Dollar Thrifty Plans for Refranchising, Remarketing and Recovery

At the end of Dollar Thrifty Automotive Group’s second quarter 2009 investor slideshow, Scott L. Thompson, the company’s president and CEO, closed with a quote from George Patton: “Success is how high you bounce after you hit bottom.”

In the timeline of any business, peaks and valleys are a fluid thing. But if one charts Dollar Thrifty’s progress since the company’s management transition on October 13, 2008, the bounce has been a slingshot bungee ride at the state fair.

In Wall Street terms, DTG was languishing at 97 cents a share at the time. The stock would go even lower, as the company teetered on the verge of being delisted from the New York Stock Exchange amidst talks of bankruptcy in late 2008.

What 10 months and a corporate makeover can do: By mid-August of this year the stock had reached $23, continuing to defy the odds in a stubborn recession and soft travel demand. The company returned to profitability in the second quarter of 2009.

Thompson is quick to point out that the company does not define success or failure based on stock performance. Irrational exuberance or pessimism and market forces beyond a company’s control can drive stocks, like bungee rides, to erratic swings.

Yet the bullish performance is a visible marker that Thompson and his team have positioned the company well to be able to take advantage of an economic recovery in 2010.

In an exclusive first-time interview, Scott Thompson and Jeff Cerefice, vice president, DTG Global Franchise Operations and Development, discuss Dollar Thrifty’s move to refranchise some corporate stores, debt restructuring, fleet financing, the science of car sales, loving 45,000-mile rentals and how a renewed focus on the leisure market is feeding the bottom line.

The Refranchising Initiative
Dollar Thrifty’s corporate belt tightening this year included staff cuts in Tulsa and the closure of smaller, unprofitable stores in the local market. At the same time, 11 corporate stores in smaller airport markets are in various stages of transitioning to franchise operations.

“These stores are profitable, but may not be a good use of our capital,” says Thompson. “Some would be run better by an owner/operator who is entrepreneurially focused. I was a franchisee; I think franchisees can run certain operations better than a corporation.”

Cerefice notes that although the company had been buying back some of the larger franchises in recent years, it had not stopped selling franchises.

“We’ve always felt it’s been a good complement to our corporate store operations,” he says. “It gives us network flexibility depending on the environment. It’s a nice balance.”

Cerefice says the two key ingredients for a Dollar Thrifty franchisee are automotive experience, particularly in car rental or car sales, and the financial means to handle the size of the operation.

Though not a significant revenue driver, refranchising will be part of the business model moving forward. Thompson anticipates a “couple more” refranchise deals by year’s end. “I don’t mind letting some other people make some big money,” says Thompson. “If they make money, we’ll make money.”

Another franchise initiative is an integration of Thrifty Car Sales and rental outlets. “I see Thrifty Car Sales as part of the rental car business,” says Thompson. “I’m optimistic about blending those two business models.”

Managing Debt
As part of the industry right-size crusade this year, Dollar Thrifty has shed 26 percent of its debt since June 30, 2008. The company has a fleet maturity coming due in the first quarter of 2010, though Thompson says the company can pay off that debt with the cash it has on its balance sheet. Other maturities won’t come due until fourth quarter 2010.

This gives the company a needed breather in a still-difficult credit market. The company has avoided any creative financing such as major lease deals and TALF loans. “There are available funds out there, but unless you have a gun to your head, it doesn’t seem like those are the terms you ought to jump on,” says Thompson.

As the credit market thaws, fleet purchases will normalize. However, “I don’t think we’re fixing to go back to robust purchases from the OEM standpoint,” Thompson says. “I don’t think the overall fleet size will change significantly.”

New car pricing continues to be favorable. Whereas manufacturers blamed “low-margin” rental fleet sales for much of the overall sales dip this year, it’s not because they didn’t want to sell to rental, Thompson contends. “[Pulling back from rental sales] has been the public statement, but I don’t feel that from any of the OEMs.”

CONTINUED:  Dollar Thrifty Plans for Refranchising, Remarketing and Recovery
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