time, but the effect on morale was tremendous.”²¹ Still, many quit after just a few weeks.

At the corporate level, Taylor left many of the decisions to Donald L. Ross, senior executive VP and COO, and to William F. Holekamp, executive VP. Ross and Holekamp served as role models for new recruits, as both men started by washing cars and serving customers. In time, each decided to take the risk and open an ERAC office in a new location, and their success with these operations proved that they could help guide the company, according to the Taylor philosophy.

GROWTH

ERAC’s focus on the local market continues to pay off as it takes an increasingly larger share. While the airport market has grown annually at about 3 to 5 percent, the local market has grown at 10 to 15 percent. According to Jon LeSage, managing editor of Auto Rental News, “The local car rental market is a lot more significant than the public would assume. The real growth in this business is going to be in the local market.”²²

ERAC likely will continue to benefit from this growth, because the company has so many rental locations spread around the world. CEO Taylor saw no sign of a slowdown. Moreover, the company has grown at an annual rate of more than 20 percent for the past several years.

Two-income families also are helping to drive the market: When both partners of a couple work, each depends on his or her car, and when one of the cars falls out, ERAC’s lower price makes it a natural choice. Moreover, people are renting from ERAC even when the family car runs just fine. “We call it the Virtual Car,” said Taylor. “Small-business people who have to pick up clients call us when they want something better than their own car. So do people who have to take a long trip and don’t trust, or just don’t want to use, the family car.”²³

A new office is opened usually as soon as adjacent offices have reached a 100-vehicle inventory. After a new office opens, employees move into the surrounding community to develop relationships with the service managers of every good-size repair facility in the area. ERAC knows that the recommendations of service managers carry a great deal of weight with repair customers who are busy dealing with the confusion of the moment. It has become a national Wednesday ritual for ERAC employees to bring pizza and doughnuts to workers at nearby garages. Indeed, a large portion of recent growth has come from auto dealers who offer customers a free or cheap replacement while their cars are in the shop. ERAC has agreements with many dealers to provide these replacement vehicles, but at major accounts, ERAC staffs an office on the premises for several hours a day and keeps cars parked outside. According to one Porsche, Audi, and Rover dealer in West Long Branch, New Jersey: “The Enterprise people are practically part of my staff.”²⁴

OPERATIONS

ERAC operations are separated along its two primary lines of business: rental vehicles and corporate fleet management. Enterprise buys cars from a wide variety of American, Japanese, and European automakers. To reduce costs, it keeps its cars on the road up to six months longer than do either Hertz or Avis.

Rental Operations

ERAC’s 7,200 offices are connected via an exclusive 1-800 number that links customers to the world’s most advanced and most convenient office locator system. It allows customers to contact any of the North American offices via one simple number. This is supplemented by ARMS (automated rental management system), which provides an electronic interface that allows major clients, such as insurance companies, to manage bookings, billings, and payments in the most efficient manner possible.

ERAC’s service concepts are evident in the rental operations. Whether at home or at the repair shop, ERAC delivers the vehicle to the customer. Despite this highly personalized service, ERAC offers rates that are often 30 percent lower than those of its competitors. From Chevy Aveo to Lincoln Towncar, from Ford Escape to Cadillac Escalade, ERAC provides a selection from more than 60 vehicles, including electric/hybrid cars, to meet a wide range of customer needs. Variety is also a primary profit driver in the replacement market. ERAC is betting that customers who are stuck for transportation won’t be in the mood to quibble about prices. While the tiny GEO Metro is available for about $30 a day (i.e., the amount many insurance policies pay for replacement rentals), about 90 percent of people pay more to get a bigger car.

Fleet Management Operations

Its origin was leasing, but ERAC has expanded the scope of its fleet management services by providing complete, end-to-end fleet management, which allows client companies to outsource their entire vehicle departments. A dedicated, local Enterprise Account Services representative manages every aspect of the client’s fleet including acquisition, insurance services, registration, after-market equipment, financing, fuel management and reporting, full maintenance management, corporate rental programs, and disposal.

COMPETITION

ERAC faces competition from a variety of sources, most notable of which are the traditional airport car rental companies such as Avis, Hertz, and Budget. Nevertheless, ERAC focuses on a different segment of the rental car market than do these companies. Traditional companies are dedicated to short-term, on-site rental for travelers, but ERAC focuses on the “hometown” market. Consequently, its most direct competition comes from the service loaner fleets of car dealerships. When a customer brings a car in for service, many dealerships now provide a service loaner, which eliminates the opportunity for ERAC to provide service.

The shape of the competitive field also is changing with a reviving auto industry and rising car prices. Consolidation is ongoing, as the smaller players are finding themselves page 116unable to withstand the higher capital outlays. One of the biggest threats to the independents is the cash reserve of the allied players like Hertz and Budget, both of which are owned by Ford. Still, lacking debt, outside ownership, or red ink, ERAC is one of the most secure companies in a very insecure business.

Questions

1. How has Enterprise Rent-A-Car (ERAC) defined its service differently than that of the typical national car rental company?
2. What features of its business concept allow ERAC to compete effectively with the existing national rental car companies?
3. Use the service profit chain to explain the success of ERAC.