Avis Group Holdings, Inc. - Company Profile, Information, Business Description, History, Background Information on Avis Group Holdings, Inc.

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Parsippany, New Jersey 07054-3826

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Our mission: We will ensure a stress-free car rental experience by pr oviding superior services that cater to our customers' individual nee ds ... always conveying the "We Try Harder" spirit with knowledge, ca ring and a passion for excellence.

History of Avis Group Holdings, Inc.

Avis Group Holdings, Inc. and its subsidiaries own and operate or fra nchise approximately 1,900 car rental locations in the United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina, Australia, and New Zealand. Avis Group is one of two companies that comprise the Avis System, which ranks as the second largest general use car-renta l business in the world, trailing Hertz Corporation. (The independent Avis Europe Holdings Ltd. is responsible for the Avis System in Euro pe, Africa, the Middle East, and parts of Asia, where it owns or fran chises more than 3,000 locations.) Known throughout its history for q uality service, Avis Group caters primarily to business travelers (wh o account for about 65 percent of the company's domestic revenue), an d has therefore traditionally concentrated on airport rental location s. Although, as a result, 84 percent of revenue is still derived from the airport sites, the company in the early 21st century has made a concerted effort to target the local market and to this end has opene d numerous off-airport locations. Avis Group has been owned by Cendan t Corporation since March 2001, but late in 2005 Cendant announced th at it intended to split itself up into four separate companies. One o f the four would focus exclusively on the car rental business and wou ld be comprised of Avis Group and its sister company, Budget Rent A C ar System, Inc. This would mark only the latest of more than a dozen ownership changes for Avis over a convoluted six-decade history.

Early History

Avis Airlines Rent-A-Car System was founded in 1946 by Warren E. Avis , a former Army Air Corps flyer. The owner of an automobile dealershi p in Detroit, Avis had the idea of providing car-rental services at a irports, surmising that air travel would quickly become more popular than travel by rail. Using savings, dealership profits, and a $75 ,000 loan, he opened Avis Airlines Rent-A-Car System in two locations , at Willow Run Airport near Detroit and at Miami Airport in Florida. Avis's idea proved successful and his business grew quickly. Airport s in New York, Chicago, Dallas, Washington, Los Angeles, and Houston were soon serviced by car-rental franchises licensed to use the Avis name.

By 1948, Avis was nationally known. In that year, the company dropped the "airlines" designation from its name, expanding operations beyon d airports to serve hotels and businesses in urban areas. During the next six years, Avis also expanded internationally. In addition to it s 185 locations in the United States, Avis acquired ten in Canada and one in Mexico, and established ties with car-rental agencies through out Europe and the United Kingdom. Warren E. Avis sold the company in 1954 to Richard S. Robie, a car-rental system owner operating in New England. Robie encouraged continued expansion, introducing a one-way car-rental system and a company charge card. Although Avis had reven ues of $4 million in 1956, Robie was plagued by problems of cash flow incurred during his expansion efforts, and was forced to sell th e company that year. Avis's new owners, the Amoskeag Company and othe r investors, continued to foster its growth, creating a new entity, A vis, Inc., as a holding company for the various operations. Business operations were consolidated through the formation of a wholly owned subsidiary, Avis Rent A Car System, Inc.; electronic data processing was introduced to facilitate the company's innovative corporate charg e card billing system; car leasing was established; and the licensee system was extended to include markets in Austria, Belgium, Norway, a nd Spain.

By 1962, Avis owned a fleet of 7,500 vehicles generating annual reven ue of $25 million. The company was purchased that year by Lazard Freres & Company, an investment banking firm in New York City, an d its corporate headquarters was moved to Garden City, New York. Unde r the direction of newly appointed President Robert Townsend, Avis la unched a highly successful advertising campaign emphasizing its statu s as number two contender for car-rental market share. The slogan "We 're only No. 2. We try harder" appealed to the public and contributed greatly to Avis's subsequent growth. In 1965, having attained annual revenues exceeding $74 million, Avis was acquired by Internation al Telephone & Telegraph Corporation (ITT); Winston V. Morrow, Jr ., was appointed chief executive officer. During this time, internati onal expansion again assumed paramount importance, and Avis increased its operations throughout Europe and Africa, becoming the leading ca r-rental company in Europe within eight years.

Strong Growth in the 1970s

Keeping pace with technological advances, in 1972 Avis introduced the first and largest computerized information system to be used in a U. S. car-rental business. The Wizard System, subsequently overhauled se veral times, made reservations and processed rentals, maintained prev entive maintenance schedules for Avis's vehicles, and generated for a uto manufacturers lists of customers who purchased Avis's used cars. The system also provided electronically transmitted billing reports f or use with corporate accounts.

During the same year, Avis became a public company when ITT was order ed to sell several of its businesses. Forty-eight percent of Avis's s hares were sold to the public; the balance was held in trust by a cou rt official. During this time, Avis, along with other car-rental comp anies, began to sell their used cars directly to the consumer rather than to wholesalers. This became a lucrative source of income; by 198 7, Avis was marketing approximately 50,000 used cars each year. In 19 76 Colin M. Marshall became chief executive officer of Avis, and in t he following year the company was purchased by Norton Simon, Incorpor ated for $174 million. James F. Calvano succeeded Marshall as chi ef executive officer in 1979; that same year, Avis concluded an adver tising and marketing agreement with General Motors Corporation, agree ing to feature GM cars in its worldwide fleet. The 1970s was a decade of enormous growth for Avis both domestically and internationally. S everal factors, including greater airline use, airline deregulation, and the increasing strength of Avis's European, African, and Middle E astern operations, contributed to its jump in revenues from $162 million in 1970 to $673 million in 1979.

1980s: Difficulties, Leading to Several Ownership Changes

The strong growth of the 1970s slowed in the early 1980s as high oil prices, soaring interest rates, and inflation plagued the global econ omy, reducing the volume of air travel and weakening the closely conn ected car-rental market. Price competition among the leading car-rent al companies contributed to a $50 million loss for Avis in 1982; 2,400 jobs were cut as a result. J. Patrick Barrett, who became chief executive officer of the company in 1981, along with Joseph V. Vitto ria, who became president and chief operating officer in 1983, and Al un Cathcart, who became group managing director and chief executive o f the Europe/Africa/Middle East Division in the same year, provided n ew direction for the company. They reorganized management, reemphasiz ed the company's "We try harder" image, and introduced new technology , such as Avis Express service. Designed to facilitate fast passage t hrough airline terminals, Avis Express processed rental agreements be fore customers deplaned, allowing the consumer a speedy departure fro m the airport. Earlier, Avis had introduced a computerized checkout s ystem to its operations in Europe; by 1983, after further enhancement s, only a few seconds were required for this system to produce a comp leted rental agreement. In 1984, Avis introduced Rapid Return, an aut omated self-service check-in device, to its U.S. franchises. A simila r innovation called Rapid Rental, a credit-card prompted, computer-as sisted transaction, followed shortly thereafter at testing locations in the United Kingdom and France. By 1987, all Avis's domestic and in ternational operations were connected to its main computer in Garden City, New York.

Avis also changed owners a number of times in the 1980s. After being acquired by Esmark, Inc. in 1983, Avis was purchased along with Esmar k by Beatrice Companies in 1984. Kohlberg Kravis Roberts & Co., a New York investment firm, acquired Beatrice Companies and Avis the f ollowing year in a leveraged buyout. In another leveraged buyout in 1 986, Kohlberg sold Avis to Wesray Corporation, a New Jersey-based inv estment company, and its partner Avis management for $265 million and the assumption of $1.34 billion in debt. Avis's revenues for that year were $1 billion, a 26.2 percent share of the car-renta l market. Wesray next sold Avis's domestic car leasing fleet to PHH G roup, Incorporated of Hunt Valley, Maryland, the industry leader in c orporate car leasing, for approximately $134 million. During 1986 , Avis sold 65 percent of its European operations, known as Avis Euro pe PLC, to the public on the London Stock Exchange for approximately $290 million. Alun Cathcart remained as group managing director a nd chief executive of what was now a public company, becoming chairma n in 1988. Under his direction, Avis Europe grew tremendously, divers ifying and updating its services by purchasing such related companies as car leasing businesses and distributorships. In the United States , Avis introduced another technological advance in 1987 with Roving R apid Return, a portable computer with a printer that allowed Avis emp loyees to move around a rental lot and assist customers at their cars in easy, one-step checkout procedures. Also at this time, Avis's Wiz ard computer system developed the capacity to allow travel agents dir ect access to Avis rental vehicles for their customers through comput erized communications with airline reservation centers.

Era of Employee Ownership, 1987-96

Avis was sold once again in 1987, this time to an employee stock owne rship plan (ESOP) for $750 million and the assumption of $1 b illion in debt. Under the plan, both buyers and lenders received tax breaks, and employees of the company became its owners, with Wesray r etaining a 29 percent stake. Financing for the ESOP was provided by G eneral Motors Acceptance Corporation, Chrysler Credit Corporation, an d Pittsburgh National Bank, who loaned a combined $395 million; I rving Trust Company and a group of banks, who loaned $1 billion; Drexel, Burnham, Lambert, Incorporated, and Kleinwort, Benson Limited , who advanced a $255 million bridge loan; and stockholders, who purchased preferred stock for $135 million. A trustee, Citizens & amp; Southern Trust Company of Atlanta, now known as NationsBank, hel d employees' shares.

The ESOP proved highly successful, boosting employee morale and promp ting better service to consumers. When the plan went into effect, Avi s's management introduced employee participation groups whose members included workers from all levels of the company. These groups met pe riodically, generating ideas that were frequently implemented to impr ove Avis's operations. For example, Avis employees suggested that the company provide managers with Avis charge cards for their expenses, which would save the cost of fees normally paid to charge card credit ors. They also suggested such innovations as rental cars to be used s pecifically for nonsmokers and compilations of traffic law tips for e ach rental area. Joseph V. Vittoria, who became chairman and chief ex ecutive officer of Avis in 1987, commented enthusiastically about the ESOP in Fortune: "Believe me, the ESOP works, and it works ve ry well." In another Fortune article Charles Finnie, an analys t at the Baltimore brokerage firm of Alex, Brown & Sons and an ex pert on the car-rental business, concurred: "Right now Avis is on a r oll. The ESOP has really improved their morale and productivity and s ervice." Robert W. Anderson, a director of corporate travel for Unisy s Corporation, said in the same publication: "Employee ownership has got to be a winner. Avis is absolutely superior in customer service, though they were pretty good to begin with." Official figures undersc ored the success of the ESOP. Profits for the first half of 1988 were 35 percent higher than those of the same period a year earlier, mark et share increased to 27 percent, and customer complaints were down 3 5 percent from 1,918 in 1987 to 1,238 in 1988.

As the 1980s drew to a close, Avis, which had been exhibiting greater profit-sales ratios than Hertz Corporation since 1984, challenged He rtz's position as the number one car-rental agency in the United Stat es. Internationally, relations between Avis, Inc. and Avis Europe PLC remained strong, as the companies' shared resources contributed to g rowth and prosperity for both. In addition, such programs as Avis Eur ope's "Avis in Touch," which provided travelers with travel planning guides, an answering service, and toll-free information numbers, and Avis, Inc.'s Preferred Express, which expedited rental procedures for frequent renters, enhanced customer service throughout the world. In 1987 Avis began to market its computer technology to the hotel indus try through a newly formed subsidiary, WizCom International, Limited. The following year, Avis purchased its licensee in New Zealand, broa dening the company's influence in the Pacific. Avis Europe became pri vate in 1989, when it was purchased by Cilva Holdings PLC, comprised of Avis, Inc., which owned 8.8 percent of the shares; General Motors, 26.5 percent; and Lease International SA, 64.7 percent. Also in 1989 , General Motors bought out Wesray's 29 percent stake in Avis, Inc.

Avis continued to emphasize innovation as it entered the 1990s. Compa ny training programs in customer service, as well as comprehensive ve hicle safety checks, were implemented. Meanwhile, the recession of th e early 1990s initially provided benefits to the rental-car industry in North America as automakers, saddled with large inventories of car s they could not unload, sold the vehicles to Avis and other car rent ers at steep discounts. This in turn, however, brought numerous new c ompetitors into the industry, which drove down rental prices. When th e economy recovered in 1993 and 1994, the automakers were able to inc rease the prices they charged rental-car companies for the cars the c ompanies needed. Rental-car companies in turn raised their rental rat es, which dampened demand, leading to heavy losses by Avis and other companies and to an industry shakeout.

It was in this environment that after nine years under employee owner ship Avis changed hands yet again. HFS Incorporated, the largest hote l franchiser in the United States and a franchiser of real estate com panies as well, paid $800 million for Avis in October 1996, purch asing both the ESOP interest and that of General Motors to gain full control. The buyout provoked controversy among some Avis employees wh o felt that their shares were being undervalued, but the deal went th rough nonetheless.

Brief Period As Public Company, 1997-2001

As a franchiser, HFS from the start planned to spin off the company-o wned car-rental operations gained from the purchase of Avis, while re taining the rights to the Avis name and control of WizCom and the Wiz ard System. Along these lines, a new stripped-down company called Avi s Rent A Car, Inc. (ARAC) was soon created, which comprised the compa ny-owned car-rental operations. At the same time, HFS set up subsidia ry HFS Car Rental, Inc., to which it assigned the rights to the Avis name and which thus became the franchiser of the worldwide Avis renta l system. Avis Rent A Car then entered into a 50-year franchise agree ment with HFS Car Rental, thereby becoming an Avis system franchisee, the largest in the world. In return for the right to use the Avis na me, ARAC agreed to pay HFS a royalty fee of between 4 and 4.5 percent of its revenues. WizCom International and Wizard Co., Inc. became su bsidiaries of HFS; Avis Rent A Car thereby entered into a 50-year com puter services agreement with WizCom for use of the Wizard System.

As HFS was laying plans for an initial public offering (IPO) of Avis Rent A Car stock, Vittoria retired as head of the company in February 1997. The following month R. Craig Hoenshell, a former American Expr ess executive, was named chairman and chief executive of ARAC. In Aug ust 1997 ARAC acquired First Gray Line Corporation for about $195 million in cash. First Gray Line was the second largest Avis franchi see in North America, having 70 locations in southern California, Ari zona, and Nevada.

In September 1997 Avis Rent A Car went public through the long-planne d IPO, with about 75 percent of the company sold to the public and th e remaining 25 percent staying in HFS's hands. The resulting $330 million proceeds were mainly to be used to pay down ARAC's large lon g-term debt of nearly $3 billion.

Avis Rent A Car began its new era as a public company with public rel ations problems and investigations hanging over it. From November 199 6 to October 1997, accusations that Avis franchisees racially discrim inated against minorities who sought rental cars were raised in North Carolina, Florida, and Pennsylvania. In October 1997 the U.S. Depart ment of Justice launched an investigation into these allegations, as well as into Avis management knowledge of the accusations, the latter being an issue that had the potential to raise uncomfortable questio ns about the IPO. This issue was quickly resolved, however, after ARA C agreed in December 1997 to pay nearly $3.3 million to settle a class-action lawsuit that had been filed by minority customers and th e Justice Department ended its investigation the following May withou t taking any legal action.

In both 1998 and 1999 Avis Rent A Car made several purchases of Avis franchisees, significantly expanding its operations. The most signifi cant of these was Hayes Leasing Company, Inc., which operated a fleet of about 8,000 cars in Dallas, Fort Worth, San Antonio, and Austin, Texas, and was acquired in 1998. Hoenshell resigned abruptly in Decem ber 1998, ushering in an 11-month period of interim leadership at the company. During this period, in June 1999, Avis acquired the vehicle -leasing unit of Cendant Corporation for $1.8 billion in cash and preferred stock and the assumption of $3.2 billion in debt. Cend ant had been formed in December 1997 from the merger of Avis's former owner, HFS, and CUC International Inc., and it still owned the Avis brand name and reservations system. Its stake in Avis jumped from 19 percent to 34 percent when Avis's purchase of the vehicle-leasing uni t was complete. Among the assets Avis gained were PHH Vehicle Managem ent Services Corp., Cendant's fleet-leasing business, and Wright Expr ess Corp., a fuel-card management services firm. PHH was the world's largest fleet manager, with 700,000 cars and 1998 revenues of $42 5 million.

In November 1999 Avis filled its vacant CEO position by naming A. Bar ry Rand to that post and the chairmanship as well. Rand was a 31-year veteran of Xerox Corporation, having left that company in January 19 99 as executive vice-president for worldwide operations. In early 200 0, soon after Rand took over, Avis restructured itself to reflect its wider range of operations. Avis Group Holdings, Inc. was created as a holding company for the car rental operations, PHH, Wright Express, and other subsidiaries. Also in 2000, Avis sold an 80 percent stake in its U.K. fleet-management business to BNP Paribas SA for $800 million.

Subsidiary of Cendant: 2001-06

In March 2001 a new chapter in Avis's history began, one with reverbe rations from the recent past. Cendant, successor to HFS, former owner of PHH, and owner of a travel empire that included the Travelodge, D ays Inn, and Ramada lodging brands, acquired the 88 percent of Avis i t did not already own in a $937.4 million deal. Rand resigned upo n completion of the deal; David N. Siegel, a former executive at Cont inental Airlines, Inc., was named Avis CEO in September 2001. One mon th later, Avis shifted its headquarters from Garden City, New York, t o Parsippany, New Jersey, the base for most of Cendant's operations. At this time, Avis was managing a system of 1,700 rental locations, i ncluding about 900 company-owned outlets.

The new era at Avis got off to a rough start. Siegel left the company in March 2002 to become president and CEO of US Airways Group, Inc. F. Robert Salerno headed Avis as president, a position he had held si nce 1996. Salerno, who had spent his entire career in the car rental industry, was named CEO in June 2003. In November 2002 he was also gi ven responsibility for Budget Group, Inc., which Cendant bought out o f Chapter 11 bankruptcy. At the time, the entire travel industry, inc luding the car rental sector, was in a severe slump because of the dr op-off in corporate travel that accompanied the recession and followe d the terrorist attacks on the United States on September 11, 2001.

Avis responded to the tough times by initiating cost-cutting measures such as slashing its workforce by 10 percent and its fleet by 20 per cent. The company also pushed to pick up more business from vacatione rs and at-home leisure renters, and toward that end began an aggressi ve expansion program concentrating on opening new locations in local residential markets. By 2004 Avis had committed itself to opening 100 new locations per year.

During this same period, Cendant was working to wring efficiencies ou t of its dual-brand car rental operations. Cendant positioned Avis as its premium brand and Budget its value-oriented brand, and the two c ompanies continued to operate separate counters. By 2004, however, Ce ndant had integrated a large portion of their operations. Avis and Bu dget now shared a common rental system, fleet, and back-office operat ion, and field maintenance support had been partially integrated. Thi s integration yielded annual cost savings of $100 million. In ano ther important development, the PHH and Wright Express businesses wer e separated from Avis Group Holdings, and in early 2005 PHH was spun off to Cendant shareholders and Wright was sold off via an initial pu blic offering.

But Cendant had even more earth-shaking plans for Avis and all of its many other subsidiaries. In October 2005 Cendant announced plans to break itself up into four publicly traded companies. One of the four would focus exclusively on the car rental business and be comprised o f Avis Group and Budget. Ronald L. Nelson, the president and chief fi nancial officer of Cendant, was slated to become chairman and CEO of this company, with Salerno serving as president and chief operating o fficer. Its headquarters were to remain in Parsippany. The breakup wa s expected to be completed in the summer of 2006, ushering in yet ano ther new era in the ever shifting history of Avis.

Principal Subsidiaries: ARAC Management Services, Inc.; Avis A sia and Pacific, Limited; Avis Car Holdings LLC; Avis Car Holdings, I nc.; Avis Car Rental Group, Inc.; Avis Caribbean, Limited; Avis Enter prises, Inc.; Avis International, Ltd.; Avis Management Pty. Limited (Australia); Avis Rent A Car de Puerto Rico, Inc.; Avis Rent A Car Li mited (New Zealand); Avis Rent A Car System, Inc.; Aviscar Inc. (Cana da).

Principal Competitors: The Hertz Corporation; National Car Ren tal System, Inc.; Alamo Rent-A-Car, Inc.; Dollar Rent A Car, Inc.; Th rifty Rent-A-Car System, Inc.; Enterprise Rent-A-Car Company.


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