Revised March 21, 2012
MEGHAN BUSSE AND JEROEN SWINKELS
The American car rental industry was born on August 20, 1916, when Josiah Ellis “Joe” Saunders, an entrepreneur living in Omaha, Nebraska, ran a seven-line classified ad offering “Automobiles for Hire.” Saunders’s fleet consisted of one vehicle—a Model T Ford—that he rented for ten cents per mile.
The industry Saunders created grew dramatically with the advent of commercial air travel after World War II. In 1957 in St. Louis, Missouri, Jack Taylor founded the company that would become Enterprise Rent-A-Car (named after the aircraft carrier on which Jack had served as a pilot in World War II). Jack, a successful sales manager at a Cadillac dealership, started the company to lease cars, but within a few years he discovered a lucrative market for short-term rentals.
Jack focused Enterprise on the local rental market, setting up offices in neighborhoods rather than at airports. He believed that increasingly car-dependent Americans would welcome a local option for renting cars when their own vehicles were being repaired. This was the Enterprise way—“convenient local rentals right where customers live and work.” After court decisions in 1969 required American insurance companies to begin reimbursing for auto rentals while an insured owner’s car was being repaired after an accident, Enterprise began cultivating referral relationships with major insurance companies. This move brought in more business for Enterprise and enabled insurance companies to offer enhanced service to their policyholders.
In 1980 Jack Taylor stepped down as president of Enterprise and promoted his son, Andy, to take his place. Under Andy’s management, Enterprise embarked on two decades of rapid expansion, frequently growing revenue and locations more than 15 percent annually (Exhibit 1). By 2004 the company claimed that 90 percent of all Americans lived within fifteen miles of an Enterprise rental office.
In 2010 Andy was chairman and CEO of Enterprise Holdings, which was 98 percent owned by the Taylor family. Enterprise Holdings (comprising the Enterprise, National, and Alamo rental brands) was the seventeenth largest privately owned company in the United States, with more than $12 billion in revenue. Had it been publicly traded Enterprise would have ranked number 185 in the Fortune 500. Enterprise was not required to reveal its earnings because it was a private ©2012 by the Kellogg School of Management at Northwestern University. This case was prepared by Greg Merkley ’84 under the direction of Professors Meghan Busse and Jeroen Swinkels. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 800-545-7685 (or 617-783-7600 outside the United States or Canada) or e-mail email@example.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Kellogg School of Management.
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company, but an industry adage held that “there are two types of rental car companies: those that lose money and Enterprise.”1
The Enterprise brand had more than 6,000 rental locations in the United States and a fleet of 850,000 cars in service. Enterprise had been the largest rental car company in the United States since 1994, and by 2010 Enterprise Holdings accounted for nearly half of the rental market and was more than twice the size of Hertz, the number two competitor (Exhibit 2).
In 2010 Enterprise employed 68,000 people, virtually all of whom had graduated from college...
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