There are two paths in the business world: the corporate ladder or your own way. The 40-year history of Payless Car Rental is a story of entrepreneurs — from the company’s founder to its franchisees and its present-day president and CEO. These disparate groups each chose their own path to build a business but never wavered from staying focused on the cost-conscious leisure traveler.
An Entrepreneur’s Vision
Lester "Les" Netterstrom was working in sales for a book cloth company in Illinois when the offer came to take a vice president’s position at the company’s headquarters in Rhode Island. Netterstrom wasn’t keen on uprooting the family. But what he really wanted, says his widow, Zenta “Dusty” Netterstrom, was to run his own business.
And so — in one of those career- and life-defining moments — he turned down the job. Instead, “He decided to buy a Thrifty franchise,” Dusty recounts. Netterstrom didn’t know anything about the car rental business, except that he rented a lot of cars at airports while traveling for his sales job.
Netterstrom’s Thrifty territory was the car rental mecca of Idaho, and soon after so was Spokane, Wash. Along with Dusty, Netterstrom ran his franchise through the last half of the ’60s and ran it well. But Thrifty corporate wasn’t necessarily listening to all his big ideas. He had an entrepreneur’s mindset, and he needed to break out on his own. “Les had a lot of ambition,” Dusty says. “He had a vision for a lot of things.”
By the early 1970s, higher fuel prices forced Americans to consider smaller cars for the first time. But at airport rental counters, the established car rental agencies were pushing larger cars for higher rates — as Dusty puts it — to make enough money to cover their airport concession and lease fees. Netterstrom thought there was a place for a cheaper alternative that rented smaller cars off, but near, the airport.
In 1971, the first Payless Car Rental location opened in Spokane. The name fit the business model, though through the years “a lot of people thought the name was really ‘Pay Les,’ ” Dusty jokes, “especially the franchisees.”
Not long after, Netterstrom created the Payless Car Rental system and began franchising. The early days were spent marketing the new niche. “I don’t know how many feelers I sent out to get people interested in a franchise, but I contacted a lot of car dealerships,” Dusty says.
One of those dealers was a former governor of Utah. He put a rental office in his Ford dealership and called other Ford dealerships in Utah to do the same, Dusty says. “We always said the Mormons in Utah got us started,” she remembers. “Things just sort of snowballed from there.”
A Logical Combination
By 1982, Payless developed 100 locations and was solidly profitable. But the company’s coverage was primarily in the Northwest and Midwest, while another independent franchise system had been growing rapidly in other parts of North America.
Canadian-based Holiday Rent A Car started in the 1960s out of a Ford dealership in Peterborough, Ontario. The company had gotten onto airports in Canada in the late ’70s, and grew quickly to 40 franchise locations in Florida and other southeastern states.
In 1982, the Holiday system owners — the Tennant family — made an offer to buy Payless. The two companies combined their franchise systems to become Holiday-Payless Rent-A-Car. The combination provided greater national coverage, and for the most part, non-competing franchise territories. “The two franchises fit together well,” says Jim Tennant, who ran Holiday’s U.S. division for two years. Dusty concurs: “It fit together like a jigsaw puzzle.”[PAGEBREAK]
The Netterstroms moved the Payless headquarters to St. Petersburg, Fla. and Les worked to transition the company. Yet in the years that followed, “The responsibilities and the work required to grow a smaller system were more difficult than our family realized,” Tennant recounts. Moreover, the family still had some lingering financial obligations from the initial sale.
In 1987, the Tennant family ended up selling the company back to Netterstrom, and Holiday franchises began transitioning to the Payless name. Then Les Netterstrom got cancer.
A New Owner
Fred Lin didn’t start out as an entrepreneur. When Lin came to America from Taiwan in 1979 he was busy climbing the corporate ladder in sales and marketing for Sampo, a major Taiwanese electronics company.
At the time, Sampo was looking for new business opportunities. Lin was already somewhat familiar with the automotive industry, having brokered the deal to establish Sampo as the distributor of Chrysler vehicles in Taiwan. Similar to Netterstrom, Lin knew nothing about car rental outside of renting a lot of cars for his sales job.
By 1989, Dusty was running the day-to-day operations of Payless as her husband’s health deteriorated. It was time to sell the company. On Sept. 28, 1989, Lin signed the agreement with Les Netterstrom to purchase Payless Car Rental. Netterstrom died in 1992.
Lin knew he had to learn the business of car rental — and quickly. Lin credits the company’s existing employees with helping him to understand the business. “I came by myself and didn’t bring anyone with me to acquire this company,” he says. “I really appreciated all the employees that helped me a lot.”
Lin relied on Sampo for support as he got his feet wet in the car rental industry. But in the coming years he worked to divest from Sampo, replacing the company with non-corporate, silent partners. Eventually, Lin became the second entrepreneur-owner of Payless, and he was ready to implement his own ideas to bring the company into the coming decades.
A New Vision
Lin was dedicated to continue serving the discount leisure customer, but primarily from on-airport locations. He knew he could do this by leveraging one of the company’s key strengths: the Payless reservations engine, which wasn’t hindered by the legacy IT issues the bigger car rental companies faced. With Lin’s background in electronics, he committed to making it “better, stronger,” he says.
The 1990s, Lin admits, were lean times. When he bought the company, the franchise system concept was new to him. “It was a big lesson to learn,” he says. A year after acquiring the company, Lin says changes at the car manufacturers — such as more stringent buyback programs and tightening credit lines — made survival as a car rental franchisee more difficult.
Lin worked to make the company more corporate controlled through a plan to buyout existing franchises. This plan gained momentum when Rick Stevens came aboard as chief financial officer.[PAGEBREAK]
Though he was involved with Payless as far back as 1989, Stevens officially joined the company in 2000. He comes from an accounting and consulting background with an expertise in mergers and acquisitions, and he worked on the deal that sold the company from Netterstrom to Lin. By the latter half of the 1990s, Payless — not surprisingly — formulated plans to go public.
However, Stevens knew that a company with very small topline revenue was not going to excite potential investors, and a fractured franchise base was not going to help either. “You need to own and operate your own stores and create your own control and put a consistent product out there,” Stevens says, adding control over fleet buying as another top priority. “It was hard to get everyone together on the same page.” Stevens became the principal architect of the company’s subsequent acquisitions.
The Corporate Conversion
In 2001, Payless created Avalon Global Group as a holding company to oversee all the brands, which included Payless Car Sales that started in 1991, and newly formed Payless Parking. Plans for an IPO were shelved after the recession following 9/11, though plans to convert franchises to corporate stores moved ahead.
The company bought Jim Shapiro’s locations in Orlando and Tampa in 2002. Shapiro started as an American International franchisee, which morphed into Americar, but he signed on to take Payless reservations and then became a Payless franchisee in the mid-90s. Before selling both locations to Payless corporate, he ran a dual operation with Americar — though that brand gave way to Payless exclusively.
Shapiro was running a strong business with close to 1,500 cars, though he saw the writing on the wall as a smaller company. “I was still getting reservations, but down the road, it didn’t look that good to me,” he says. “I’d be at the whim of the Orbitz’s of the world, and I didn’t know if I’d have enough volume to keep them interested. Payless had the connectivity and the ability to get reservations.”
Throughout the buyout process, Lin realized the value of a seamless transition. “My philosophy is to try to keep existing employees when we acquire franchise locations,” he says. This couldn’t have been more prevalent than in Orlando and Tampa; Shapiro counts a dozen people who started in the 1970s with him and are still employed by Payless today. “It ended up being a pretty good deal for them,” he says.
In 2004, Avalon purchased the assets of the former Las Vegas franchisee. Buyouts of the Denver and Fort Lauderdale franchises followed in 2005 and Phoenix’s Sky Harbor franchise the following year.
The company did so with the help of mega car dealer Denny Hecker, who became a joint venture partner for those stores as well as one in Minneapolis. Payless leased fleet through Hecker and initially the deal worked out well, Stevens says.
But, Hecker bought Advantage Rent-A-Car in 2006. Advantage’s pricing was a problem, plus Hecker’s OEM deals led to over-fleeting and “way too rich of a fleet” for Payless customers, Stevens says. Hecker’s bankruptcy further muddied the waters. “They were turbulent times, but we were able to gain back control of all of those stores,” says Stevens, who was promoted to president in 2005 and is now part of the ownership group.[PAGEBREAK]
Elbowing onto Airports
Built on its strong IT backbone and reservations engine, in March 2009 Payless was added to the Expedia Preferred Vendors view, perhaps the biggest feather in the company’s cap. Payless also offers rates through Orbitz, Priceline and Travelocity.
“Preferred status with the OTAs (online travel agencies) has been a key to us succeeding,” says Stevens, who also credits the Payless website and 1-800 number as key strengths. And, in keeping with Lin’s employee retention philosophy, Stevens also credits the company’s success to the quality work of longtime operators such as Rob Dau, Blair Van Wagoner and Steve Blakley.
Stevens and Lin understand that surviving on the OTAs requires good, consistent customer service, something the company continually measures and strives to improve. The OTAs also want as much coverage as possible, which is driving the company’s latest expansion push. “We will approach any good airport regarding available space,” Lin says.
In 2010, Payless added San Francisco, Oakland and Miami to its portfolio of corporate-owned stores. Last year the company opened at Albuquerque (N.M.) Sunport Airport, and in 2012 it will open corporate stores in the consolidated rental facilities in the San Jose, Calif. and Seattle, Wash. airports.
What challenges does Payless face today? The company successfully weathered the credit crisis of 2008-2009, replaced its lenders and even managed to grow in this time.
Today, one of the biggest challenges to growth is elbowing onto airport counters, Stevens says. However, the trend toward conracs (consolidated rental facilities) levels the playing field to an extent, with airports realizing the need for a competitively priced alternative, Stevens says.
Being in terminal is the goal. “In terminal the consumer sees us as a major company,” Lin says.
Another recent initiative involves a franchise deal in Florida to combine Payless Car Rental and Car Sales under one roof. While the car rental focus remains on airport, Lin says these dual-function stores provide an inroad to the local market.
Though 70 percent of revenues comes from the 10 company-owned stores, Payless still has some larger franchises in Atlanta, Pittsburgh, Minneapolis, San Diego, Kansas City and Los Angeles (owned by Fox Rent a Car).
Payless counts 80 franchise locations in the U.S. and overseas. Lin’s next big initiative is opening Payless locations in China — an enormous, emerging market for car rental. Lin has been traveling to China for several years in preparation. “I think the timing is right,” he says. “We’re ready to go.”
Stevens predicts $70 million in total revenue this year and is looking to double that in the next three years. That growth will always come through serving the Payless niche, as Stevens puts it, the cost-conscious leisure traveler — i.e. the guy who’s searching for deals on the internet. “Hopefully we can win over those people and they’ll come back to us,” he says.
For Lin, growth will come but not by losing sight of the Payless customer. “We’re just focused on what we do best,” he says. “We’re still a small company. We try to please the customers we have.”
Originally posted on Business Fleet