Strategic Plan for the Hertz Corporation February 18, 2011 Table of Contents Introduction of Team and Assignment4 Company Profile6 Mission Statement6 Vision and Values7 Economic conditions7 Strategic Analysis9 SWOC Analysis: Strengths10 SWOC Analysis: Weaknesses13 SWOC Analysis: Opportunities17 Internal Actions17 Opportunities18 SWOC Analysis: Challenges20 Dependence on the United States Automobile Industry20 Technological Changes and Advances20 Competitive Pressures21 Maintaining customer satisfaction and employee morale22 Merger Transitions22 Pressures to Go “Green”22 Expanding the “Global Footprint”23
STRATEGIC ISSUES25 Market Share Vehicle Rental25 Car Manufacturers25 Debt and Interest payments26 Technology26 Focus on Green27 Off Airport Rental27 People27 Equipment Business28 Summary29 Foundations of goals and strategic plan30 Increased Market Share30 Movement toward sustainable inventory30 Improve customer satisfaction by training and technology31 Dedication to Employees31 Drastically decrease debt owed32 Hertz Strategic Plan Implementation33 Mission33 Vision33 Strategies33 REFERENCES36 Introduction of Team and Assignment In recent years, leaders of American organizations have faced a multitude of challenges.
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The numerous trends and events that have occurred in the past two decades have affected both American society and business practices. Think of the influences the following events and trends have had on our government, communities, and public agencies: an aging and diversifying population; changes in the nature of families; dramatic shifts in federal and state responsibilities and funding priorities; the emergence of the poor as the largest group of poor Americans; fears about terrorism; the emergence of obesity as an important health concern; and a recent crippling recession (Bryson, 2004).
Now think how American society would suffer if our government did not institute policies, programs, and plans in response to these conditions and crises. The same holds true for business organizations around the world. Organizations that want to survive, prosper, do good and important work must respond to the challenges the world presents (Bryson, 2004). In this environment, strategic plans are required to combat current challenges and provide future direction for business practices.
Organizations that embark on strategic planning drastically increase their chances to endure current and future crises and are inherently closer to creating a sustainable organization that has public value. Students enrolled in the HR504 Strategic Planning class offered at the University of Scranton, were given the daunting assignment of creating a strategic plan for an organization of their choice. The strategic plan outlined in this paper was developed by the following students; Elisa Cosner, Patricia Dungan, Jacqueline Lombardo, and Mark Trautman (Team 3).
These four students represent current and aspiring human resource professionals in pursuit of their Master’s degree in the field of Human Resources. The unique challenge of this assignment was to find a medium that could bring this geographically dispersed group of students together on a regular basis so they could collaborate and execute assignment responsibilities. The chosen medium was a chat forum called Meebo. Students met on Meebo for a minimum of thirty minutes every week, for a period of six weeks, to formulate, direct, and assign task responsibilities for their strategic planning efforts.
When it came time to choose an organization for this assignment, Team 3 opted to conduct studies on struggling America business organizations that were experiencing financial difficulties and extreme pressures from both internal and external threats, ultimately choosing an organization that would unequivocally benefit from these strategic planning efforts. After much deliberation, Team 3 decided to formulate a strategic plan for the Hertz Corporation. The Hertz Corporation is the largest car rental brand in the world, with approximately 3,500 locations in the United States and 7,500 worldwide.
Recent economic threats have caused double digit declines in car and rental equipment volumes, forced Hertz to drastically downsize its workforce and have seen the corporation experience hundreds of millions of dollars in net losses over the past three years. The strategic plan outlined hereafter, is an attempt by Team 3 to secure a strategic advantage for Hertz in the car rental marketplace, by mitigating the effects of environmental threats and severe economic influences, while at the same time utilizing the existing strengths of the organization and manipulating growth opportunities.
Before we embark on this endeavor, we find it beneficial to provide a brief history of the Hertz Corporation. Company Profile Hertz Global Holdings (Hertz) operates vehicle and equipment rental businesses in the United States and Europe as well as global services for industries like construction, automobile manufacturing, railroad, power generation, and shipbuilding. The company employs 24,900 people and has company headquarters in Park Ridge, New Jersey. Hertz’s businesses are separated into two divisions. The Car Rental division, Hertz, which operates ental facilities near airports, central business districts, and suburban areas of cities, and also retails and leases, used cars in the United States and France where associates accept reservations for car rentals at approximately 8,000 locations in approximately 145 countries. The Equipment Rental division, Hertz Equipment Rental Corporation (HERC), rents earthmoving equipment, material handling equipment, aerial equipment, electric equipment, compressors and generators, and construction-related vehicles and tools.
The Equipment Rental division also offers claim management services for both divisions investigating and negotiating various claims including bodily injury, property damage, and general and product liability for its customers. Mission Statement The mission at Hertz is to be the most customer focused, cost efficient vehicle and equipment rental/leasing company in every market we serve. We will strengthen our leading worldwide positions through a shared-value culture of employee and partner involvement by making strategic investments in our brand, people and products.
The focus of everything we do will be on continuously improving shareholder value. Vision and Values Hertz has a vision to be the first choice brand for vehicle and equipment rental/leasing and total mobility solutions. In order to achieve this vision, Hertz, its employees and subsidiaries will adhere to the values of Integrity, Transparency, Continuous Improvement, Diversity, Passion, Commitment, Teamwork and Accountability. Economic conditions
The current recession in the United States has adversely affected almost all domestic organizations, with Hertz being no exception. The uncertainty of current economic conditions has lead to serious revenue instability for Hertz. In 2009, Hertz experienced the most difficult macro-economic conditions in its 91 year history. Revenues were down 1. 4 billion from the previous year, and overall Hertz experienced a net loss of $126 million. A great portion of these conditions can be attributable to Americans traveling less.
In should be of no surprise that car and equipment rental companies are significantly influenced by general economic conditions. One of the many economic challenges facing Hertz is the organizations dependence on drastically reducing operating costs. Hertz has been successful at doing this, but this success could have potential consequences. By drastically reducing its workforce, Hertz jeopardizes customer satisfaction levels and employee morale.
In addition, Hertz’s current indebtedness has presented the following challenges to its operations: the organization is now increasingly vulnerable to adverse economic and industry conditions, they are at a competitive disadvantage to any competitors with significantly less debt, inflexibility in planning for and reacting to changing conditions in their business and industry, limited ability to react to competitive pressures, and it is increasing difficult to carry out capital spending that is necessary and important to Hertz’ growth strategy to improve operating margins.
According to the Hertz 2009 Annual Report, the company recorded revenues of $8,525. 1 million during FY2008 which was 1. 8% decrease from 2007. The operating profit in FY2008 was $631. 2 million, a decrease of 50% compared to 2007. The net loss was $1,206. 7 million in FY2008, compared to the net profit of $265 million in 2007. Despite this, Hertz emerged from the 2009 recession a more efficient, customer focused company that is poised for strong revenue growth. Costs were reduced by over $1. billion since 2007, strategic plans to further improve service have been implemented, and in 2009, new business opportunities were developed. As a result, over $170 million of incremental revenues have been generated, the consolidated operating margin for 2009 was equal to 2008, and the margin for worldwide car rental increased to 7. 8%. Going forward Hertz will focus on costs, service and revenues combined with improving conditions in our car and equipment rental businesses. Hertz is expecting significant margin expansion and increased shareholder value.
Strategic Analysis Subjects Employees Equipment dealers (Ford, John Deere) Players Board of Directors Senior Management Shareholders Customers Lenders Crowd Government Authorities (Airports to environmental matters) Franchises Context Setters Subordinated debt holders Subjects Employees Equipment dealers (Ford, John Deere) Players Board of Directors Senior Management Shareholders Customers Lenders Crowd Government Authorities (Airports to environmental matters) Franchises Context Setters Subordinated debt holders Subjects: have interest but little power
Context setters: have power but little direct interest Crowd: Stakeholders with little interest or power Players: have interest and power Power versus Interest Grid, used to array stakeholders in the organization and the stakeholder’s power to affect the organizations future. In Hertz case, as a largely leveraged organization this analysis can prove telling as those with power may be more self-interested than in the game for the long term health of the organization. SWOC Analysis: Strengths * Strong Market Presence Strong Name Recognition * Strong Global Presence * Strong Diversification * Effective Cost Containment * Good Business Partnerships * Entrepreneurial culture * Recent Acquisitions * Agile * Our Employees * Novel Services * Variety Offered Hertz Global strengths include the company’s strong presence in the rental car and equipment market and strong name recognition as they remain the number one airport car rental provider in the United States. The company also has a strong global presence with outlets in Europe, North America,
Latin America, Australia, New Zealand, Asia, Africa and the Middle East. Hertz’s strong diversification of businesses, products, and market protects the company offering a long-term competitive advantage through difficult times. Hertz is poised to serve every type of customer in the market including business accounts, hourly renters, budget travelers, and multi-month rental customers. Hertz continues to lead the industry in cost management and containment through lean strategic plans like fleet management, back-office reengineering, and organizational redesign.
A good example of the company’s ongoing success recovering its financial performance is the refinancing $3. 2 billion of the U. S. fleet debt one year ahead of schedule with pricing comparable to 2005 rates. In addition, $990 million of capital was raised through a successful convertible debt and equity transaction. Efforts helped the company emerge from a difficult year in 2009 as leaner and more focused and Hertz is expecting higher returns throughout 2010.
Good business partnerships and the company’s entrepreneurial culture helped Hertz to better effectively manage changing market conditions and take advantage of growth opportunities. For example, Hertz made the following important recent acquisitions: * The Dollar Thrifty Automotive Group, which not only strengthened Hertz financially it also expanded Hertz’s share in the business travel off-airport market, * The purchase of Eileo SA, a car-sharing service and provider of technology for Connect by Hertz.
This investment in technology will help advance Hertz’s leadership by taking the customer experience to the next level, * The addition of the Advantage value brand giving them an even greater share of the growing Leisure segment, the acquisition already has resulted in gaining a full point of U. S. airport market share, * Several smaller acquisitions further expanding their Equipment Rental market. The company’s agility is demonstrated by its ability to quickly adjust labor and fleets to match sudden changes in demand.
For example, company transaction days in 2009 were down 8% while worldwide was down 9. 7%. The company can and has, through strategic fleet management, successfully held its fleet and aged it a little further, while adjusting the fleet rotation planning to ensure the fleet remains aligned with demand. Our employees are highly skilled and able to handle difficult situations. During the economic downturn, they were quick, analytical, strategic, and acted with an absolute sense of urgency. All departments work together toward the same goal.
Everyone took action by developing a plan and maintaining strong communication. Company strength’s also include Hertz’s novel and innovative services like Hertz #1 Club Gold, NeverLost navigation systems, rental coupons, and Sirius Satellite Radio. To set itself apart from its competitors, Hertz also offers members guaranteed satisfaction, increased discounts, free use of one child, infant or booster seat, free unlimited mileage on most rentals, no Saturday night keep required, and no airline ticket required to qualify for low weekly rates.
Finally, Hertz’s strength includes the variety of rentals offered to customers like SUVs, vans and specialty rentals. In an effort to further increase its variety, Hertz introduced the Corvette ZHZ to their rental line-up. The new addition is part of their “Fun Collection” the purpose of which is to serve those clients wishing to rent a sporty car or a specialty vehicle as the Corvette ZHZ comes with a powerful V-8 engine or 436 horsepower. The company expects this limited edition car will be an asset during the summer vacation rental season and ordered 500 of them in 2008.
SWOC Analysis: Weaknesses Over the past 18 months, the United States and international markets have experienced a significant decline in economic activity that has affected the car rental market, including a tightening of the credit markets, reduced business and leisure travel, reduced consumer spending and volatile fuel prices. In the equipment rental business, the decline in economic activity has resulted in a decline in activity in construction and other businesses in which our equipment rental customers operate.
Accordingly, the car and equipment rental industries have both experienced unprecedented declines in volume and demand. Hertz is not unlike any other organization in this economic climate in that they have aspirations of seeing the upside of this downward spiral. Unfortunately, most of what Hertz is dependent upon to make it through is outside of their realm of control. The car and equipment rental industry is significantly affected by general economic conditions, and any further decreases in general economic activity could materially and adversely affect their financial condition and results of operations.
The results of operations are affected by many economic factors, including the level of economic activity in the markets in which they operate. The car rental business, which provides the majority of the revenues, is particularly sensitive to reductions in the levels of airline passenger travel, and any further reduction in air travel could materially adversely impact their financial condition and results of operations. The car rental industry is particularly affected by reductions in business and leisure travel, especially with respect to levels of airline passenger traffic.
Approximately 84% of our worldwide revenues during 2009 were provided by the car rental segment, and they estimate that approximately 67% of the car rental revenues were generated at their airport rental locations. Further reductions in levels of air travel, whether caused by general economic conditions, airfare increases (e. g. , due to capacity reductions or increases in fuel costs borne by commercial airlines) or other events such as work stoppages, military conflicts, terrorist incidents, natural disasters, epidemic diseases, or the response of governments to any of these events, could materially and adversely affect Hertz.
Other factors that could adversely affect Hertz include: * Intense competition that may lead to downward pricing, or an inability to increase prices. If Hertz tries to increase their pricing, their competitors, some of who may have greater resources and better access to capital than them, may seek to compete aggressively on the basis of pricing. In addition, their competitors may reduce prices in order to attempt to gain a competitive advantage or to compensate for declines in rental activity associated with reductions in economic activity. Slow economic periods could constrain their liquidity and adversely affect our results of operations. Certain significant components of their expenses are fixed in the short-run, including minimum concession fees, real estate taxes, rent, insurance, utilities, maintenance and other facility-related expenses, the costs of operating their information technology systems and minimum staffing costs. * They may not be successful in the business strategy to expand into the off-airport rental market.
They have been increasing their presence in the off-airport car rental market in the United States and intend to continue to pursue profitable growth opportunities through a combination of selected new location openings, a disciplined evaluation of and strategic changes with respect to existing locations, and the pursuit of same-store sales growth. * A downsizing of their rental car fleet could require them to make additional cash payments for tax liabilities, which could be material. An inability to purchase adequate supplies of competitively priced cars or equipment and the cost of the cars or equipment purchased increases, their financial condition and results of operations may be materially adversely affected. * Declines in the value of the non-program cars in their fleet due to decreases in residual values could adversely impact the financial condition and results of operations. For the year ended December 31, 2009, approximately 53% of the cars purchased in the combined U. S. nd international car rental fleet were subject to repurchase by car manufacturers under contractual repurchase or guaranteed depreciation programs. * The failure of a manufacturer of cars that Hertz owns to fulfill their obligations under a repurchase or guaranteed depreciation program could expose them to loss on those cars and adversely impact the outstanding asset-backed financing facilities, which could in turn adversely affect the liquidity and results of operations. For the year ended December 31, 2009, the highest outstanding month-end receivable balance for cars sold to a single manufacturer was $95. million owed by Hyundai Motor Company in January 2009, which was subsequently paid. Although there is no guarantee that Hertz will be paid these amounts by any car manufacturer that files for bankruptcy protection in the future and/or otherwise ceases operations, any failure by a manufacturer to pay such amounts due could, among other things, cause a credit enhancement deficiency with respect to the asset-backed financing, in which case the collateral requirements for such facilities could be increased. * Significant increases in fuel costs or reduced supplies of fuel could harm our business.
Fuel prices have been volatile recently, and could fluctuate severely and/or increase overall in 2010. According to the U. S. Energy Information Administration, from 2008 to 2009, the average retail cost of a gallon of gasoline in the United States decreased 27. 9%; however it was projected that over the course of 2010 fuel prices would increase 20. 8%. * Heavy reliance upon communications networks and centralized information technology systems to accept reservations, process rental and sales transactions, manage our fleets of cars and equipment, account for activities and otherwise conduct business.
This reliance exposes them to various risks that could cause a loss of reservations, interfere with their ability to manage the fleet, slow rental and sales processes. * Risks related to liabilities and insurance since their businesses exposes them to claims for personal injury, death and property damage resulting from the use of the cars and equipment rented or sold by Hertz, and for workers’ compensation claims and other employment-related claims by our employees. SWOC Analysis: Opportunities
Hertz has weathered the economic storm of 2008, the worst economic conditions in their 91 year history by looking ahead for growth opportunities and ways to improve service levels. A review of external and internal actions that have prepared Hertz to capitalize on opportunities: External Actions * Improved conditions in car and equipment rental business * Successfully developing business in key emerging markets: Brazil, China and India; * Experiencing improvement in the US Car rental, the largest share of the Hertz business Internal Actions * Reduced costs by 1. billion dollars; headcount reduction (4,000 employees) taken in non strategic locations (with a bit of help from the economy Hertz should be poised for solid growth). * Refinanced 3. 3 billion dollar debt one year ahead of schedule on favorable terms. * Hertz has stayed the course intentionally focusing on three key business emphasis areas: asset management, employee satisfaction and customer satisfaction. * Lighthouse project that utilizes employee input in the development of customer features has improved employee engagement and customer satisfaction. Opportunities Hertz is “leading the way with High-Tech, High-Touch innovations”; Hertz. om, self service kiosks at 36 major airports, including 11 in Europe (which have successfully completed 500,000 transactions), portable rental devices, enabling roving customer service agents to address customer needs; integrated car sharing technology including online booking, applications for iPhone and Blackberry smartphones; GPS navigation upgrades with touch point screens. Hertz has more than 700 locations in Europe, along with franchise partners which rivals its airport locations – European local rentals continues to grow for business people as it is the most efficient means of travel in Europe.
They possess the most diverse car fleet in the rental industry, enabling service to all customer segments; vacationers, business people and local residents. This is a key area of expansion as Hertz looks to 2010 to open 150 new locations. Looking to expand their leisure “driving for fun” market, Hertz introduced a pre-paid program that is used primarily by the 21-25 year old market, a market segment that was and in many cases is not allowed to even rent before this program. In addition they introduced three new programs for vacation travelers; i.
Prestige collection – high end SUVs’ and luxury car models (Volvo, Lincoln, Cadillac, BMS, Audi and Land Rover. ) ii. Green collection – Toyota Prius, Ford Fusion, Toyota Corolla, Camry hybrids. iii. Fun collection – Ford Mustang, Chevy Corvette, Jeep Wrangler. To further diversify, Hertz purchased Advantage Rent –A-Car a very reasonably priced car rental popular with those who do the Priceline on line booking. Hertz has combined their fleet with Advantage in order to offer a variety of peak and off peak vehicles to meet a variety of renter needs.
They’ve begun looking at renting electric cars, a zero carbon, and rechargeable vehicle, introduced in late 2010 in North American and European markets. The target market for the electric cars is a university setting where the charging stations make sense for car sharing experiences. In addition, car sharing, Connect by Hertz, a total mobility solution offering high tech, high touch rental option for urban, university and corporate travelers. To further expand their offerings, Hertz purchased Paris based Eileo in 2009, the pioneer of integrated car sharing technology, a concept that has been launched in London, Paris and NYC.
This offering reduces the number of cars on the road which also reduces pollution, creating an economic benefit for crowded urban areas. In their global markets, Hertz has expanded their equipment rental revenue into China and the Middle East with entertainment services, power generation and industrial equipment. This expansion of global footprint gives Hertz the ability to offer first class rental experiences through corporate owned or franchised partners. Special attention was given to China (Beijing and Shanghai) and China’s new 48 airports, Saudi Arabia/Middle east with equipment where construction is booming currently.
SWOC Analysis: Challenges Dependence on the United States Automobile Industry The financial instability of U. S. car manufactures has presented significant challenges to the Hertz Corporation. Hertz depends on its business partnerships with these organizations. The bankruptcy of many American auto manufacturers has led to double digit declines in car and equipment rental volumes. The majority of Hertz’s rental cars are purchased from Ford and General motors. In the event that these companies would cease manufacturing and selling vehicles, Hertz would have to increase purchasing vehicles from other manufactures.
However, there is no guarantee that Hertz will be able to purchase vehicles at their current purchasing price. Technological Changes and Advances Many futurist and economists see technological innovation as one of the major forces driving industrial change (Schwartz, 2003 as cited in Bryson, 2004). As technology becomes increasing dominant in American organizations, Hertz employees will need to develop new skills to use and the organization will need to adopt these processes, structures, and resource allocations. Hertz will need to continually improve the way in which technology “drives” its business.
These could represent challenges for them to improve the operation and effectiveness of their website, self-serving kiosks at airports, the GPS systems in their vehicles, and also includes the advancing their smart phone applications. Information technology is currently driving major changes likely to have dramatic impacts on organizational performance, accountability, and issues related to data and privacy (Bryson, 2004). Hertz reliance on technology exposes risk that could cause loss of a reservation; interfere with their ability to manage fleets, privacy issues, and the slow operation of the car rental and sales process.
Hertz needs to protect against these risks because they could adversely affect customer relations, operating results, and financial conditions. Competitive Pressures Hertz operates in a highly competitive market. They currently posses a 25. 7% share of the rental car market (AVIS/Budget- 28. 9%, Enterprise- 31. 4%, Dollar/Thrifty- 12. 0%) Enterprise brands currently dominate off-airport rentals and the insurance replacement markets respectively. One of Hertz’s priorities is to present a bigger challenge to Enterprise in these particular arenas.
In order to do so, Hertz needs to remain cognizant of the business strategies of their biggest competitors. Significant changes in the competitive market will affect Hertz’s business strategies and policies, not excluding pricing practices and incentive programs. For example, most consumers have become more cost conscientious since the recent recession. If Hertz were to increase costs, their competition, some of which has greater resources and better access to capital, may seek to compete aggressively on the basis of pricing. In essence, Hertz competition could gain strategic advantages by reducing their prices.
Hertz may also be presented with additional challenges from future competition. Worldwide equipment rentals, an area in which Hertz does especially well in, is currently highly fragmented with few national competitors. It is reasonably foreseeable for new competition to develop and penetrate that particular market. Maintaining customer satisfaction and employee morale The present economy has made maintaining customer satisfaction and employee morale particularly challenging. The recession has caused Hertz to focus intensely on reducing operating costs. This means they had to drastically reduce staff and close many under-performing locations.
In order for Hertz to maintain customer satisfaction with fewer employees and locations, they must develop more efficient practices and policies. This would also require Hertz to- consistently monitor the need for additional staffing at improving locations, constantly assess environmental trends, and introduce customer-centered technologies. Hertz must also be prepared to combat a potential decline in employee morale. With lay-offs perpetually looming, it is reasonable to expect employee morale to waver. If this happens, it could present deficiencies in operations which would directly affect customer satisfaction levels.
Merger Transitions Hertz recently acquired Eileo, a France based company that specializes in car-sharing programs. They also acquired the Advantage Rent-A-Car company in April of 2009. One of the challenges of these major acquisitions for Hertz is for them to be able to effectively integrate these associated offices, without diluting the Hertz brand. In essence, they must realize operational synergies. Doing this does involve numerous risks including: potential disruptions of ongoing business, distractions of management, difficulties integrating different business practices, and exposure of unknown liabilities.
Pressures to Go “Green” “Green” policies and practices are becoming preferred by the majority of the American population. Consumers are increasingly concerned with the longevity of the planet. Hertz business policies need to accept America’s vision of “greener” practices. In order to do this, Hertz most take on a moral responsibility to utilize vehicles with higher MPG and better fuel emission standards that are safer for the environment. This could also include the challenges of effectively developing electric car initiates and car sharing programs.
Expanding the “Global Footprint” Approximately one-third of Hertz’s revenue is generated outside the U. S. market. They currently have franchise partners in over 136 countries. One of the biggest challenges Hertz faces is to minimize the economic effects in their international market, particularly in Europe. This is especially challenging, considering the fact that global recession has caused most companies to eliminate market expansion plans. And yet, Hertz still has ambitions to add locations worldwide, including establishing a higher concentration in the Chinese market. China happens to be the world’s fastest growing car and equipment rental market. ) Other Challenges Facing the Hertz Corporation include; * Fossils fuels- rising fuel costs and/or shortages in fuel directly impact rental acquisition, leaving consumers to find it too expensive to travel. * External threats affecting travel- war, terrorist attacks, epidemic disease, natural disasters, etc * Risk management- the liability of Hertz being responsible for equipment damage, property damage, personal injury, death, and the litigation expenses that could result from these occurrences. * Seasonality- a decrease in travel uring the winter and increase during the spring and summer month’s present challenges to efficiently manage fleet operations. * Government laws, mandates, and controls- Hertz is subjected to many governmental regulations in relation to pricing/advertising, privacy and data collection, currency controls, labor relations, charge card operations, insurance policies, environmental protection, and used car sales and licensing procedures. Changes in any governmental policy, or the adoption of new laws, could result in significant changes in Hertz procedures, which may increase cost of operations and applicable tax rates. Marketing- Hertz will be continually challenged to conduct active sales and marketing programs that attract and retain customers. STRATEGIC ISSUES Hertz is a front runner in the rental vehicle business, number two only to AVIS in the current markets Hertz serves. In order to maintain and grow a competitive edge there are some strategic issues that Hertz must address directly. Market Share Vehicle Rental Hertz is at the top with Avis edging them out for the top spot, however staying at top means keeping the “Brand” in front of the audience.
In the SG & A discussion of the 2009 Annual Report Hertz trimmed their advertising expense by almost 30%. They did not mention a new structure for media buying to be facilitated by a new agency to save costs. I am left to think they simply decreased advertising. In recent travels and paying closer attention to media in travel magazines: Delta Airlines and US Airway’s flight magazine AVIS – big red versus big yellow was the dominant vehicle rental advertiser. Should you look at any other established, well known brand, Coke and Pepsi as an obvious example; they spend millions keeping that logo “front of mind”.
Advertising is seen anywhere you could potentially think about drinking a soft drink. In order to continue to branch out with new technology in an effort to capitalize on the brand, Hertz must continue a very aggressive media campaign to be present anywhere people may think of rental car need. Car Manufacturers Hertz suffered greatly when the US car manufacturer’s financial challenges. Hertz has depended on the partnerships with manufacturers who were not able to meet the obligations of their agreements with Hertz which left Hertz scrambling to develop new avenues for fleet vehicle programs.
Ford who Hertz relies on in the US must stay solvent in order to Hertz to enjoy the ability to purchase fleet and program vehicles and the tax incentives they enjoy because of their inventory management of fleet. Debt and Interest payments For the next two to five years in order to survive Hertz must meet obligations for all interest payments and as a sign of financial stability should look to significant debt reduction. The 2009 annual report indicates 126 million in losses, interest expense of 680 million which are material amounts.
The debt is held by two primary lenders: Deuschte Bank and Bank of Scotland. If either organization called their notes requiring payment in full, Hertz would not succeed. Hertz is not the low cost leader and needs to maintain that position in a positive way to ensure financial trends are positive. Technology Hertz must focus on the ability execute operationally any technology introduced. It is one thing to advertise iPhone applications, internet and wifi connections; the ability to produce what the customer has reserved using the wireless technologies has to be present in order to build customer confidence.
If one reserves, arrives and has no vehicle – does the technology really matter if you did not save time or feel that you had received value or convenience. To that traveler at that moment Hertz must be able to execute. The ability to distribute their assets to the right place, at the right time to support demand from these new technologies is critical. Focus on Green Hertz is committed to what they refer to as the “electric car revolution”. This is a vehicle with a zero carbon footprint. At the present time, lack of recharging stations will temper the demand for the electric cars.
The hope is that in the next few years university settings and very urban markets will take the lead for the establishment of charging stations will then provide a structure for this next generation of green transportation. In the short term availability of hybrid models such as the Toyota Prius, Nissan Altima and Toyota Camry are Hertz’ response to those who require a greener model. Off Airport Rental Hertz is beginning to enter new location space with their fleet: off airport rental. Hertz is going face to face with the established leader, Enterprise system. Is this an appropriate move for the next 2 – 5 years in the US market?
Europe where Hertz has a presence and daily/weekly rentals are a “way of life” is one thing (add to that most of those markets are franchised so you can terminate an arrangement). Hertz will be risking additional asset costs in fleet, leased property, staffing in hope to gain ground in an area held firmly by Enterprise. People Hertz North America has reduced headcount to a bare minimum deploying human assets on an admitted “as needed” basis to strategic hubs. This is a very short term view of growth. The ability to grow infrastructure must include a committed front line, operational management team.
The Annual Report stated an increase in employee satisfaction. The hope is then that Hertz continues to communicate and reach out to those dedicated to customer service second to none in spite of financial challenges. That part of the human touch with customers leasing employees where customer contact is needed; airport leasing, returns with checkout is necessary in order to build repeat business. Equipment Business Hertz’ equipment business does not report a leadership presence in any one market, in any one geographic area. By Hertz’ own admission the competitive landscape in this business segment is “intense. Can Hertz realistically, financially maintain a healthy presence in both industries? EBITDA results were maintained for the equipment portion of the business through cost cutting measures as revenues dropped dramatically. US new construction continues to struggle and from the readings the European market is no better. China is bustling, but are we confident based on current locations that we can enter then stay competitive those new and emerging markets? The equipment is expensive in multiple ways: assets are expensive to purchase, maintain, and insure. Is the return versus other similarly situated usinesses sound? Hertz is in a business where receivables can become problematic. Credit is extended, and during financially challenging times generally extended past healthy limits. There was a surprisingly low 1. 1% bad debt due to non-payment, and the receivable turnaround time was not addressed. The fact is you generally do not immediately receive your payment as you would in a fleet rental transaction. The current uncertainty of the future global construction market begs Hertz to question whether they can appropriately focus on two different business rental segments given their current financial condition.
Summary Hertz has significant brand recognition, good ideas to generate revenue for the future. However they are in a precarious situation; two distinctly different business segments that have experienced huge revenue declines, specifically, construction and the vacation and leisure vehicle rental declines of 2008 and 2009 that have left Hertz with extraordinary debt to consider in order to remain a going concern. Foundations of goals and strategic plan We have successfully completed both external and internal analyses of the rental car and equipment markets as it pertains to the Hertz Corporation.
The goals and future direction of the corporation must unequivocally elicit actions, that when taken, establish and maintain strategic advantages for Hertz in this extremely competitive market. We believe the goals established herein educe such responses. The subsequent section of this strategic plan will outline the strategies and approaches to be taken by Hertz to facilitate obtainment of their principal goals. The following goals have been established for the Hertz Corporation: Increased Market Share In the last 5 years, Hertz has consistently relinquished percentages of their car-rental market share to their principal competitors.
Currently, it is estimated that Hertz’s market share is at 25. 7%. The goal over the next 3 years is for Hertz to secure one-third of the share in this market. In doing so, Hertz will also maintain its dominance in the equipment rental market and begin to compete with Enterprise in the off-airport rental market. Hertz will also aggressively pursue its international markets, including significantly extending operations in China, the worlds’ fastest growing car and equipment rental market. Movement toward sustainable inventory Hertz will significantly extend its social responsibility programs.
The goal is for Hertz to drastically increase eco-friendly vehicles to its operating fleet (a 30% increase by 2014). Hertz believes it has a moral obligation to do so and will diligently pursue business directives that are safer for the environment. This includes introducing “smart car” initiatives, increasing electric car fleet additions, and contracting more fuel efficient vehicles that emit lower carbon-dioxide into the atmosphere. Improve customer satisfaction by training and technology Hertz has always recognized its required allegiance to the customers of their brand.
Hertz will continue to pursue business objectives that improve customer’s experience with the product. This will include increasing customer relationship trainings for all our employees. The company will also set aggressive goals over the next 3 years to be the most technologically advanced rental car and equipment company in the world. Essentially, the technology goals were established to make the customer’s experience more rewarding. At Hertz, we believe that the consequences of improving our technology will result in a better brand image and improved customer satisfaction.
The satisfaction/technology goals rely on the principle of the “four mores”: 1) more safe and responsible 2) more simplistic 3) more reliable 4) more comfortable Dedication to Employees Over the next 3 years, it will be increasingly evident that Hertz feels morally responsible to the environment, their customers, and shareholders. However, our company would like to further acknowledge its commitment to the employees of Hertz. We understand that the current economic crisis has forced the company into making tough decisions, decisions that ultimately left thousands of Hertz employees jobless.
Hertz also understands that no goal outlined in this strategic plan will be attainable without the commitment and dedication of all its employees. Therefore, Hertz is introducing its M. O. R. A. L. E program (Movement of Recognizing All Leadership Employees). This movement will provide the following benefits for Hertz employees: incentives for excellent job performance, lucrative rewards for obtaining organizational goals, commission plans added to employee’s base salary- purposefully designed to improve performance, monthly employee recognition meetings, and an aggressive career advancement campaign.
The goal here is for Hertz to improve the morale of all its employees and be recognized as the number one employer in the car and equipment rental industry. Drastically decrease debt owed Hertz currently owes a substantial monetary amount to two primary lenders: Deuschte Bank and Bank of Scotland. Operating under such debt has caused strategic limitations and will undoubtedly effect the attainment of the goals laid herein. Hertz is also subjected to the arbitrary decisions of the aforementioned lenders.
The corporation may struggle to sustain itself if either lender requires payment in full or radically increases payment contingencies. Therefore, over the next 3 years, Hertz will industriously contribute to paying off debt owed. It is believed that Hertz’s ability to do so will be promoted by obtaining all of the other goals outlined in this strategic plan. Hertz Strategic Plan Implementation Hertz Global Holdings (Hertz) operates vehicle and equipment rental businesses in the United States and Europe as well as global services for industries like construction, automobile manufacturing, railroad, power generation, and shipbuilding.
Hertz vehicle rental business is the largest worldwide. Headquartered in Park Ridge, New Jersey, the company employs 24,900 people in approximately 8,200 locations in 146 countries worldwide. Mission It is the mission of Hertz to be the most customer focused, cost efficient vehicle and equipment rental/leasing company in every market we serve. We will strengthen our leading worldwide positions through a shared value culture of employee and partner involvement by making strategic investments in our brand, people, and products.
The focus of everything we do will be on improved shareholder value. Vision Hertz will be the first choice brand for vehicle and equipment rental/leasing and total mobility solutions. Strategies * Ensure that the Hertz Brand is in front of the target audience through aggressive and consistent media campaigns to further increase vehicle rental market share. * Hertz will increase marketing expenditures by 15% over the next three years. The company will frontline its new marketing campaign epitomized by its new slogan. “Hertz, driving you towards the future. The focus of this campaign will be to characterize Hertz’s image as an enviro-friendly car rental company that has embraced technological advancements. * Expand partnerships to avoid conflicts and retain an ability to purchase fleet and program vehicles. * Meet and exceed obligations for all interest payments to secure financial stability in an additional effort to significantly reduce debt. * Focus on, plan for, and invest in new and useful technologies and facilities to meet and match customer expectations in order to build customer confidence and to distribute Hertz products to the right place at the right time to support demand. Continue to embrace the principles of environmental sustainability that serve the evolving needs of our employees and customers. Remain committed to vehicles with the lowest carbon footprint. Waiting for and accessing infrastructure as the demand for electric cars increases. In the short term, hybrid models such as the Toyota Prius, Nissan Altima and Toyota Camry will be used in response to customer demand. * Continue to find and use new location space off the airport rental market challenging the competition. Challenge, empower and engage employees seeking to increase satisfaction through affirming communication to improve morale and decrease turnover. Hertz will strive to increase the diversity of the workforce as a contribution to the overall success, and to recruit and retain talented employees. * Increased use of ‘the human touch’ instead of technology where needed, and will respect and care for each customer through each transaction in order to build repeat business. * Consider the equipment rental/leasing portion of the business for cost utting measures as revenues dropped dramatically, U. S. new construction continues to struggle and China is competitive. REFERENCES Hertz Annual Report: http://phx. corporate-ir. net/External. File? item=UGFyZW50SUQ9Mzc2NTI0fENoaWxkSUQ9Mzc1MTMxfFR5cGU9MQ==&t=1 Hertz Global Holdings, Inc. Q4 2009 Earnings Call Transcript http://seekingalpha. com/article/190491-hertz-global-holdings-inc-q4-2009-earnings-call-transcript Hertz Mission Statement, Vision and Values: https://images. hertz. com/pdfs/VMVWeb. pdf