Alamo Rent A Car, Inc. History

Company Perspectives:

Alamo Rent A Car principally targets leisure travelers and cost-conscious business travelers. Alamo's objective is to be the low-cost provider of quality vehicle rental service and to increase customer satisfaction and retention by developing innovative, time-saving options for customers and other quality services based on the customer's specific needs.

Company History:

Alamo Rent A Car, Inc. is the third largest car rental company in the United States with a fleet of more than 150,000 cars servicing 15 million travelers annually. Alamo has 148 locations in the United States and Canada and 275 international locations in Belgium, the Czech Republic, Germany, Greece, Ireland, Malta, Mexico, the Netherlands, Portugal, Slovakia, Switzerland, and the United Kingdom (serviced through its London-based affiliate, Alamo Rent A Car [U.K.] Limited). Alamo established itself as an inexpensive, off-airport car rental agency catering to leisure travelers, but has sought out business travelers as well to become a viable competitor of the larger industry leaders.

In the Beginning, 1974-83

Alamo began operations in 1974 with 1,000 cars at four Florida locations. Its name had been chosen for the position it would command in classified telephone directories, rather than for any historical reference. From the beginning, the company pursued a discount strategy, charging up to 20 percent less than its much larger competitors, offering free mileage, and using cheaper, off-airport sales locations.

In the mid-1970s Michael S. Egan left Florida-based Olins Rent-a-Car to join Alamo as the Miami-area manager for its owner, insurance billionaire John MacArthur. In 1978, after MacArthur died, Egan and several others bought the firm and began turning attention to markets overlooked by the more established car rental companies, starting with the vacation traveler. Alamo courted travel agents and paid them commissions for referrals. Sales in 1979--the first full year under the Egan group's ownership--reached $30 million, and the company grew to 11 locations.

Just prior to this time, the Federal Trade Commission (FTC) sued the industry's Big Three--Hertz, Avis, and National Car Rental&mdashcusing them of rigging bids for airport sales counters and fixing prices at 10 to 40 percent higher than those charged by smaller competitors such as Alamo. The FTC discovered airports had joined in on pricing smaller companies out of space; in some cases airports had even forbidden airport advertising by off-airport companies. After the suit was settled, the end to such price-fixing led to considerable expansion into airports by the smaller car rental companies, most notably Budget Rent A Car. Alamo, however, did not immediately follow other rental companies to airport locations. Egan reasoned that deregulated air passenger service would increase opportunities for travel by budget-minded vacationers. In order to exploit this market, Alamo chose to remain at less expensive, off-airport locations and concentrate on serving vacationers, not business customers, at lower prices.

In 1980 Alamo expanded beyond Florida, entering two major leisure markets by purchasing the California company Trans Rent-A-Car and gaining operating rights in Hawaii. Alamo also opened a marketing and sales office in London. In 1981 Alamo made a tentative move to commercial sales, experimenting with an on-airport facility in Atlanta, Georgia. By the end of that year Alamo had 17,000 cars and 600 employees; by 1983 it had 1,300 employees. During this time, Alamo also expanded to such western cities as Denver, Seattle, and Phoenix, and moved eastward into the Boston market, all without a loss in profits. Still appealing heavily to leisure travelers, Alamo ran advertisements promising that "at Alamo, mileage is priceless. Zero cents a mile."

Gaining and Keeping Market Share, 1984-87

Over the years Alamo's sales practices came under periodic government review and censure. In June 1984 the Florida attorney general charged Alamo with using "bait and switch" tactics and charging customers for unnecessary insurance. The Florida charges were dropped when Alamo agreed to obey the law concerning these matters and to reimburse customers who had legitimate complaints. A later investigation of industry pricing and advertising was conducted by the National Association of Attorneys General, which resulted in Alamo agreeing to mention extra charges--gas, insurance, etc.--in its advertisements.

In 1984 Alamo moved more decisively into the business market, which accounted for 65 percent of the $4.4-billion-a-year car rental market. Alamo was generating $125 million a year in business and was projecting $175 million for 1984. It was prepared to target the small-business customer, to whom savings would matter more than amenities such as airport location. Egan decided to make a run for the new market, in part because of his confidence in Alamo employees--who, coming mostly from outside the industry, were not overly specialized. Alamo had more than quintupled sales in five years with managers recruited from stock brokerage, retail sales, airline management, the U.S. Navy, and even the medical profession. The Alamo recruit was chosen for "iron-willed determination," Egan told Inc. magazine in November 1984. "We're not smarter than our competitors, so we have to outwork them."

Alamo employees were "gung ho, like Marines," said industrial psychologist George Dunlevy, who tested new hires. Alamo employees had "almost a work sickness, a drive to succeed," said Elizabeth Smith, a former naval officer and Alamo executive and company director. In hiring for Alamo, Smith looked for people with "a certain steel in the back," she told Inc. Egan viewed the work environment as a new, somewhat controversial "centering force" in people's lives, to replace religion, community, and extended families.

By 1985 Alamo had 43 locations in 12 states and was ranked a distant ninth among United States car rental companies, behind other mostly off-airport companies such as Thrifty Rent-A-Car, American International, Ajax, and General Rent A Car. But Alamo was quickly advancing; Fortune writer Edward Boyer labeled the agency "the fastest-growing rental car company in the United States." Alamo seemed not to suffer from such singular policies as charging $9.95 for the half tank of gas it supplied and its refusal to reimburse the customer for what was left when the car was returned (a policy later declared optional, mostly because of business travelers' objections). Alamo was now serving airports in Dallas-Fort Worth and Washington, D.C., among its other numerous locations.

Alamo's service became even more appealing when on-airport locations started to become less attractive. Rental car lots for the larger companies had been moved farther from terminals, so off-airport companies, requiring less space for their smaller fleets, were sometimes closer than on-airport ones. In addition, limited counter space for airport rental agencies caused lines and delays, making Alamo service more inviting. Adding to the company's success was a shift in the market. In Alamo's first ten years of operation, Hertz and Avis's combined share of airport business had dropped 13 points to 58 percent, with National, Budget, Alamo, and others picking up the difference. Alamo's revenues did not suffer during this time, because industry revenues rose 14 percent a year. In the mid-1980s, though, price wars cut into the leaders' profits, due in part to pressure from companies like Alamo, whose fleet had risen from 7,900 to 30,000 cars in six years and who had expanded into the business market from its leisure travel niche.

Alamo's rapid growth continued and by August 1986 it had more than 50,000 cars in 57 cities and 2,500 employees or "family members," as they were known within the company. Sales topped the $300 million mark, and Alamo passed other small companies to reach fifth place. In addition, it had 100,000 customer companies enrolled in its corporate-rate program. The price wars had also ceased earlier that year, and industry revenues jumped accordingly more than 20 percent to $6.5 billion. Profits increased most notably for Hertz and Budget, the latter now one of the Big Four. Alamo and other second-tier companies--Dollar Rent A Car, Thrifty Rent-A-Car, and General Rent A Car chief among them&mdashøok advantage of the increased prices, raising theirs only slightly and thereby cutting deeper into the business travelers market. Alamo's rates stood at $28 to $35 a day, about 30 percent lower than Hertz's. The next year, 1987, Egan boasted to Business Week that Alamo offered "free unlimited mileage in every U.S. city we serve." Alamo had 60,000 vehicles in 65 U.S. locations, compared to Dollar's 46,000 in 450 locations, Thrifty's 24,000 in 360 locations, and General's 20,000 in 33 locations.

A Major Competitor, 1988-92

Hertz and Avis fought back by matching Alamo's free mileage, seeking to capture more of the leisure market, worth an estimated $2.3 billion a year in the late 1980s and growing two to three times as fast as the business market. Alamo responded by extending its free mileage offer beyond weekly rentals and aggressively advertising the difference. Alamo's share of the entire airport car rental market--both leisure and business--was an estimated seven percent, compared with Hertz's 25 percent, Avis's 22 percent, and Budget's and National's 15 percent each.

Alamo had grown "dramatically over the past few years at the expense of its big four competitors," industry analyst Charles Finnie told Ira Teinowitz in Advertising Age; Teinowitz noted Alamo had "carved out a niche as the leading off-airport renter of cars to leisure travelers." In 1988 Alamo opened rental facilities in London, and the next year in Glasgow, Scotland, as well as additional American cities. Within two years, Alamo expanded its presence further with the acquisition of a British company, Guy Salmon Service, Ltd., which offered luxury car rental and chauffeur services throughout the United Kingdom. As Alamo Rent A Car (U.K.) Limited, this firm consolidated Alamo's operations in Scotland and England.

In 1989 Alamo's revenues were more than $500 million a year. It had now possessed more than eight percent of the airport market, and profit margins ranged from three to five percent. Alamo management was "one of the smartest, most aggressive managements in the industry," Finnie told Forbes. Its proven strategy was not only to rent cars at the busiest and cheapest locations, but, according to various government agencies, went further to pressure customers into renting larger, higher-rate cars and taking expensive collision insurance. Perhaps due in part to this latter practice, Alamo received the lowest customer satisfaction rating among 11 companies reviewed by Consumer Reports magazine. Sales growth, however, was still high at 14 percent, partly because of business rentals, which were producing 30 percent of its revenues.

Clearly Alamo was not notably damaged by negative press; nonetheless, it started to retrain its 4,000 employees to emphasize courtesy ("Make your customers your best friends," admonished Egan) and sent a corps of "phantom shoppers" into the field to check up on service and sales practices. Complaints dropped and reservations rose sharply. Alamo's collision-damage surcharge, though, was a more difficult matter for the company--for it netted around 20 percent of Alamo's customers, and Egan was reluctant to give it up. Alamo developed a new waiver program offering price and coverage options costing $3 to $9 a day. There were also complaints about collision-repair charges billed to drivers. In July 1991 Alamo agreed to refund $3 million to customers overcharged for repairs in the 1980s as federal prosecutors had found a pattern of such overcharging from 1983 through 1989.

By 1991 Alamo had 100,000 cars at or near 92 of the busiest U.S. airports. Among them were 10,000 at its Orlando, Florida, car rental plaza, the world's biggest with 52 counter positions, and new locations including Chicago, Fresno, Albany, Sacramento, and Dayton. Alamo gained five points of market share in the last half of the 1980s while the Big Four lost 20 points as a group. Alamo was grossing $600 million a year, with profit margins of around four percent better than Hertz and almost as good as Avis.

Alamo continued its course of head-to-head price competition with Hertz and the other big companies; in April 1992 it cut prices nationwide for several months, dropping its economy-car rate to a uniform $15 a day in all 102 U.S. locations, including 45 on-airport locations, while also offering discounts on mid-size cars and Cadillacs. Hertz immediately responded with a similar announcement of reductions. Alamo's intent in sweeping the country with this type of offer, a spokesperson told Michael J. McCarthy in the Wall Street Journal, was to fix itself in the business traveler's mind as a national operation as the car rental industry now had annual domestic revenues of $11.4 billion. Alamo's declaring nationwide rates, as opposed to locally structured ones, was described by a travel industry specialist as both "interesting" and "definitely innovative," in the New York Times. Two weeks later Hertz, along with Alamo, again unveiled price cuts, this time for the small-business customer. The reasoning went that recent airline fare discounts were bringing small-business airline passengers back, so it was time to woo them with car-rental savings as well. Discounts in each case called for presentation of an airline ticket by the renter. Hertz required three days notice on the reservation, while Alamo required only one.

More Than Price Wars, 1993-95

In 1993 Alamo added a strategic location in Los Angeles, considered the world's largest rental car market, along with several other on-airport locations in Palm Springs, San Francisco, Dallas, and Jackson Hole, Wyoming, and metro locations in Atlanta, Chicago, and Minneapolis. Overseas, Alamo established three new on-airport sites in Ireland, and one in Amsterdam. According to the Automotive Fleet Factbook, industry figures for leased or rented automobiles hit 4.86 million for 1993, with business and corporate leasing as the top form of auto renting/leasing with 44.6 percent of the market. Alamo's slice of the pie was growing with $1.1 billion in revenues, which ranked it as the fifth largest private company in Florida, according to Florida Trend magazine.

As in previous years, Alamo continued to add locations throughout the world--new on-airport stations in Belgium, England, and Germany came on line in 1994, while in the United States, Alamo conquered its 42nd state by opening a plaza in Rhode Island. Towards the end of the year Alamo acquired a majority stake in Autohansa Autovermietung, bolstering its European presence. Year-end figures climbed to $1.3 billion in systemwide revenues, behind Hertz ($4.8 billion), Avis ($3 billion), Budget ($2.3 billion), and Enterprise ($2 billion), but ahead of National ($1 billion), who would play a significant role in Alamo's future.

By 1995 Alamo had opened in another major venue, Chicago's O'Hare airport (the company already had a station at Midway), while expanding globally into Greece, Portugal, and the Czech Republic, and adding more sites in the Netherlands and Switzerland. Back in North America, Alamo finally tapped its neighbor, Canada, by opening several locations in Montreal. In a Wall Street Journal ranking of the top Car-Rental Agencies in the Airport Market, Alamo's fleet of 150,000 vehicles came in at number three, just under Avis's 165,000 and Hertz's 215,000. Yet behind the glare of competition, each of the top car rental companies was experiencing trouble in an industry-wide slump. Both Budget and Alamo had been forced to lay off workers and announced losses, for Alamo, its first ever. In a shuffle to shore up the company, Egan relinquished his CEO duties to D. Keith Cobb, who shared vice-chairman duties with Roger H. Ballou, who joined the company in May from American Express Travel Related Services. Part of Alamo's financial woes was the climb in fleet costs, which had doubled in the past three years, a cost that could not be offset by increasing car rental rates when competition remained so fierce. Alamo was also smarting from an attempt to buy National Rental System Inc. from General Motors; it may have lost that particular battle, but circumstances later gave Alamo an upper hand in the war.

A New Era, 1996 and Beyond

In the late 1990s, the national car rental industry was rife with "merger mania," as Avis was bought by HFS in 1996, and Ford Motor Company was interested in selling Budget Rent A Car. Alamo, too, fell into the fray by becoming a wholly owned subsidiary of Republic Industries, Inc., a diversified conglomerate of automotive, solid waste, electronic, and media segments with revenues of just under $6.1 billion for the year. The merger complimented both companies, since Republic's automotive division included hundreds of new and used-car dealers under the AutoNation USA banner (the largest in the U.S. industry), and auto parts and insurance services.

Republic was on the prowl in 1997, consolidating its automotive rental division with five strategic additions: National Car Rental System Inc., one of Alamo's nemeses, in February; Spirit Rent-A-Car in April and Snappy Rent A Car in July, which both specialized in insurance replacement rentals and were soon operating under the CarTemps USA name; Value Rent-A-Car in June; and two months later, EuroDollar Rent A Car, the second largest renter in the United Kingdom. Yet, partnering the power of Alamo in the leisure market and National in the business market was Republic's diamond in the rough--by merging two of the top five car rental giants, Republic was able to topple Avis from its berth of second largest national auto rental chain. Alamo and National's combined fleet topped 225,000 and the duo were expected to generate revenues of $2.7 billion for 1997.

In 1998 Alamo promotions included a national television advertising campaign from Foote, Cone & Belding New York called "Drive Happy" to the tune of Bobby McFerrin's "Don't Worry, Be Happy," with a tie-in to a merchandise giveaway. There were also a myriad of discounts for Alamo customers including merchandise from Bloomingdale's, airline mileage tie-ins, and special programs for leisure travelers from Latin America and the Caribbean. Although Alamo was still smaller than major competition, like Hertz and Avis, having National as a complementary sibling not only helped position both of them for the future, but put each on firm ground to some day wrest control of the nearly $15 billion car rental industry. With the power of Republic Industries vast automotive holdings behind Alamo, the company had the freedom to pay less attention to its bottom line and concentrate more fully on competing with Hertz and Avis. In addition, with access to Republic's new car dealerships, Alamo could slash its biggest expense--fleet costs--and continue to move forward with aggressive expansion.

Principal Subsidiaries: Alamo Rent A Car (U.K.) Limited.

Further Reading:

• Boyer, Edward, "Airport Rent-A-Car Bargains," Fortune, February 4, 1985.
• Brannigan, Martha, "Corporate Focus: Rocky Road--Alamo Maps a Turnaround," Wall Street Journal, August 14, 1995.
• ------, "Travel: Why the Cost of a Car Rental Is Likely to Rise," Wall Street Journal, December 27, 1995, p. 13.
• Bryant, Adam, "Alamo Rent A Car Offering Uniform Rates Nationwide," New York Times, April 21, 1992.
• Croghan, Lore, "Positioning Alamo As a Low-Price, Quality Rental," Adweek, September 11, 1986.
• Ellis, James E., "Small Fry Start Nipping at the Whales of Auto Rental," Business Week, August 31, 1987.
• "Hertz, Alamo Aim New Rate Plans at Small Businesses," Wall Street Journal, May 5, 1992.
• "Hit 'em First," Forbes, July 30, 1984.
• Kolton, Ellen, "No Experience Required," Inc., November 1984.
• Loomis, Carol J., "The Rumble in Rental Cars," Fortune, March 7, 1983.
• McCarthy, Michael J., "Alamo Slashes Car-Rental Rates; Hertz Responds with Limited Cuts," Wall Street Journal, April 21, 1992.
• Petzinger, Thomas, Jr., "The Front Lines: Chip Burgess Plots Holiday Coup to Make Hertz No. 1 in Florida," Wall Street Journal, December 22, 1995, p. B1.
• Poole, Claire, "Born to Hustle," Forbes, May 28, 1990.
• Santora, Joyce E., "Alamo's Drive for Customer Service," Personnel Journal, April 1991.
• Simison, Robert L., "Alamo Leads in Bidding for National," Wall Street Journal, March 27, 1995, p. A3.
• Simmons, Jacqueline, "Rental-Car Firms, Beset by Troubles, Are Trying Again to Boost Their Prices," Wall Street Journal, July 26, 1995, p. A3.
• Sullivan, Robert E., Jr., "Michael Egan Shrugs Off the H-word," Condé Nast Traveler, March 1991.
• Teinowitz, Ira, "Alamo's Fighting Mad on Mileage," Advertising Age, March 26, 1990.
• "Trying Too Hard?," Time, June 23, 1975.

Source: International Directory of Company Histories, Vol. 24. St. James Press, 1999.

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