Hertz Global Holdings' CEO Hosts Annual Investor Day Conference (Transcript)

| About: Hertz Global (HTZ)

Hertz Global Holdings, Inc. (NYSE:HTZ)

April 02, 2013 9:00 am ET


Leslie Hunziker - Staff Vice President of Investor Relations

Mark P. Frissora - Executive Chairman, Chief Executive Officer, Member of Executive Committee, Chairman of Hertz Corp and Chief Executive Officer of Hertz Corp

Rob Moore

Robert J. Stuart - Senior Vice President of Global Sales & Marketing and Head of Global Car Sharing

Scott P. Sider - Executive Vice President and President of Vehicle Rental & Leasing The Americas

Lois I. Boyd - Executive Vice President and President of Hertz Equipment Rental Corporation

Tom Callahan

Elyse Douglas - Chief Financial Officer and Executive Vice President


Christopher Agnew - MKM Partners LLC, Research Division

Brian Arthur Johnson - Barclays Capital, Research Division

Adam Jonas - Morgan Stanley, Research Division

Fred T. Lowrance - Avondale Partners, LLC, Research Division

Leslie Hunziker

Okay. Good morning, everyone. We're going to get started here. Welcome to Hertz's Annual Investor Day and Financial Modeling Workshop. For those of you who don't know me, I'm Leslie Hunziker, and I handle Investor Relations for the company. Today, you're going to get a chance to meet the senior management team here and hear a pretty compelling growth and value story that has significantly evolved over the last several years.

Before we get started, I have 3 housekeeping issues. The first one is hot off the presses, I know you guys have been waiting, the wireless information. This is the Empire Room. The ID is HCOR, all caps, and the password, lower case, is HCOR2013. Everybody got it? Okay. The second thing I want to direct you to, here we go, our safe harbor statement. So we're going to be making some forward-looking statements today, and I will refer you to our SEC filings, which give you information on the risk factors that affect our business.

Second, I wanted to quickly run through the agenda for today. So we expect to finish up the management presentations around 11:30, and after that, we'll open the floor to Q&A for any questions that you may have. At noon, from noon to 2, right across the hall, we're going to be -- the senior team will be hosting a lunch and also doing a little bit of a show and tell, where we will highlight our technology, our modernized facilities, the car collections and some new products. Then we'll kick off the financial modeling workshop at 2:00. That will run with 3 presentation and run until about 4. And from 4 to 4:30, we'll do a breakout session for anyone who may have some individual modeling questions. We'll have a lot of people there to help you with that.

So with that, I'm going to turn the podium over to Mark Frissora, our Chairman and Chief Executive Officer.

Mark P. Frissora

Thanks, Leslie, and good morning, everyone. I really think it's a great time to be in the rental car business. I think you'll see some industry slides here about how good that business is, and more importantly, it's really a great time to be leading Hertz.

Today, you're going to hear an exciting story. It's about strategy and growth, acquisitions, expansion, new products and services and very much about speed and technology. In fact, if you ask me to give you 2 words that differentiate Hertz from all of our competitors, words that make us the best bet in this business, speed and technology will be my answer.

You see, a few years ago, we put in line of sight of what we wanted to be at Hertz, what we wanted to stand for as a company and as a brand, and this vision is rooted in deep levels of customer insight that say speed is the path to delivering ultimate customer satisfaction in our business. So we've been investing in the idea that speed wins at Hertz, and technology is how it gets done.

This investment is not only paying off today and helping Hertz acquire new customers. But as you'll see, it has the promise of a much bigger price tomorrow. So take this journey with us today and welcome to Traveling at the Speed of Hertz.


Mark P. Frissora

Okay. So I'm going to cover some industry highlights, things that have happened both historically and what we see as the future of the rental car industry, and then I'll dive into Hertz specifics. I'll talk to you about Hertz and what it looked like in 2006 and what it looks like in 2012. And then towards the end of my presentation, after a couple of people get up, I'll talk about what we look like in 2015.

So when we look at GDP versus rent-a-car industry growth, over time, whether it's 40 years or 10 years on this slide, we always -- the rental car industry has always grown higher as a percent of the overall GDP rate. So we always grow faster, and the industry is more flexible today than it ever has been.

The pie in the rental car industry continues to grow. So if you look at off-airport, in 1994, probably a $4 billion market. Today, it's an $11 billion market and growing, growing fast. So one of the things that we're excited about in being in this industry is the fact that not only is global travel growing fast, but the industry has dynamics in that where more and more people are renting cars because of accessibility and because of technology.

Remember this fact, 49% of all drivers with licenses in the U.S. have not rented a car in the last couple of years. So again, we think there's a big opportunity for accessibility to rental car. Most of you in this room travel, oftentimes, for a living. You represent 1% of the population, and you don't realize that most of the population drives everywhere. They drive to their own vacation. They drive everywhere they go. They don't rent cars. So again, it's a big market. The pie is going to get bigger, and that's kind of what we're trying to do as we go forward as a company, is address that bigger pie and make the pie bigger.

When you look at interest rates, I've had a lot of questions recently about aren't you over-earning now, aren't you worried about interest rates. I've got 40 years of data on this. In this slide, you have 27 years of data that highly -- that are highly correlated, that show that Hertz revenue and profits increase with LIBOR. Every time there's an increase in interest rates, our revenue and profits go up accordingly. So pretty high R-squared on this. Remember that at the end of the day, we have a very flexible model and all of our assets are extremely scalable.

This is Hertz data. And what you'll notice that total inbound market today is $5 billion. When you look at North America versus 2006, our revenues are up 45%. If you look at Europe, our revenues are up 31%, in spite of a European downturn the last 2 years. And then when you look at Australia and New Zealand, our revenues are up 41%.

1 billion people traveled outside their domestic country in 2012, up 25% from 2006. There's a lot of statistics in a lot of travel industry forums that will show you that the global travel trends are nothing but dramatically increasing. In fact, just recently, the world travel estimate right now through 2021 is expected -- the industry is expected to grow from $1 trillion in 2010 to $2.1 trillion in 2020.

So we are increasing faster, and we're taking share. This slide demonstrates that. When you look at international visitors to the U.S. and the projections through 2014, you can see what airline passenger arrivers -- arrivals are versus Hertz transactions. And you can see, since 2010, we've outperformed the actual travel statistics.

So when you look at U.S. used car market resilience, again, another industry factoid here for you, just shows that no matter what happens and in spite of what we thought was the world's worst recession, I think it was the world's worst recession, we actually had the index recovering in less than 5 months back to its original levels on residual values, in fact, actually exceeding residual values that were in place pre-recession.

And let's not forget the equipment rental business, another big part of our growth strategy. The cycle is just starting to rock. In fact, if you look at what's happened in the last 2 years, we've had nice increases, double-digit increases, but we're only in the second inning because the non-res recovery is just starting now. And that's the biggest piece of our business. It's 37% of our pie over time.

We've been able to increase industrial and fragmented, which I'll show you in a few minutes. Having said that, it plays to our sweet spot. And we think we're very well-capitalized operators, along with a couple of other people. And these operators that are well capitalized are taking share in this big cycle upswing, which is a big opportunity going forward for the company.

So let's just talk about 2006 and 2012. We've come a long way since our IPO in 2006. I'm going to show you how really different Hertz is today.

So in 2006, you can see the revenues, the adjusted pretax margin was 6%, $175 per employee productivity, 8,100 locations. And obviously, in 2012, those numbers changed. Revenues up significantly. More importantly, pretax margin is at historic highs at 10% for the corporation, up 400 basis points. Gold membership is up 28%. Employee productivity is up 26 quarters in a row, 6.5 years of increasing revenue per employee, showing that our continuous improvement programs actually work and demonstrating that. And then corporate and franchise locations up 31%.

How did we do this? Through, really, a lot of game-changing acquisitions, as well as investments strategically. We invest in Lean/Sigma initially in 2006. We began with several different organizations, training our entire operating divisions worldwide on Lean/Six Sigma, starting off what we call our HIP program, our Hertz Improvement Process.

We also bought the car-sharing technology company called Eileo. We bought that in the recession in 2009, made a big investment and, for the last 3.5 years, have been investing in that. And we're going to show you where that's taking us and where we're growing with it later on today.

11 equipment rental tuck-in acquisitions, 2010 to 2012, focused really on the fragmented and industrial markets, entering into the vehicle leasing business with the Donlen acquisition, giving us a complete tool kit now on selling fleet management and integrate solution for corporate America that they've never had before. No one else really sells a corporate program on integrated fleet management, and we're just beginning to do that. And Donlen, last year alone, grew 16% when the industry only grew 3%.

When we take a look at the position of the leisure rent-a-car business with the acquisition of Dollar Thrifty, finally, Hertz has its hand out front and not behind our back, right. We don't have to reach with the Hertz brand down into mid-tier segment, which is where the buying grew during the recession, as you know. So again, we feel really excited that we've got all the pieces in place with a transformational portfolio.

So as these investments have ramped up, and in fact, mostly been completed, we're pretty much done with all of our investments in the company over the past 5 years, the big pieces are done, the cash flow is going to expand significantly. And you can see this cash flow generation. I'm going to show you that in 2015, its order of magnitude's larger.

When we take a look at the -- in the equipment rental business, I just want to kind of show you the then and now of that as well. You can see that we're still down on revenues versus 2006. You see total revenues were $1.5 billion, and $1.3 billion is where they were in 2012. The biggest opportunity, as you can see, is in construction. You can see that we've grown significantly in industrial. If you look at those cylinders, $274 million to $345 million, how did we do that? We do that with some tuck-in acquisitions, and you could see those tuck-in acquisitions helped our growth over the last 5 years. The big opportunity, though, really is the $226 million that we're still not getting that we got in 2006 that will represent the non-res construction market rebound.

So equipment rental is a growth story in and of itself. We're getting to about third inning of a -- could be a 20-inning game, and we feel like there's big upside there. In addition to that, the rental car revenue growth drivers are large and they're many.

Donlen, in 2006, was $329 million in revenue, now $471 million. Donlen is up 16% in '12. We expect double-digit growth for the foreseeable future in that, through a variety of very sophisticated, integrated selling propositions, value propositions we've developed. Off-airport is up 14% in 2012 in the insurance replacement segment, and that number will grow again in 2013. Leisure Dollar Thrifty, we don't see any end in sight. We're going to make some announcements today on some of the synergies, some of the partnerships that we've signed up, exciting times here. We see nothing but double digit ahead, double-digit growth ahead for the next 3 years on what we call our Dollar Thrifty integration efforts.

We think the industry is poised for great things. So it's -- Hertz is poised really well, but we also think the industry is poised. Well, I think you need to look at this industry and look at 20 years of history and see that this was 8 different brands. And these brands are now consolidated up into 3 brands or 3 companies right now, the consolidated 3. And you can see now that the rental car industry has Hertz at 36% market share. These are external numbers, Avis at 27% and Enterprise, National and Alamo at 33%. So we've regained the #1 position.

There's a heavy fixed cost investment in the airport business worldwide, and this gives us a lot of leverage, a lot of operating leverage that you'll see in our numbers going forward. And now we're in a position to take advantage of the fastest-growing market in the mid-tier.

We originally announced $170 million -- or $160 million of cost synergies and really -- didn't really say there were many revenue synergies. And recently, we came out and said, there are at least $300 million of revenue synergies, and we'll talk about those throughout the presentation today. Some of it's coming from global partnerships, about 40% of it, European corporate expansion is 37% and expanding off-airport is 17%.

When we look at the cost synergies, again, significant. We feel really good about the 3-year potential of these as well. I'm sure that with our conservative assumptions, we'll beat these. But right now, we're pretty confident in telling you that we'll get at least $300 million over the next 3 years, 40% of it coming from fleet, 31% from technology, integration and then procurement and other, 15%.

So we want to outline, kind of on U.S. rent-a-car, the fleet opportunities, and Scott Sider is going to talk in more detail about these. But at a high level, it's important to know what we look like in '07 versus '12 and that fleet procurement and the number of vehicles we have has increased significantly. While in 2012, we had 347,000 vehicles, in 2013, we're going to end up having probably close to 600,000 vehicles. So our scale has gone up significantly. Our leverage with the OEMs has gone up significantly as well.

In fleet efficiency, we've improved from '07 of 77.8% to 80.4%. Scott's going to talk to you about how we get to 86%. Fleet cycle, in 2007, we had 74% risk fleet. We now, in '12, had 95% end-of-the-year risk fleet, allows us to have more opportunity to sell into the profitable resale market, if you will, and change the channels that we've traditionally sold in, which are demonstrated here, where we had 83% of our sales in '07 in auction sales, and in 2012, it was only 47%. So again, we'll be going into details a little bit more. I'll go into detail in just a second on the resale channel. But we're, in general, getting anywhere from $500 to $1,500 of car more in every one of these alternative channels that are more profitable to sell used cars in.

So in 2006, our depreciation was at $318; 2012, $224. And we're in the middle of the transformation in terms of the way we sell cars and also the way we sell them to consumers direct. In fact, our rent2buy.com online sales are going to go up significantly this year. We're now licensed in 32 states to sell cars, and we have -- we will have at least 100 retail small lots by year-end '13. We have probably over 160 used car experts in our used car department now, and that's growing significantly. And again, Scott will talk a little bit about this. But we're not even halfway done of where we need to go on shifting the mix into more profitable channels.

Again, getting back to residuals, we believe that we're aligned with the Moody's forecast. We believe that we have many levers to pull, which will over compensate for any softness that will occur over the next couple of years.

But more importantly, when you look at this next slide, I think you need to understand the rental industry is different than other industries. This industry has no metric which moves in isolation. So if residual values go down, the R-squared of new car costs going down is 0.81 over the last 20 years. And guess what the R-squared for revenue per day going up, or RPD going up is, 0.72.

So big -- because we sit in the middle and because these metrics actually tie to one another, all the worry about residual risk is worry that is not valid. It's not grounded in statistics. I can give you all the data you want to show you that the industry ties and is codependent on each metric, and the industry moves in the middle and it allows itself to preserve profitability no matter which one of these measurements move.

Everyone worried about pricing for the last 2 to 3 years. Guess what? Fleet costs were down and residuals were high. And every time the spread values increase, pricing goes down. Guess what happens when pricing goes up? Fleet costs go up. So it all ties together. What I call the wall of worry that we have doesn't need to be a wall of worry if we ground ourselves in facts, data and analyses.

We expect to drive value, and this is really important, through technology leadership. This is something we've invested in and something we've always invested in. This is a legacy in the company. 1972, we introduced the first Nationwide Emergency Road Service. 1980, with the first Express, #1 Club members bypass the airport counter, as introduced in 1980. And then we came up with the Club Gold, #1 Club Gold, which allowed members to go directly from the airplane to their car, even the engine was running. In 1995, we introduced the first On-Board Navigation System called NeverLost, which, in and of itself, has become a brand. 1996, we launched our first worldwide website. And look at the statistic that just bounced out, 19% of our reservations were through hertz.com in 2006; in 2012, 30%. That's a much less expensive channel for us. We don't have to go through travel intermediaries and pay 8% to 10% of fees. And by the way, it's growing because that website is best in class now, and we test it every single year. We acquired Eileo, the leader in design and deployment of best-in-class car-sharing technology, giving us what we call the Hertz Edge, which I'll explain as we move forward today in our presentations.

Technology advancements drive revenue and efficiency. And I guess one of the headlines I'd like to make is we don't want to gain share by reducing price. We want to gain share by increasing value, and that's how we're doing it. That's why the investments we've made in technology are paying off for us. Our Hertz brand will continue to pull ahead on pricing as we deliver more and more value based on eReturn, Gold Choice, Mobile Gold Alert, Express Rent kiosks, Hertz 24/7, all higher value propositions focused on the customer.

The voice of the customer is loud and alive at Hertz. My compensation is tied to it. Customer satisfaction is tied to my compensation, as well as all the senior leaders on this team. And we can reduce our compensation by not getting it higher by 15% to 20% every year. So we put it out there. We improve it every year, and we feel really good about what we've accomplished and what we will accomplish.

So increasing value through technology and speed, not through reduced price is a strategy. And we believe that it's a higher value proposition because it gives consumers and business travelers alike, unrivaled speed of service and more choices. And at the same time, it does reduce our labor costs. It does improve our fleet utilization. All of these things are positive outcomes that more than fund any investments that we're making.

So this is a recent study that was done on key customer preferences. Wherever you go in the world, today's traveler has a need for speed. In rental cars, this is particularly true. And nobody delivers speed like Hertz. And as you see here, the top drivers of what customers want are all rallied around speed.

So today, we're going to show you some of that exclusive products and services that make Traveling at the Speed of Hertz faster, easier and more rewarding than any other brand in rental car. Rob Moore, who's our Senior Vice President in Technology, is going to take you through some of the technologies that we put in place to really differentiate ourselves from competitors.

Rob Moore

Thank you. Good morning. I think this morning you've heard the word technology somewhere around 100 times. I have -- I lost count there. But the verbiage that we use when we talk about Traveling at the Speed of Hertz, when we talk about being the fastest, easiest and most valued, that encompasses your entire journey, not just the beginning, not just the end, but everything in between. And that's where we're applying technology to change that entire experience.

So I want to go through -- you've seen a lot of this in the video. You've seen some of it last year. But I want to delve one layer deeper, kind of give you some of the things that excite me on the different numbers. You like numbers? I actually like numbers as well, but they're not dollar numbers. They're speed and feeds on technology. So I'll try and relate it to what you have in front of you, and we'll go from there.

About 4 years ago, Mark mentioned we started looking at a vision, a vision of what would change the entire industry. And we knew that the technology itself -- there were some missing pieces, not only in our technology, but overall in the whole world. So we began looking.

We looked at car-sharing technology first. It wasn't so much car sharing the business model as it was the technology that enable car sharing. And we scoured the globe. We found the best technology we could find in Eileo, a small company in Paris. They had some IPs and patented a mobilization techniques and great engineers. So we acquired them, and we immediately moved that board to the next generation of technology.

Mobility, travel services, we talked about NeverLost. That's a very important component for us. And something you wouldn't expect from a rent-a-car company necessarily, patented innovation. We're going to show you a few of those topics as well.

So in-car technology, the 2 primary components in the vehicle are the Zibox, that's the block box on the left, sometimes referred to as the magic black box. Everyone's looking for the magic black box. There it is right there. We combine that with the user interface, the tablet on the right, and you have the entire experience, you have the entire counter in the car at that point.

Now what does that black box do? It doesn't look very exciting sitting there. But we actually took their second generation, moving it forward, they had about 250 components when we acquired them, now we're at 1,050 components within that black box. It actually hooks into the nerve center of the vehicle, the CAN Bus. That's the network inside the vehicle where all the information flows. And we actually hook not only to the OBD-II port, we go into the high-speed and the low-speed networks. So we have all that robust information. We actually store that information on the box, transmit it wirelessly through the cloud to our private network where our back-end systems can absorb it and utilize it for the entire experience.

So the purpose of this box, it not only stores your reservation, so we can store 60 million customers inside this box, but from there, it stores all the reservations for that vehicle. So when you come up to the vehicle, we recognize you, we know what you need. And now that box controls the locking and unlocking of the vehicle. It controls the immobilization of the vehicle. It controls the entire experience. And we have 6 different ways to access the vehicle. We do not want to let anyone out. We'll -- we have -- there is no excuse. We'll find a way to get you in that vehicle. Many other technologies, they may have 1 or 2, we have 6. I also have 2 more we're developing right now. We've identified them and we're coding them as we speak. And one more that was identified last week. I haven't told all these guys yet, so be quiet. But we have some other patented technology on the mobilization that we just came up with. Next week, talk to the patent attorneys about them, very exciting stuff.

So the user interface, the tablet, Mark has mentioned before we'll have an iPad-like device in every vehicle. An iPad wouldn't quite work. I see some of you have iPads out there. Well, for one thing, it's not automotive grade. We needed something that could go minus 30 degrees Celsius to plus 180 or 85 degree Celsius. That would bring your iPad to its knees pretty much. So we had to develop our own.

The power that we put in these 2 processors together, there's a quad-core Freescale ARM9 processor in the tablet and an ARM9 processor in the in-car technology as well, in the black box Zibox. And what we do with those, together, we combine those. We can run applications now inside the car. The tablet itself, just the tablet alone is about 4x the power of your iPad.

You also have to be able to read the tablet inside the car. Your iPad in the sunlight worsens out. So we had to develop a box that -- somewhere around 400 Nits. Nits is a standard measurement of luminosity. About 400 Nits, you can see in the sunlight. We brought it all the way up to 900. We want to make sure it's a good experience for you overall.

We have -- you would expect, we have the latest and greatest GPS engine, inertial sensors in both the Zibox and the tablet. In fact, they're so sensitive, we could tell -- if there's an earthquake, we'd be able to tell which direction it came from by the way our cars communicate those shock waves.

We added a 5 megapixel camera inside the car. Now don't worry, we've come up with a way so that you won't feel like your privacy is being invaded, that we can turn off those camera as well. And it's voice-recognition ready.

And then we added a full suite of wireless technology inside the car. We can talk to it through cell. You can send SMS text messages, Bluetooth, WiFi, Zigbee, which is a medium-range wireless technology. We connect all of the cars together with a mesh network. And near field communication, that's a very short-range communication, one of the 6 ways that we rely to enter the car when your phone's NFC enable. So 7 patented -- patents registered, 4 pending on the on-demand 24/7 technology.

Mobile, everybody's mobile. We spent a lot of time, effort and energy bringing on mobile applications to be the best in the world. You can see 2.5 million downloads. We have the symbols there, the different mobility solutions we support, including HTML5. We have the iOS 5, Android, Windows. We're the very first and only rent-a-car company with a Windows app in the Windows store. You can go download that if you'd like. And then RIM as well, BlackBerry.

Carfirmations, you've seen those in our videos, amazing technology, the ability to connect our back-end systems with the front-end mobile experience. I'll talk about that a little bit later.

eReturn, that was in the video as well, easiest, fastest way to return a car, over 5.5 million sent today.

The customer experience, we don't want to lose the high-touch customer experience, but we want to be able to provide it in new and innovative ways and we use technology. There is the 101x for technology.

I think last year, you saw our video kiosk, high-resolution audio/video, a real live person talking to you, walking you through every single part of your reservation, your experience. There's not anything that, that res agent can't do that one behind the counter can do. They can do it all. They can scan your driver's license, your credit card. They can print your receipt. They can validate your driver's license. They can help you with any question you have. So actually we won 2 awards in 2012 for this technology, and we're expanding it dramatically. We have 400 units globally. We'll expand it dramatically this year in parking garages, in retail locations, throughout all of our locations. Everywhere we drop those units, basically, we can come up with a location.

Hertz.com, those figures you've already seen. Mark talked about the penetration, the reservations that come through that channel. We've added some new technology. We now do -- adapt it to HTML5. What that means is it doesn't matter what screen size you have, what your device is, we can match the experience to your screen size. So we don't just shrink down the website. Sometimes you can see that's not usable. We will actually move around the components, make it usable and the easiest to use for whatever device you have.

So the pieces are coming together. About 4.5 years ago, when we built this vision and we came up with the technology that we needed to fill those gaps, we now have them. And you're starting to see the fruits of those labors and all the different offerings, product offerings and services that we provide.

So let me take a little bit of left turn here, and I'm going to walk you through an entire experience. So you kind of see what this technology does for the customer. And I mentioned this, it's for your whole journey.

So obviously, the first thing you do, you book the reservation. And it doesn't matter what device you use or what method you use, in fact, call us if you like, we don't care, we'll answer the phone whatever it takes. We want to communicate with you in whatever way you want to communicate with us.

So after you book your reservation, if it's off-airport, we'll tell you exactly what car you have, where it's at. If it's on-airport, as soon as you land, you turn on to Hertz, the first thing everybody does, right, is turn on their phone, because you want to see how many likes you got from the picture of your breakfast you took, right, Facebook. By the way, I'll tell you, we have 86,000 fans on Facebook, quite a few for a niche market like we have. It's about the same as I have, by the way, more or less. So Carfirmation arrives immediately. It tells you what color of the car is, what brand the card is, where it's at, specifically, the parking space that it's at. Now that's even better than we had before. You used to have to go to the sign and find it. Now you've done it on your phone.

But that's not enough. In December, we announced being able to make -- change that choice. It will send you 3 options. You want to change cars, you don't like the color, you don't like the brand, we'll send you 3 different options or an upgrade or a Deal of the Day. And since its inception, we've gained $500,000 in additional revenue, just from people upgrading on their way to the lot.

So I put a quote down there. It's a long quote. I won't read the entire quote to you. But the Reader's Digest version of it is this gentleman had an iPad. He jumped on our bus. He got the Carfirmation, didn't like the car for whatever reason, wanted a different one, made a change. And 3 minutes later, he arrived at the location, the car was already ready. He jumped off, jumped in the car, left perfectly happy. Wow. That's pretty amazing if you think about it, 3 minutes from the time he chose the car. People come up to me all day long and tell me every time they experience us, they're just amazed. And the only way we can do this is the tight integration from our mobile technology to our back-end systems.

If you didn't have a reservation, our kiosk system, as we showed last year and then we have 2 of them across the hall, you'll see them at lunch, as I said, allows you to do anything that a customer service rep can do. In fact, some things it does better. We found that ancillary sales are higher on this video kiosk than they are, in many cases, for a real person on the counter. There's many reasons for that. We found that people actually connect closer to the person in the high-res video because all the distractions aren't there. We're very careful to hire very specific individuals. They're actually interviewed over video. They're air personalities, if you will.

So we've been very excited about the change here. There are some facts there: $55 million in revenue, $3.4 million in net labor savings in 2012. That's because we don't have to staff for peaks anymore. They can push them to the kiosk whenever we had those peaks and valleys when the airplanes arrived. We don't have to keep people there, and they're less idle during those valley times. So big deal They're going to -- by expanding, you could imagine that'll even improve this year. Another amazing thing, you won't find this in any other kiosks, 93-plus percent customer satisfaction with the experience on the kiosk.

Now you can also imagine, you can use your imagination, with a technology-enabled car and a kiosk that can complete the rental even dispense an RFID card of -- 1 of the 6 ways to get into the car from the kiosk. You put a car, you put a kiosk, you have a location. You can drop ship at anywhere in the world. That's pretty powerful.

NeverLost, that was on Mark's chart as well. NeverLost becomes an application that runs on our in-car technology. It's no longer just a device, and we'll have many different applications. I can't tell you everything. I get really excited about this, and I told them I wouldn't get too excited, so they have to pull me down. There are so many things coming that we can't tell you about today, different applications that will add value. If you could imagine, we know if the car is moving or not, we know what speed it's going, the direction it's going. We can customize the entire experience based on all the information we have about you and about the vehicle itself.

We already have local restaurant guides, highlights of the area, recommendations, our award-winning explorer series that drives a lot of revenue from the NeverLost, people with high-resolution photographs and voiceovers. You can walk through any of the world's most famous tourist attractions and we'll do it for you. That's a unique feature that we have inside the NeverLost application. You can imagine in the future, a concierge service, a full feature in service. We talked about the camera, the kind of things that we can actually see and do inside the car with you. Now we no longer lose you. We used to lose you when you left the lot. Now we're with you for the entire experience.

And at the end, the commercial said it all. There's no easier way. Our technology allows you to just park the car and go. Now in an off-airport world, if it's one our technology-enabled cars, I have to be full disclosure, you will have to push one button and say, "In my rental," and then leave. We'll take care of it from there.

So all of these great technologies and products and services, I look forward to talking to you at lunch. If you have any questions further, information, any ideas that you might have that we want to kick around, we love to do it.

Right now, I'm going to ask Bob Stuart to come up. He'll talk about how we'll bring all these innovations to market.

Robert J. Stuart

Thanks, Rob. That is a lot of technology that we have the opportunity to market, and you could see some of the latest innovations from Hertz that really make travel faster and easier. And I just want to take the next few minutes just to go through how we're going to market some of these innovations to attract and retain new customers.

We really have a 3-phase approach as we market our activities. Phase one is all around awareness. It's about the advertising, the public relations and the social media aspect of our approach to marketing this technology. Phase 2 is all around acquisition, and it really centers on our new CRM program, which we call Gold Plus Rewards. And phase 3 is all about retention. And it's the combination of advertising, of CRM, of our promotional activity, as well as a collaboration between sales and marketing and working with our customers to retain them and keep them.

In 2012, we began a new advertising campaign. It really represented what our stepping-off point was in creating a new voice for the Hertz brand. This new value proposition of faster, easier and most valued is really known now as Traveling at the Speed of Hertz. This campaign is on air today as we speak. We've been on air since the end of February. And we effectively use what we call these 15-second units to talk about all those great innovations and technology that Rob just showed you.

In addition to the TV, we're heavy up on print. We're heavy up on social. We have a pretty good public relations campaign. In a little bit, I'm going to talk to you about this new experiential marketing exhibit that we're going to go to market with in the late summer.

And together, with all these things that we're doing, we really have effectively pushed our best-in-car perception, best-in-category perception for the Hertz brand. So what I thought I would do is just show you the commercials that we're running today.


Robert J. Stuart

Okay. So I think that's a much better way to be communicating our technology than Zigbee and Ziboxes and OBIIs (sic) [OBD-II] and -- so hopefully, you get that.

One of the challenges that we have in market is because of the low frequency of purchase in this category, that's a primary challenge for us for customer acquisition and for customer intention. And one of the things that we believe that we've done in the last 2 years is really outflank our competitors with our newly revamp customer loyalty program that we call Gold Plus Rewards, and there's really 2 key components to it.

First of all, it's free, and you earn awards free. So all you do is go online, you give us your profile. And literally within minutes, on your next rental, you're going to be able to experience all those great technologies and innovations that we just showed you in the commercials.

The second thing is you reward points. You accrue them very quickly for free days and other benefits. The one thing about our program that separates us from the competition is that we are a truly global program. So you can earn Gold Plus Rewards points on a global basis. The other thing is there's an online forum that's called FlyerTalk, and it's the world wars. There's 250,000 strong of them. And Hertz Gold Plus Rewards was voted on 6 continents the #1 loyalty program out of all car rental company. So we're pretty excited about that. And you may say to yourself, why are you so interested in this rewards program? Well, we know for a fact that our Gold Plus Rewards customers are 3x more likely to rent from us in the future. So it is really, really important to our success as we roll this out.

Supporting our marketing initiatives, our ongoing sales efforts. Our technology and our innovation really align well with some of our global and strategic partners. Partners that we are either preferred in or even some of them that we're exclusive in. And the beauty of this technology is where -- we're really utilizing it to that expand our footprint and making renting more convenient for the customer and making ourselves much more relevant with their lifestyle.

Now I just want to give you a one quick example of how we're expanding the footprint. Lowe's, as all of you know, is the second largest -- and maybe you don't know, is the second-largest home center retailer in the world. And we went to them on a partnership. And we actually took those Express Rent kiosks that Rob talked about, and we put it inside their stores. And then out in the parking lot, we took vans and trucks equipped with the Hertz 24/7 on-demand technology. Why is that important? Lowe's wants to sell grills. Right now, we're in the spring season. It's their largest season of the year. Our customer walks in and they see this beautiful stainless steel grill and they have an issue, how do I get that home.

Well, we put a sale signage under that you can see that says, "Take it home now." So they buy the grill. They walk over to that kiosk, that Express Rent kiosk that we put into the store, and literally, we've measured this, 3 to 4 minutes, they're signed up. They can now rent that van. They get a key fob or a card reader. They take that, they go out to the parking lot, they load up their stainless steel grill. And within 60 minutes, they purchase the grill, they got it home and they got it back in the store.

And that's a triple win for us. It's a win because the consumer is happy because they made a purchase that they wanted to make and it was stress free. Lowe's is happy because it's incremental revenue for them. And we're happy because it's incremental business for us, and we've just expanded the pie that Mark was talking about earlier. That's really looking at this in a much different way.

Traveling at the Speed of Hertz wins customers. We really believe that. That campaign that we launched last year is really working. In 2012, we set a number of new records. We had more loyalty customer sign up for our Gold Plus Rewards than ever before. We set new record revenues for the company in rent-a-car. We saw our numbers climb and our separation between our next closest competitor in the perceptions of our brand. So I thought what I would do instead of me just boasting about that, we'll show you a quick video of how 2012 fared for Hertz.


Robert J. Stuart

So hopefully, you can see why we're so excited about 2013 and beyond. But you got to be asking yourself, where do we go from here, what does the future hold for Hertz in the car rental category and why are we so excited about tomorrow? Our goal is always to keep innovating, and renting from Hertz, we want to make sure that we're giving the ultimate customer experience all the time. We're not reacting to conditions in the marketplace, but we're being the real thought leaders and redefining what the playing field looks like.

And with that in mind, I just want to share with you 2 facts. One is we do live in a 24/7 world. We're working from home early in the morning, late at night. We work on the road when we travel. Our schedules are flexible. But in order for a brand to stay relevant, we need really to make sure that we're developing products and innovations that deliver on flexibility for the consumer that -- in this new world that we have.

And this may surprise you, and Mark had mentioned it earlier, but over half the people in this country with a valid driver's license did not rent a vehicle in the last 12 to 18 months. And why is that significant? There's over 117 million people that didn't rent a car over the last year, and this is what makes us excited about 24/7. What were the reasons why they didn't rent? It wasn't convenient for them. The car wasn't close enough to where they were. You weren't open at the time that I needed you, or you weren't open when I needed to return it on a weekend. They only need a car for a car for a few hours, and they were concerned about having to rent for a few days and maybe the perception of it being too expensive.

But absolutely not anymore with Hertz 24/7. This year, we're going to introduce the future of car rental, which is Hertz 24/7 with our exclusive on-demand technology that will let you rent by the hour, by the day, by the week, by the month, how you want to, when you want to, if you want to rent in the middle of the week, if you want to rent on Sunday afternoon or after 6:00 at night or Saturday afternoon. And the beauty of the whole program is you can return it the same way. So 24/7 all the time.

Each one of our 24/7 cars, well, as Rob talked about, will have keyless access. So you can get to the vehicle when you want it. We could stage vehicles in the neighborhoods with our business partners, on their campuses, as well as in retail lots like you saw with Lowe's, redefining the marketplace. Every car will have Bluetooth technology, so the customer will have safe, hands-free driving. That's extremely important.

And we do believe this Hertz 24/7 with on-demand technology is going to change the future. We're going to launch 24/7 with a 3-phased approach. And this is important. We're really gearing up for a late summer launch of Hertz 24/7. In late spring, we're going to have a whole public relations announcement, which is going to include the broadcast of the Yankees' baseball in this tri-state area, so stay tune for that. In the late summer, were going to launch what we call experiential marketing in key cities that are going to establish convenient access to Hertz 24/7. We'll do it in towns. We'll do it in communities in addition to our regular neighborhood locations. And we're going to launch, in the late fall, a major multimedia advertising campaign that will be second to none in the industry.

I just want to -- just take a minute to talk about what this experiential marketing is -- exhibit is going to be. It's really going to be, in large part, coming from -- and what we're going to be calling the innovation express. And it's going to be a roadshow that we're going to take in the major markets throughout the country. It's going to be an interactive exhibit of demonstration of our technology, as well as all of our new innovations, including the Hertz 24/7. And we're going to do this in a real fun and dramatic fashion that you can really enjoy and have fun with. And we're going to be appearing in city centers. We're going to be doing it at live entertainment venues. We're going to be taking it to trade shows. So watch for this much, much more to come.

Our off-airport locations will also offer Hertz 24/7. You can see by this photograph that they're going to know that we are open for business 7 days a week, 24 hours a day, that we're always open.

The other thing that we're going to do in the fall as we launch our new media and advertising campaign is we're going to partner up with a technology company called SHAZAM, and I'll let you know what SHAZAM is. But there's 80 million users in the U.S. alone. And when our commercial rise, you'll be able to take your smartphone, hold it up to the TV, it'll actually play you a demonstration video of how 24/7 works. So it's really, really cool technology that we're taking into the marketplace.

The other thing that you're going to be able to do is you'll be able to take your smartphone, and when our commercial plays, hold it up again to the TV and literally, in seconds you'll be able to join up for Hertz Gold Plus Rewards. We want you in our program. It's very, very important, and no one else would be doing that, and it's free. The whole Gold Plus Rewards membership is free. Thank you.

So as you can see, we are extremely excited about 2013 and where we're taking this, especially with 24/7 onboard technology. I ask all of you in this room, we only have about 20% of you, to please, today, sign up for Gold Plus Rewards. We have people outside at the lunch break that will sign you up. It takes literally a few minutes. And if you sign up today, Scott Sider is going to come up here and make you a special promotional offer that I don't think you can refuse.

So with that, I'll turn it over to Scott Sider.

Scott P. Sider

Thanks, Bob. So Bob insinuate I was giving something away for free. He should know better than that. So let's talk -- I think the few times, Bob meant to use the word "excitement" and "speed." So I want to announce to you today is our new product line called Dream Cars. Now hopefully, everyone before they came in, saw the cars parked in front, you go out the front door, go to the right, and you'll see our newest collection of vehicles. There's a Ferrari, a Lamborghini, there's a Challenger, a Porsche and my favorite car is No. 22 Penske vehicle. It's going to be racing in a couple of weeks. So we got to have the car here on display for the next couple of weeks. It's actually a Hertz vehicle. So we're really excited about this and the relationship with Penske and all these super vehicles.

First, I want to start just giving you an overview of the Americas and my area of responsibility. For 2012, we had almost 6,000 locations, 400,000 vehicles and $5.8 billion in revenue. That's only with 6 weeks of Dollar Thrifty. So you can see how much we'll be growing this year into 2013.

Now let me show you the progress we have made since becoming a public company in 2006. So this is my report card here. Here you can see our revenues have grown 12.1%. You could see the Off Airport revenue, Mark had mentioned this before, grew 46% since 2006. But what I'm most proud about here is our adjusted pretax margin. We've more than doubled our margin since 2006. We've done this with strong cost management and growing our revenue at 12% in profitable segments like Off Airport and Leisure.

You can see there a mix of business in airports is moving towards leisure. And now, with DTG, we are almost at 74% leisure business. On the bottom of the chart, you can see that Leisure RPD is 20% higher than corporate with 19% longer rental life. RPD and rental life combined grow revenue per vehicle. Revenue per vehicle translates into strong profits.

Now let me talk about Dollar Thrifty. On the left-hand side of the chart, you can see a comparison of Advantage versus DTG. It would have taken us over 10 years to get Advantage close to the current size of DTG, 8x the size, and significantly more synergies and earnings. The brand strength of Dollar Thrifty drives 43% higher RPD than Advantage did.

On the right-hand side of the chart, there's a list of cost synergies we are already starting to realize. Fleet sharing, the largest of the synergies, is being driven by a designated floating fleet. These are vehicles identified as acceptable for rental at all 3 brands.

Now at the bottom of the chart, you can see 2 of our current revenue synergies, our largest account, AAA, has already agreed to start referring Dollar Thrifty effective May 1.

Here you can see we're making strong progress going our Off Airport revenues. This is important because of the Off Airport margins in mature locations are similar to the Airport, and the Off Airport business is very resilient.

Here you can see that even though Off Airport has a lower RPD than Airport, the expenses are equally as low. This, combined with better utilization, results in margins that are equal to or at times, even higher than the airports.

The left side of the chart shows our Off Airport revenue is well balanced between all 3 segments. This is important in order to drive strong utilization and long-term revenue growth. With only 12% market share Off Airport, we have significant long-term growth opportunity. What we're most excited about Off Airport is 24/7, which Bob and Rob have already shared with you.

What does 24/7 mean for Off Airport? Rent the car you want, when you want, where you want. The car becomes the counter. Wherever the car is parked, our customer can see the location of the car online, book it, go to the vehicle, swipe and go. It's that easy. Later on this year, we will open 24 hours a day, 7 days a week, at thousands of locations near you. There's very little labor or capital costs compared to conventional rent-a-car, all this by using the 24/7 technology.

Here, you can see a list of the financial benefits of using the technology. The first 5 items listed on the chart are 24/7 revenue-generating. The next 3 items are samples of just a few of the cost benefits of 24/7. There are many more.

Now we move onto emerging markets. Even though our revenue in Brazil has doubled since 2006, our market share is only 5%. We are committed to growing Brazil. The team is focused on 4 key initiatives: Bring the Donlen Leasing products to Brazil. Today, about half of our revenue in Brazil is already leasing. Explore franchise and agency partnership opportunities, add the same customer service to Brazil that we currently enjoy in the U.S., and we're already expanding our sales force in Brazil. We feel by focusing on these 4 key initiatives, we can grow our revenue double-digit for many years to come.

Earlier, I mentioned that due to strong cost management, we've been able to double our margin. We've been able to achieve these results by incorporating Lean/Six Sigma principles into Lighthouse, which is our process improvement program at airports. We're committed to our process improvement journey and have added additional resources in order to continue driving cost out of the model.

Since 2006, our biggest savings has been derived from fleet management. We have a diverse fleet, which drives customer direct sales and reduces residual value risk. In 2012, about 86% of our fleet was risk. Our plan for 2013 is about 95%, which is helping to further reduce our fleet cost. Remember, there are a lot of factors that determine fleet cost, it's not just residual values. It's how we buy, rotate, make and model mix, used cars, vehicle content and how we sell the cars all impact our per unit cost.

Next, Mark mentioned about diversifying how we sell our cars. And we know that we need to become car sales organization. As we continue to move away from program vehicles, we are shifting to more customer direct sales. Over the next 3 to 4 years, our goal is to shift to 70% retail sales, which will drive an incremental $104 million in fleet savings.

Here, you can see the fleet management strategy is working. 2013 will be our fifth consecutive year of per unit depreciation expense decline. Last year, our fleet utilization was 80.3%. That was a record year for us. The good news is we believe we have an additional 3 points of opportunity with fleet sharing with Dollar Thrifty. Also, we feel that there's another incremental 3 points of utilization opportunity by using the 24/7 technology, which has GPS. By focusing our efforts on these 5 objectives, Hertz will again reinvent car rental. Thank you.

Next is Mark Frissora, who will go over Europe.

Mark P. Frissora

Okay. You've been sitting for a long time. I know that, and I'm sure you're getting restless. Why don't we just all stand for a minute? Why don’t you all stand up just to get some blood in. It's be good to do that. I was going to do break, but we don't have time for a break, so if anyone wants to stand, it'd be good, just to stretch a little bit, maybe get some blood going again, and then I'll try to put some excitement into Europe here. That's a hard thing to do, that's why I think you better stand right now, right? So yes, get everyone a chance to stand, all right. Looks like we have a mass exodus as well. People going in the restroom. It's a good opportunity to do that while I talk about Europe.

All right. Michel Taride, who is our President of the EMEA, not able to attend. He had actually a partner meeting that was more important. And so I'm going to cover his area of responsibility today.

If you look at the footprint right now, the network revenue in EMEA and Asia Pac is $4.9 billion. A very large international footprint representing $5 billion -- almost $5 billion for Europe, Middle East and Africa and Asia Pac. You can see the numbers, 100 countries, 3,900 locations, 13,771 employees. Just for the record, the company has 41,000 employees now. I know in the video, which was a little bit old, it talked about 24,000. We now have 41,000 employees in the corporate locations that we have.

Fleet size is 394,000 vehicles. I wanted to focus on Australia and New Zealand. Kind of what happened since '06, the then and now, if you will, this is a market where we've made a lot of significant improvements. We hold approximately 30% of a $1.7 billion market. And we benefited from strong growth in the Australian mining sector, where we've seen double-digit growth for the past 2 years.

Australia has not been affected by the recession to the same extent Europe has, although growth in GDP is forecast in 2013 at 2.5%, and it is slowing from the 3.6% that we saw in 2012.

We are set off to expanding the Off Airport market there and Value Brand segments also increased our network by further franchising a lot of the white spaces in Australia. If you look at the cash rate, the pit fall on the left, it's similar to the U.S. that borrowing rate, which indicates there's plenty of room for the government to simulate the economy further. So again, this is an area of growth for us. We're expanding to Off Airport, and while these numbers they're really great, the expect them to continue to be good with the plans we put in place for the future.

So shifting back to Europe on an overview basis. Since 2006, we have franchised $100 million in revenue, corporate revenues: U.K., Italy, and 100% of Switzerland. That's where the franchise activity occurred.

Revenue growth has suffered at the hands of the economy with decreasing commercial business, as our commercial customers really put a lot of travel bans in place for the first time. We've offset that with increasing our Leisure business, but this is obviously, when we increase our Leisure business, is at the expense of RPD.

So when you look at the numbers here, revenues are actually up 2% since 2006, against the GDP being down 383 basis points. For 5 years in a row in Europe, based on measured external market share, we've increased market share each year.

Ancillary RPD is up 17%. OpEx and SG&A is down 80 basis points, in spite of the reduced revenue levels that we're getting, and adjusted pretax margin is down as well. But all of that, overall of that, is due to fleet costs and interest expense, which account for about 600 basis points of the margin decline. We're going to talk about how we're going to fix all this in just a few minutes.

So in terms of the Europe Off Airport mix, full year 2012, we see a balanced portfolio in Europe with almost a 50-50 split between Airport and Off Airport. And our -- we do not have our fair share of the Off Airport market, as you can see on these slides, so we're looking to really redress this balance by significantly increasing our Off Airport presence through investment in technology and the roll out of 24/7 on demand and increasing our agency and franchise network in white spaces. So not investing in bricks-and-mortar, we're investing in technology. And Germany will be the first place we do that. We'll actually closing a lot of Off Airport locations and expanding the network by putting the vehicles in other people's lots, in other people in adjacent spaces and we'll expand, if you will, the locations with the vehicles themselves. And we believe that in Germany, we've done a lot of research in the German consumer and this is, as you know, a very strong market in Europe. And we believe that this investment with the cars and that -- get the reduction and infrastructure is really great strategy roll out quickly in Europe.

I want to talk a little bit about that then and now opportunities. When you look at revenue growth, 2006 and 2012, revenue from 4 strategic initiatives are bulleted on this slide on the upper left-hand corner of this slide. Despite the slow economy in Europe, there are areas where we've seen strong growth, Firefly and ACE, both are value brands. We've got $83 million of revenues there. Hertz on Demand and Flexicar, which is a car-sharing company we bought in Australia, we've got $7 million of growth there. In China, we've had $19 million of growth. Australia grow -- grew from $205 million to $377 million, up 83%, exploding the mining sector in Australia.

So total emerging market and Middle East, revenues are up 12% from 2006. And again, so we've had a lot of areas of nice growth. It's just the core European market due to the economy we've got issues with. On service quality on the next side over, next quadrant over on the right, with using our operational excellence programs, we've been getting clean and safe cars every time, and we're actually up about 10 basis points right now year-over-year.

On the fleet side, on fleet management, fleet cost in Europe are up on a per unit basis, particularly impacted by the decline in residuals in the continent. We've been working to minimize costs by improving our utilization, taking out -- taking advantage of really what we call spot deals there, which we've never done before in the current market. We also launched Rent2Buy there in 3 countries: France, Italy and U.K. And Dealer Direct is online now in 5 countries: U.K., Spain, Germany and France and Italy. We expect depreciation will be able to go down this year in spite of the declining residual market.

Cost efficiencies. Since we launched our Process Excellence program, in 2007, we've implemented projects which have delivered $520 million of cost across all our each business.

So obviously, on this slide, you can see that diversification with Firefly now in 33 locations in Spain, France and Italy. Those were just rebranded from advantage to firefly, which is scored very, very well in March this in Europe and U.S. as a useful innovative been.

In terms of brand diversification across Europe, so art of it is the Dollar Thrifty strategy. But the Dollar Thrifty are 100% franchised outside of the Americas. We still have an opportunity to grow the business and benefit from a multi-brand strategy in Europe. We've already transitioned the advantage location, as I mentioned before, to our you fighter brand called Firefly. And we will use tactically that brand only in select markets in Southern Europe. It's aimed really at the cost-conscious leisure traveler.

In addition, we've had a referral program for U.S. customers looking to rent Dollars Fifty in France and Spain and we're service will serve us the rental, well, Hertz will actually service the rental. And then, ultimately, we'll launch Thrifty Corporate Lean in France and Spain. And we're looking at the potential buyback of certain franchises that have been underperforming, and we could buy back easily and grow dramatically. So again, it's a multi-brand approach in Europe. Lots of expansion and lots of growth moving forward.

So we've been improving, if you will, our processes and driving margin with the roll-out of Lighthouse in Europe. And in fact, when you look at our performance in the Lighthouse locations versus division, there is significant improvement.

Right now, we had 2 master black belts in Europe. We have 7 black belts, 13 green belts and 5 yellow belts. These numbers will actually triple during the next 18 months. And we're really rolling out Lean in a big way with the centralization of all of Europe.

We also are shifting to higher risk fleet. We've moved to a greater proportion of risk flee since 2006 because it has minimized the total holding costs for us. It allowed us to hold fleet longer. Fleet cost per unit had increased from $220 to $271 whereby 26% over the '06 through '12 period, the impact of last year's falling residual values accounted for most of that increase. But moving from program to risk, we've been able to minimize of increase in total holding costs, including maintenance and damage caused to a 14% increase over the 6-year period.

When we look at selling more used cars into higher channels, that -- you'll see that the volume sold reduced between 2012 and 2006, that reason that we sold less is because we had a longer holding period of the vehicles. And also because we held onto the cars because of the adverse market conditions.

We expect to be back to 2006 used car sales volume levels in '13 as we've introduced or channels, as mentioned earlier, and we'll be able to sell cars one by one at a higher profit than what we have historically.

So we look at the long-term plan for Europe and where we see the opportunity. I have a number of initiatives that deliver overall a big number, $200 million in annualized adjusted pretax growth by 2015. I know that you'll get questions in a modeling session. We didn't put very much of this in our 3-year projections in our 2015 numbers. So we do, not put very much [indiscernible]. These are very hard core plans. There's a master plan around all of these, and these numbers are real. They're not numbers based on fiction. We kind of have a lot of planning that's been done the last 12 months to what we call reenergize Europe, restructure it. And these are the key components of the plan.

Basically, one of them is to reduce our seasonality, make a profit every month and every country by centralizing the organization. We're variablizing our entire network and direct operating expenses and shared service centers cost all being centralized. We have a lot in the countries that are not centralized right now, a lot of purchasing, marketing and sales, and that's all being done right now.

On fleet and supply chain, the 45 million you see there, that number is really making our fleet a lot more flexible. And we're centralizing the planning process. Right now, its country-centric. And we are moving it into one central organization, expanding the source of the sales channels as well, all deliver big savings in fleet.

On pricing, we're leveraging our tools that we have in place, but have not started to utilize really in Europe. Canvassing analytics, what we call our contribution management system, our CMS system, our emulator, our pricing emulator, all will improve the trade-off between RPD and utilization during peak periods.

Off Airport in 24/7, never really had an aggressive Off Airport strategy. We've been working on one for about 1.5 year now. We expect to increase or to share the $7 billion from 10% to 15% by 2016 in discretionary and van segments.

On multi-brand, cover all segments of the market with this and optimize pricing by maintaining Hertz really as our premium brand, Thrifty for the mid-tier and sold through selected channels, and then Firefly as our deep fighter brand.

And then on virtualization, this is the strategy I talked about doing in Germany. We're going to take 24/7 on demand and really blow it into Germany very quickly. So that will be kind of a country that gets the technology very quickly and basically reducing our fixed cost structure and achieving the virtual model in the next 18 months.

With that, I'm going to turn it over to Lois Boyd to talk about excitement going on in the Equipment Rental business right now.

Lois I. Boyd

Thanks, Mark. Good morning, everybody. I'm really happy to be here to talk to you about equipment rental, had a great year last year and the future looks bright for us as well.

I'm starting out with our footprint, what you can see here is we're a $1.4 billion company or part of Hertz, at this point, with 340 locations. That doesn't include our franchisee location. And what you can see since 2006, is we've expanded our footprint South to South America for the first time last year in Chile, in Central America, this year in Panama and of course, Asia.

This was what we look like in 2006 as far as our market mix. And what we've done over the period is expand that base to give us a more balanced portfolio. What you can see here is more involvement in the industrial markets, which are more stable. Also investments in specialty markets, like entertainment, which would be seen in the fragmented part of this pie, also stable. I believe the stats around entertainment. It's been a growing market, a steady market, other than the only time during the recession if there was anything that happened there, whether impacted was during the writer strike that happened in '09. But other than that, very stable and a good place for us to be.

So really balancing the portfolio. And also, the same time, really looking at our fleet portfolio to make sure we're servicing our clients and our markets appropriately. So this what we look like in '06.

And here's what we look like today. So you can see a shift from a lot of the balance more to the some of the specialty products, which give us a higher dollar utilization on that piece of our fleet. Things like the Lighting business gives a higher dollar utilization and some of the specialty products. So really good places for us to be.

At the same time with that balance, we've also reduce the age of our fleet. During the worst peak or part of the trough, we were over 50 months in age. We're now in the low 40s, high 30s, depending on what part of our fleet you're looking at, which is really the sweet spot we believe we need to be for our clients, for the investments that we need to be, for depreciation expense and for maintenance costs. So we really invest in the right place.

At the same time, we have reduced our unavailable fleet or made it more available for our sales force by putting in new processes and efficiencies and prove 900 basis points nearly.

We continue to invest. And in that investment, over those years, these are the key markets that really helped us through the period. We invested not only in small tuck-in acquisitions, we invested in sales force, the right people and supporting teams for these market verticals that really gave us a presence in these specialty markets.

I'm going only to talk about a couple of them here. I'm going to start with the entertainment one. We really weren't in this business in 2006. And we made 3 small acquisitions that really helped to boom this business. We've taken our current footprint that exist with the corporation and use that to expand their position with similes and the other people that did the rolling stock in the entertainment space. So nice growth from 0 to almost 550 basis points.

The other one I'll talk about today is oil and gas. We did have presence in oil and gas. But as technology changed in that marketplace, our footprint was that necessarily in the appropriate place as technology drove changes. You probably all have heard of what's going on in the Bakken, the oil field up in North Dakota. We didn't have footprint there. And so with small acquisition, less than $1 million, we got it rentals. sweet, very great name. In North Dakota. It gave us a footprint there and positioned us to take advantage of the technology that is booming in that marketplace.

Also, Delta, allowed us to go offshore, another market that we weren't present in. So it allowed us to grow our share in oil and gas by consisting us with new technology and also, the right footprint.

So peak to trough opportunities. We're still not back. I wish I was good as Scott. He's back. I'm not back yet. So there's still opportunities within the equipment rental space. You can see the growth that still has to happen around our utilizations and our pricing from that peak, so still opportunity.

During the period though, we work diligently around the Lean/ Sigma opportunities that drove our employee productivity up almost 15%. So with that improvement and as these items come back, both pricing and utilization come back to where they were, we estimate that to be roughly $60 million in bottom line improvement for our division plus other initiatives that we're working on.

So how are we doing in the marketplaces? So let's talk about construction for a second. You saw at the beginning that was our big sweet spot. We made sure that we have an investing ahead of the comeback. We watch the trends in the marketplace and is investing in our fleet to appropriately just slightly ahead of the comeback trend. ABI, which is the Architectural Building Index, something we track all the time, has being positive or above 50, which is where we wanted to be for now 7 months. They reported 2 weeks ago on another month of positive activity there. What they say is, 9 to 12 months after that, that's when really it starts to happen. And we've already seen it happening. McGraw-Hill says the construction, nonres will be up 5.6% this year. So we track them as well. We have a pretty solid ratio with them.

But what you can see, as we stayed ahead, our strategies are slightly ahead of it. We grew and McGraw-Hill was seeing negative in the Construction business last year, we grew in the first quarter at 14.4%. By the end of the year, we were nearly at 19%. And so far this year, don't have the quarter stat, but we're roughly about 25% growth. So really running ahead. And it's been very positive trend for us.

And you can see the pipeline on construction loans is really booming. I mean, it's growing at a very rapid rate. So we see the future bright in this area for us.

Industrial. Sort of a flat, flat [ph] right now. But what we've done over the period is really positioned ourselves with our client. Our on-site strategies, our continued investment in that, building partnerships and relationships, the right product for our client has allowed us to grow in this space as well. So you see nearly 16% growth here today.

And then oil and gas. When you look at these stats around oil and gas and you put them in a composite, they are -- it's roughly around 9% to 10% growth estimated for this year across all the verticals within that space. And you can see, we've been outperforming and it will continue to outperform. And that's really based on the smart investments we made and the small acquisitions in the people, in the training, in the development, in the relationships with our clients and the specialty products we put in to support them. So we see that our presence in this market will continue as well.

Next steps. We still have a lot of efficiency opportunities in our division. Which -- you look at us today is basically each branch is like a small store. They run their own business. They have a few mechanics that maintain their fleet. They have some drivers that deliver their fleet. They operate as a unit. We're going to change that to a hub and spoke model over time starting this year, starting right now, actually. Where we'll bring maintenance into a bigger hub. We'll get better throughput. Instead of a small firm being bogged down with a large repair, it goes back to the hub. We'll have better throughput, better intellectual horsepower at the hub to continue to spin things through. It will also give us an opportunity to improve our logistics. Rather than each store managing just a few drivers, the hub will manage the logistics for a full region, and that will give us the opportunity there for customer satisfaction, better efficiency utilization of our fleet. So we're really excited about these things going on as well.

Another thing will be, that we'll manage our customers' needs, so field service mechanics, deliveries, reservations, so we'll have a broader view of a larger fleet instantly for our customers, which we think will give them satisfaction and like our performance better, but also for our employees, we think this model will give them career paths that will keep them satisfied and happy with their life at Hertz.

So greater value proposition. In the '06 timeframe, we're basically an equipment rental company. We did a great job, really worked on the jobsites, had local relationships, which we still have via our network. Over the period of time since '06, we’ve invested in our portfolio, offering new services and enhancements to our mix, from product to services, actually selling fleet, offering you new and used fleet in our traditional model and management services.

But then along came Donlen, with juicy [ph]. They bought this company really for the -- I think our view is really at the Rent-A-Car space. But when we saw there was so much opportunity for Hertz, we were very excited. It allowed us leasing programs, which we've launched into the marketplace. It allowed us syndication programs for some of our large clients. And it also, because what Donlen does is really manage fleet, amongst other things, we have great fleet management tools. We had already started down a path of a fleet management solution, but these guys accelerated this, right? And we believe a couple of years is where we would be with that process.

So what I had before was a great offering to my local clients, took really good care of them. But now with this portfolio, I've got, really, solutions to go all away from the jobsite, all the way to the c fleet. So that's where we talk to our clients now, depending on the client, is at all different points that gives us some leverage in the business as well.

So let's talk about technology. It's not just for the Rent-A-Car guys, okay? So our mechanics move out in the field. They get a call from the client, something is wrong, they go out. As prepared as they thought they could be, they get out there and maybe they didn't have all the data that they needed. Maybe they didn't have all the parts. So stealing some of the technology that we guys talked about earlier, we're putting capability in our trucks for every mechanic. I love the Gorilla Glass that Rob talked about on some of those laptops or not even laptops, it's really an iPad device, and you can drop it like, how many times can our guys drop this and it'll survive, so they're lost a lot of times. They'll have a tablet in their vehicles now that allows them, when they're on-site to instantly upload and look at schematics, really be able to give him speed around troubleshooting a client's piece of fleet. Not only will it speed him up, it will make the client happier because the turnaround will be faster. He's not calling the branch looking for data. He has the data right there. He will also be able to access our supply chain system to get any parts that he might be missing, either from a local retailer, that's a part of our supply chain, or from the branch to make sure that they have it available and have it sent out. We just see a lot of speed from this. It was not a big investment for us, it's about $350,000 of investment over the next 2 years, and we anticipate easily $2 million of savings from this project.

Another piece of technology is logistics. So we were in the throes of putting together a logistics tool to help us when we go to hub and spoke and even in some of our locations today, and we've looked at a lot of suppliers. When we took Donlen into the portfolio. We understood what they had with their fleet management capabilities and we levered what we'd already started down the path with, and what they had and their expertise in this area, and had -- we're beta testing it right now, logistics process that's out on the West Coast, really giving us optimal routing for that greater pool of fleet to deliver, to pick up, giving throughput of our fleet faster and faster. That's what we want. We don't want it on the yard, we want it at the client, so pick it up and deliver it.

It also, because we have a fleet of drivers, we have to comply with the Department of Transportation regulations. This is an automated process now for them that we've worked with the Donlen team on. It'll improve their damage collection. It's got damage, we can register damage by taking photographs through this piece of technology and linking it to the reservation of the client, and then electronic signature capture, which allows us to get input from the customer on the spot. So a lot of the things that we're involved in the Rent-A-Car space that we're applying to our business. This is a $1.5 million investment over 2 years, with $5 million of savings attached to it.

That's not it. So Deal in the Field. So how can I be faster as a point-of-sale? How can I be better? You can call me, like Rob talked about for the car rental side, I'll gladly take you reservation at my logistics center, at my hub, but also I want to take that same technology we're giving to our drivers and giving it to the sales force. They can pull up the piece of equipment and do a deal right on the spot, rather than calling into the branch, right there with the customer.

Look at the kiosk technology that's available, there are specific monthly applications we believe that the kiosk can help us launch and do a better job, another point-of-sale opportunity for our customers, being front of mind for them. And then of course, mobile applications. How can you reserve -- and we all are, we're working 24/7, how can I reserve anytime I want just using the technology in my hand. I'm in my truck, I'm at my job, oh my god, I need something else bing, bing, bing they have it, and then we deliver it. So we're leveraging the technology that already exists to help broaden our space.

Last, I'll talk about is EquipmentPoint. This is our global telematics solution. It gives our customers 24/7 access to their fleet. They can see where their fleet is, and what's going on with it, is it being utilized and what's happening. So the fleets in the field, it can be our fleet, if it's rented, it can be his fleet, it can be somebody else's fleet. We gear it up with either our hardware or we use the suppliers' hardware, because many of our clients are putting on telematics to their equipment. So we take those different protocols, ours and theirs, and we integrate it. We come back up through the cloud, as Rob talked about, and we integrate it into a 1 platform for our client. So he doesn't have to look at 6 or 7 or 10 platforms, he can look at 1 platform.

We talked to him and say, what is the KPIs you want to measure, what are you looking for, how can we help you? And we developed a dashboard and a service for him so he can manage his fleet at any time. We can manage the fleet at any time. We can see what's going on for damage. We can see if things are -- if there's an issue coming on an engine. There's a lot of work we'll be able to do, not only where it is, but how it's being utilized. So we've got a couple of really great betas on this already with some of our key clients to test it out. And based on that, information that we've gotten from those betas, we expect over our 3-year rollout, to get between 20% and 30% pretax margin, based -- that's based on revenues and cost savings that we hope to gain.

Before I bring it home for you, I also -- I could not be outdone by everybody else, I have a video for you too, so sorry about that. I might be videoed out by now, but I'll cue the video, if you don't mind.


Lois I. Boyd

And now I'd like to introduce one of my partners in technology, Tom Callahan.

Tom Callahan

Thank you, Lois. I don't have a video, so -- Donlen is a leading fleet lease and management company founded in 1965 by Don Rappeport and Len Vine, hence the Donlen. We're headquartered in Northbrook, Illinois, a suburb of Chicago. We're part of the commercial fleet market. It's one of the largest segments in the U.S. automotive industry, comprising cars, light-medium duty trucks, vans, for sale service and delivery applications. Market size, around 2.8 million vehicles. Many of these vehicles are essentially used for our company's operations. Our corporate culture is built around employee and customer satisfaction. With a 63% Net Promoter Score last year, which we thought was one of the best within the fleet management space. We have 20 of our largest leasing customers that have been with us over 10 years, and we have a customer retention rate of over 98%. We have more than 500 corporate customers, spanning a wide variety of industries and a diverse portfolio of more than 166,000 vehicles.

We also have the global partnerships. From time to time, our U.S. companies ask for some global support, so we have set up some referral networks in Canada, Mexico, Europe and Australasia. We provide a complete lifecycle solutions for our customers, to include fleet financing, starting with a TRAC Lease, which is the predominant product within the fleet management space. It's an open-end lease, 12 month fixed, month to month after that. A customer can cycle out whenever they want no penalty. The customers does bear the residual risk. It's a very good product for car and light duty trucks. We also developed the Syndication product, very asset light. We don't use our balance sheet. We originate the deal. We then syndicate or sell off to a third-party, who's interested in it for the tax appetite. We maintain the billing and servicing rights, so we are still the face for the customer. We have some service bundled to it, and it's an excellent product for longer-term fixed assets like truck and equipment.

We also have a variety of fleet management services, which I won't get into all of these today. I'll just focus on a couple of them. We have over 50 ASE, Automotive Service Excellence technicians that do nothing else but -- that repair orders and maintenance to save customers time and money, oftentimes, 10% or more every year. We have safety and productivity products given asset management solution. A lot of our customers self-insure for collision. We provide, basically the services an insurance company would do to handle our accident claims. And we have a full breadth of strategic consultants of that do nothing else but analyze and report and benchmark best practices to save customers money.

And all of this and our collateral is input into FleetWeb, completely integrated. We are the only platform in the fleet management space that can handle all these solutions for all these different types of assets, from cars and lights, all the way to equipment. And the reason that we can do this, is because of FleetWeb. It is 1 platform, it's 1 database. Our customers and employees use the same system to handle thousands of transactions, every day, from acquisition through marketing of orders. It's an award-winning platform. In fact, Donlen had the very first online fleet management system back in 1997. It's customizable, flexible, very easy data input. You get unlimited reporting and analysis. And because all of our systems are integrated within FleetWeb, you get instant data access utilizing real-time data. And by the way, this is also available on a mobile application as well.

And as you can see by the quote on the -- that you get from some of our power users, it has a high level of customer satisfaction. We have a lot of valued business relationships. I won't go through all of them, but one stands out. When you want to be an innovative technology leader like we want to be and are, it can't get better than getting a testimonial from Apple. When they say, once I got a taste of Donlen's information technology platform, it became my standard of excellence, we were absolutely over the moon.

What has that done? Well, we have continued to grow our leased and management assets. You see double-digit lease and services growth, and also double-digit revenue acceleration over the last couple of years. We'll be over a $530 million revenue business by the end of 2013. And why is that? We believe our value proposition of providing innovative technology solutions, consultative selling and high-quality service delivery is resonating with the marketplace.

If you look at the competitive landscape that we have, if you look, we have 8 primary competitors. There's a significant barrier to entry, all of our various competitors. The first 2, GE and PHH have been shrinking. In fact, we took 50 deals from GE over the last several years. PHH's lease portfolio has been shrinking as well.

If you look at the, where the market focus is by fleet size, you'll notice that the first 4 competitors that we have focus on the mid- and large-sized customers. Wheels focuses primary on the large pharmaceutical clients, and MK and Enterprise focus on the small fleets.

Donlen focuses on all 3 segments. We've historically been very strong in the midmarket. As I've indicated, we've had some good success with GE on the large segments over the past several years, and we've had some recent significant wins against Enterprise on the small side. Our value proposition of technology and consultative sale seems to be resonating very well in that segment.

In September 1, 2011, Donlen joined the Hertz family of global companies, and that created an opportunity for new products and new categories that were unmatched in the fleet management industry previously. One of the first products that we launched was something called Hertz Value Lease, which we believe is the industry's first true leasing alternative for commercial fleet customers. We provide low mileage vehicles, usually 1 year, well maintained, high quality, still under manufacturer warranty, we access that through FleetWeb, provide the lowest transaction cost. $5,000 to $6,000 less than a normal new vehicle, shorter lease period, usually 24, 36 months. It's a great alternative for project-based, new hires or start-up companies.

We also have launched something for Hertz Equipment Rental called HERC Ready Finance. This is one-stop shopping for purchase and finance of vehicles and equipment for industrial and commercial customers of Hertz Equipment Rental. You can use it for new and used equipment, lease and loan financing packages and further establishes our value proposition as an innovative provider.

Lois talked a lot about EquipmentPoint, so I won't go into too much detail, but needless to say, it leverages a lot of the functionality that we already have in our DriverPoint product.

We have additional opportunities, too. For revenue generation, we get a larger footprint by leveraging both the Donlen and Hertz cross-selling sales teams. In fact, our goal in 2013 is to close more than 40% more business in this cross-sell activity. We also want to leverage Hertz and Dollar Thrifty remarketing channels. Traditionally, the fleet management space remarkets primarily through auctions. Now we can leverage alternative channels by Hertz, and also Dollar Thrifty has an appetite for our off-lease vehicles. We also want to drive continued cost savings, utilizing the Hertz procurement staff to drive better operating efficiencies in areas such as fuel, glass and tires.

And what does this mean, then, to our revenue growth strategy? Well, it means double-digit growth, double-digit growth in our core leasing business, with new products like Hertz Value Lease competing very well in all 3 segments. Our services, double-digit growth, broadening our partnerships with banks, to provide service offerings to their customers, a product we like to call partners plus. Telematics, where we talked about our DriverPoint utilization, that's going to be going double-digit. And then our truck and equipment syndication product, which has a long way to go. We're less than 1% of that market already. We have a dedicated sales team for that initiative. We launched new markets. We're in Canada, and we're also going to be launching more new products like HERC Ready Finance.

So that's the story of Donlen's growth strategy, and now, I want to give it over to Elyse for the broader Hertz revenue story as well.

Elyse Douglas

Thanks, Tom. All right, we're in the homestretch here. I'm going to summarize today's discussion in the context of our financial priorities, which are profitable growth, improving cash flow, improving return on investment and capital structure, all with the goal of achieving our financial targets.

You can see that over the past 6 years, we've had solid financial performance, revenue growth of 12%, pretax growth of 85%, GAAP pretax income up 125%. But with the investments we've made over this period of time, we're going to see accelerated profits in 2013. You can see here, our guidance is for 22% revenue growth, and we're going to anticipate a 300 basis point improvement of margin. That on 400 basis points over the last 6-year period.

That growth is all -- starts with top line revenue growth. And you can see that our key drivers here, in spite of the fact that HERC is not -- is still performing below its peak levels, is really being driven by U.S. Rent-A-Car, and the success of our strategies in leisure and off-airport growth, as well as ancillary revenues and also the emerging markets that you heard both Mark and Scott talk about this morning.

With the Dollar Thrifty revenues, with the actions that we're taking in terms of Dollar Thrifty growth in Europe, as well as the continued rebound in the equipment rental business, we feel confident in achieving our growth acceleration in 2013.

Obviously, revenue growth drives profit growth, and our profit has grown 85% over the historical period, again, driven by those key revenue drivers. But that expansion in margins is also driven by the cost initiatives that we've been able to achieve over the past several years, and we'll continue that. I'm going to talk about it in a second, but again, all the investments that we've made to date, the ability to leverage those investments will continue to allow us to expand those profit margins.

So over the last 6 years, we have a proven track record in operational excellence. You can see that we've actually taken over $2.6 billion of cost out of our business model, and that's really across the spectrum. About 60% of that is in our operating expenses, about 1/3 of that is driven by our fleet capabilities, and then we've reduced our overhead by about 9%. And we believe that will be -- we'll, we can continue to drive cost out of this system. You heard a lot about Lighthouse today, but when you look at the entire organization, we've only touched about 42% of revenue, so still significant growth there. And while we've been making technology investments in car technology, we're also investing in technology to improve our back office efficiency. We've upgraded our counter systems globally. We're investing in new financial systems that will continue to drive productivity. And we continue to educate our workforce in Lean Six Sigma techniques. Today, throughout the organization, we have 225 black, yellow and green belts, so we feel very confident in achieving our goal of an additional $300 million cost savings in 2013.

Profits drive cash flow. And even though we've invested in technology and fleet throughout the historic period, we have improved our free cash flow on a compounded average growth rate of 85% during that period. So profits is a key driver, but we've also taken other steps to improve our cash flow capabilities. We've introduced economic value add, which is, basically it compares net operating profit to the cost of capital. So it focuses investment decisions not just on accounting profits, but also on return on investment, and you're going to see how that's improved over this period of time as well.

We introduced EVA as a bonus metric in 2010, and you can see since then, we've experienced significant improvement over the 3-year period, as we've used EVA as a key metric in decisions, both fleet, as well as acquisitions. We've also focused on working capital improvement. And you can see that we've reduced working capital as a percentage of revenues, and that's yielded $250 million of cash flow over this period of time.

I want to announce today that we are going to be moving to a new simplified cash flow format, and the reasons are really threefold. One is, it's simple. It focuses on the 5 key drivers of our cash flow, profit, fleet growth, non-fleet CapEx, working capital and taxes. It's simple. It's GAAP-based. And it uses the free cash flow methodology, which is really operating cash flow less investment to come up with free cash flow. So it's a terminology that people are familiar with and then allow greater comparability across different companies. And so those of you who are staying for the financial modeling workshop this afternoon, we're going to be spending a lot more time on the new cash flow model.

But let me take a minute just to focus on some of our cash flow dynamics. We have been making investments, but those investments that we've made over this historic period are driving cash flow. And you can see that on this top bolded line, our operating cash flows in 2012 were $780 million, an increase of 84% from the prior year.

On the flip side, our investments, while we are continuing to invest in technology and facilities and HERC equipment, our investment in the Rent-A-Car fleet has really stabilized, as we've made significant improvements in fleet management, and we continue to improve our utilization. So as our operating cash flow accelerates, our net investment is decelerating, and that's what drives a 300% improvement in cash flow in 2013 from 2012 levels, and that will continue to accelerate.

Before I leave cash flow, I want to talk a little bit about the resiliency of the cash flow model. This shows the last downturn, which was the biggest financial crisis in our last lifetime. And you can see here the corporate cash flow before acquisitions throughout the period was positive in every year but one. And the reason it was negative in 2009 was because we made a conscious decision to invest in the Rent-A-Car fleet at the end of 2009 as the business started to rebound.

If you actually look at the cash flow of our 2 major operating divisions, U.S. Rent-A-Car and U.S. HERC before fleet growth, they were positive throughout the period. And because the equipment rental business actually had negative fleet investment during the 2 worst years of the downcycle, their total cash flow in 2008 and 2009 ranged from $400 million to $600 million. So incredibly resilient, our cash flow model in a downcycle.

We finance the business today with $15 billion worth of debt, but 60% of that debt finances the Rent-A-Car fleet, and because of the size and stability of the used car market, it's a highly leverageable asset, where it's really akin to inventory financing.

We're able to finance 75% of the car value in the very cost efficient ABS market. So that debt is fully collateralized, really overcollateralized. So our focus is really on the remaining $6.5 billion of corporate debt and our corporate debt leverage. And you can see that on this chart, in spite of all our investments, we've been able to reduce our net corporate debt leverage. And in 2013, a combination of profits as well as accelerated cash flow, we expect our corporate leverage to be at 2.5x, which is closer to our goal of investment grade, which we expect to achieve over the next 2- to 3-year period.

During the last several years, we have basically refinanced the entire corporate debt of the company. And in doing that, we've been able to reduce our interest cost by 275 basis points and significantly improve our maturity profile. And you can see on this chart that we really have no significant corporate debt maturities before 2018.

In addition to rate and maturity, we've also improved other financial terms within our agreements. I'm only going to highlight a couple. One is that we no longer have financial maintenance covenants. We did back in 2006. In 2006, we relied on a short term bridge facility to finance Europe. Today, we have a permanent financing structure in place using a hybrid of ABS debt, as well as other secured financing. And throughout this entire period, we have maintained adequate corporate liquidity. Today, we have over $1.5 billion of corporate liquidity, and we also have fleet financing availability of about $800 million.

Mark mentioned how interest rates move in tandem with our business performance. So as interest rates go up, our revenues and profits go up, but there are other risk mitigants to any environment of rising rates. Today, 65% of our corporate debt is fixed, not subject to rising rates, and 53% of our fleet debt is fixed. And we clearly have the opportunity to continue to term out that fleet debt in this historic low interest rate environment.

In our K, we note that a 1% increase in rates equates to a $31 million increase in after-tax interest. But you can see here that a 1% change in volume and price more than offsets that by a factor of greater than 2. And clearly, as our credit profile improves, our corporate credit spreads would improve as well.

I mentioned that EVA has helped to drive our return on invested capital, and you can see that over this 6-year period, our returns have more than doubled to 18%. But keep in mind, HERC is still not operating back at those peak levels. So the real driver here and the real improvement you can see is in our worldwide Rent-A-Car operations, where we basically improved from 13.5% to over 30% return on invested capital. And we expect that to continue as we continue to work on improving our cost structure. You've heard a lot about how we have the ability to continue improving our utilization and leveraging our asset-light strategy. We do anticipate our return on invested capital to improve another 2% to 3% in 2013.

So we've made very conscious decisions about our use of capital and the investments we've made. Many of the acquisitions we've made over this period have really been to provide a more stable set of earnings. Donlen Leasing is much more stable in a downcycle, a faster growing, less price-sensitive leisure market, as well as the verticals that Lois talked about, entertainment services, oil and gas, less cyclical businesses. Other investments have really been to lower our cost structure, being able to use ExpressRent Kiosks to expand our footprint on an asset-light basis, using key franchise partners like Emil Frey and Roger Penske, and also our investments in our remarketing capabilities to further drive down our fleet cost.

So in closing, I just want to talk about what are our priorities going forward. We're going to continue to drive cash flow through continued focus on profitable growth, continued focus on cost savings to be the lowest cost provider and to leverage our asset-light strategy. We’re going to continue to maximize our portfolio return. In 2013, we're going to be very focused on the execution of the Dollar Thrifty integration. We constantly look at ways to improve our balance sheet and reduce our cost of capital. And as we accelerate our cash flow, we'll look to deploy the cash flow in an optimal basis looking at debt repayment, reinvestment in the business, as well as return to shareholders.

So now let me turn it back to Mark, who's going to take you through our 3-year financial goals.

Mark P. Frissora

Thanks a lot, Elyse, and not too many slides and a really quick video at the end of mine, but mine will be really fast. So we'd like to talk to you first about the history. The recent history, starting in 2009, what our performance trends have been. And I'm going to tell the story behind the numbers.

I guess if you look at 2009, our revenues were down 16.7%. Driving that was the reduction in HERC. HERC was down 33% that year. And as you know, HERC had an EBITDA margin of 47%, so that was a killer for us. Having said that, we still had $0.29 a share EPS and corporate EBITDA margins that were high enough, I think, and respectful given the downturn at 13.8%. Once HERC was dropping, Rent-A-Car started to improve in the fourth quarter of '09. And then from '10 on, Rent-A-Car has just continued to improve its revenue growth from there on out. And you can see that in 2011, we actually exceeded our prerecession pretax. The actual pretax dollars in '11, we actually beat '06 and '07. 2012, we beat again '06 and '07. So in spite of the HERC downward draft, in spite of Europe going down in '12 and '11, both of those business units underperforming due to marketplace conditions, we still exceeded again '06 and '07, just trying to give you the precedent here that this company is over-delivering on expectations due to the fact that we have a better company. I mean, we have built a better company, better in terms of the leanness, the execution of cost reduction programs, $2.6 billion of cost taken out, 25% of the cost structure. In addition to that, investments in technology that have driven customer satisfaction and revenue growth that we think exceed what would be the industry average in the industries we're in.

2013 here is the midpoint of the guidance that we've given you, and that gives us a revenue growth rate CAGR of 11.3%. EPS is a CAGR of 60%, corporate EBITDA is 22.3% (sic) [23.2%], and adjusted pretax 61.3%. So that's all very good, right? But what else do you have for me, right? That's what most investors would say. Great, but I don't care about that, that's history. What's the future hold? We think the future is looking pretty good. In fact, we've never been more excited about our future since we've been together as a management team. And as we look at our strategy, and the new economic model, it's the same strategy, leveraging our global brands, our market position to drive revenue growth. It's all about driving cost efficiency. We had a lot of cost to take out in this business. I mean, again, we're about 50% of the way on our journey. We are developing a continuous improvement culture. I can feel it in the company, the language around it that follows us around when you go into our operations, how people talk about Lean Sigma.

And then obviously, cash flow is going to be optimized. As our investments are winding down over the next couple of years, the technology on IT infrastructure, as well as in-car experience, all of that winds down through 2015. And as that winds down and the increased earnings, you drive an awful lot of incremental free cash flow, you see in fact that we've gone ahead and said to you, this year to be between $1.1 billion to $1.3 billion, even with the investments that we're making. The revenue growth of 12.5% to 13.5%, the fleet cost at 24% to 25%, and you're comparing this again, the 2012 EPS from $1.33 to $3.10 to $3.30, and we had put in some fairly conservative assumptions here.

I think, if you haven't learned anything about us, we try to be conservative. And we didn't much pricing in this. We didn't put much fleet cost improvement in this. We didn't put GDP growth hardly at all in this. And this is just based on our internal initiatives. So do we feel bullish about this? Yes. Do we think this is aggressive? No. So I just want to make sure I'm clear on that. No, it's not aggressive, even though many of you may think it is, believe me, it isn't. And we've been able to show you that. If you look then at 2011 to 2014, that's what we showed you. This is a little better. By the way, 2010, people didn't think we could do that either when we gave you a 3-year plan. 2011 to '14 beat that. This beats it again. So we feel pretty confident that we have the wherewithal and that we have assumptions bid into the model that these targets are more than achievable.

Again, a lot of upside in 24/7 technology, a lot of upside in our investments that are asset-light. We feel very bullish about where we are today, and we think that we've got a team that has proven itself to be one of the best teams in the industry. I hope you saw that today with the plans that we have and we've laid out.

So again, looking at the 3-year financial targets and looking at the then, with the Dollar Thrifty acquisition, it gave us, again, a big lift. In fact, if you look at the corporate EBITDA, it's a 300 basis point lift in margin. And if you look at adjusted pretax, again another 300 basis points improvement.

One of the things that certainly our board and our management team is focused on is valuation of the company. And as you know, the company has been consistently undervalued since the recession. We went ahead and took one of the bankers' presentations that was recently delivered to us, and the bankers showed us that you can see that on hotels, the P/E multiple, prerecession 2006 of hotels was 21.5. Today, based on 2014 current earnings, they're at 19.4. Online travel, when you look at the OTAs, like Expedia, KAYAK, Orbitz, Priceline. These are all publicly traded in these spaces, in these adjacencies, if you will. And you can see that in all cases, the lowest one is leisure at 76%. We sit here at 62.3%. We don't feel good about that. We'd like to hopefully see and demonstrate to people that we actually have a lot of value that's yet to be created, and we're hopeful that you see today that why that is the case and why Hertz continues to be an equity, a stock, a company that has a lot of upside for investors going forward.

So the valuation upside just to address is just based simply also on getting back to prerecession levels. And as you've seen, we're really a much different company today than we were when we became public in 2006. And we faced the recession in '08, so we're stronger, we're leaner, much more diversified, much faster, I think. Hertz is the industry's innovation leader. I hope you can see that. I know that Rob talked a lot about technology. We were worried about talking too much technology to you, but we wanted to give you enough feel that we have a very large technology organization. We have over 500 software engineers today working every single day on how we can create a better customer experience. We bought out, as you know -- one of the things we didn't talk about, we bought out our partner on NeverLost. We bought that out last year. We invested in a Detroit office, a Chicago office. We've integrated Donlen and their technology fleet management solutions into the mix with NeverLost. And we do an awful lot in Palo Alto right now. We're partnering with a lot of social media people. We feel like we're leading edge on car sharing technology, and we're hoping that we may just get back to our fair P/E multiple because of what we've shown you. It is patented. And when I say 7 patents and 4 registered, this is around the entire in-car experience, and those patents are real. And we think we have about a 3- to 4-year advantage on people. We know it's the best technology in the world. No car-sharing company has any technology even close to it. And we'll be launching a comparison side-by-side over the next couple of months. So we think that innovation leadership will deliver upside beyond historical valuations, and we think speed wins at Hertz and technology is how it gets done.

So with that, I just want to offer up a closing video before we do Q&A.


Mark P. Frissora

Okay. One of the things that was not said today, and I just want to finish with this, and again to open it up to Q&A as they set up out here with mics. The idea of 24/7 is really to remove the line between car sharing and car rental. We are raising that line. There is no longer a difference between car sharing and car rental. You'll be able to rent a car any way you want, right, so anywhere you want. Not in just like certain urban cities or certain centers. We will be within a 5-minute walk of just about everywhere in the U.S., probably within 18 months. So I mean, we are putting the technology in these vehicles everywhere.

I have several big retailers that I'm working with, almost deals are done. We're going to be everywhere this year. So again, very excited by that, and again, that will be very good in our off-airport strategy. So this is an off-airport strategy for the most part because we think the market is large there, and we have only about 11% share. So we think that's where the emphasis will be. We're going to have the technology available at the airports as well though for those customers that come there too. So anyways, it is just illuminating what I call that line. It's blurring, and it's making it one, car rental and car sharing together. With that, let's open it up to Q&A. Yes, Chris Agnew?

Question-and-Answer Session

Christopher Agnew - MKM Partners LLC, Research Division

With respect to your 2015 goals, so I'm just wondering if you could share what your car rental pricing assumptions are. And also then one more question on free cash flow. Just how and when are you thinking about deploying all the cash flow that you're going to generate as part of your 2015 goal?

Mark P. Frissora

The last part of your question again, how and when what?

Christopher Agnew - MKM Partners LLC, Research Division

You plan to deploy -- what are you going to do with all the free cash flow that gets to your pipe, 2015.

Mark P. Frissora

So on depreciation and on RPD, I just want to tell everyone because I knew I'd get this question 100 times, we're not prepared to talk about pricing other than to say that our assumptions are very conservative. And on depreciation, again, very conservative. We're giving you 2 years of kind of a model from this year, right? And to try to nail down every single piece of that would not be the right thing for us or for you so -- but we did make very conservative assumptions in both of those. As it relates to cash flow, we're very receptive to returning cash to shareholders once we get to what we call approaching investment grade statistics, which we believe will happen fairly quickly, and we don't have to have the investment grade rating. We just want to hit those kind of statistics. And as the investments ramp down through 2015, either dividends, as well as share buybacks or both things that we're considering and are certainly in our toolkit of ways of returning cash back to investors. Yes? Right here up front.

Unknown Attendee

Two questions. First, on the 24/7, is it right to assume it's an iteration of the Hertz On Demand or Hertz Connect initiatives? And maybe if it is, can you tell us what some of the key philosophical differences between how you're thinking about this now versus how you were prior? And then the second one, I noticed on the off-airport, you didn't really mention insurance replacement as an opportunity or it wasn't really highlighted as much. Is there any change in strategy there? Or is that still a huge market share opportunity?

Mark P. Frissora

So on the first question relative to car sharing, and again, for us, it's about changing it, and so it's not car sharing, it's just car rental again. So it's reinventing car rental and saying you can really rent a car by the hour, by the minute, by the day from Hertz with this new enhanced technology. And the technology, you're right, is significantly enhanced from a regular car sharing model. What we've done, and what Rob described was an integration of that NeverLost tablet into the telematics box. The box itself probably has about 16 features that the old car sharing technology didn't have, okay? So we are prepared when we launched this to show you all the features this new box has that car sharing technologies out there doesn't have. And then when you marry it, again with the NeverLost tablet, it ends up giving you a really great experience, where we become a mobile hotspot in the car, and we eliminate the need to ever go to a counter. There's no reason. You're just -- really, you just go online, get your 4-digit code and then swipe and go. I mean, that's all that will be. So yes, we just -- all we're trying to do is make things fast, right? The whole idea is speed, so we think if we can get you in and out of the car faster, it's going to be better customer experience for you. If we can give you accessibility with technology, that's a great thing. So we're really trying to make car rental accessible to everyone, not just Gold customers, not just business travelers, but everyone. And so that accessibility, that increased accessibility is what this is about. It's really allowing anyone to rent a car for $10, $12 an hour with a full tank of gas, NeverLost, and everything all included, right? And we know that model makes a lot of money for us. So we feel good about it because car sharing had utilization issues on a 24-hour clock. We're going to be able to do car sharing or car rental, so the utilization actually is increased, because you can do either or. That's always been the big problem on car sharing, you can't get the utilization high enough on a 24-hour clock to get to break even. We're eliminating that line now. So it makes the model make money in any kind of environment and it improves sustainability. It does a lot of great things for the planet as well, so we're pretty excited about it. Your second part of your question is, are we deemphasizing off-airport growth? No, nothing, no, maybe, we just -- we emphasized this technology thing a lot in the presentation today, but we are very focused on off-airport. We just rolled out a couple of new divisions of another large insurance replacement customer, so the growth is actually going to accelerate this year in insurance replacement. We have a test going on with another big person, so that investment has paid off for us handsomely. We make more money now in the off-airport business segment on a margin basis than we make in on-airport. That may change with Dollar Thrifty's integration though because we're finding we're making really good margins now with all of that infrastructure and the synergies that take place allows us to get a lot of operating leverage out of the airports as well, but off-airport is still a significant part of our growth strategy and very important to us. Question right here, one more, then I'll go back there.

Unknown Attendee

Sure, just 3 questions. First, just a basic car-rental question, which is, what percentage of your customers are no-shows? And what are you doing to change that? Second, you've talked a lot this morning about the technology, but you haven't given us a sense -- I don't think yet of the cost, either cost per car, cost per kiosk, how much will those cost? And then the final question is just on Dollar Thrifty, even my own personal experience, I don't see the Hertz systems, the Hertz technology rolling into Dollar Thrifty yet. I'm just wondering when we'll start to see that.

Mark P. Frissora

So what's your first question again?

Unknown Attendee


Mark P. Frissora

Yes, you get one question at a time, all right? No-shows? What's the percent right now? Scott, you want to answer that one?

Scott P. Sider

There's about 12% no-shows, and we are working on it. More and more of our business is what we call prepaid business. So we're doing more and more guarantee. We're expanding between more locations, more products and giving customers more incentive. There are things we've done a lot of analysis on no-shows and requiring different information of reservations actually reduces the amount of no-shows, and we started implementing that across all our booking channels.

Mark P. Frissora

And we expect that to go down significantly based on actions we've taken. The second question dealt with, car sharing, is that right? No? Cost? What's that?

Unknown Attendee

The technology cost.

Mark P. Frissora

The technology cost itself, $2 per vehicle per month. There it is. So you want to know what the cost is, it's all in. Then we have other technology that we're rolling out for an ERP system in finance that enables actually a much lower cost infrastructure for us and finance. We're rolling out the HR system as well. These are both Oracle-based systems, and all the paybacks on those are huge, wildly accretive immediately, because the labor that we're able to take out as a result of the systems and elimination of about 70 legacy different data margin systems that we had in place at Hertz. On the infrastructure, the cost of the facilities as well, that's non-fleet CapEx. That was an investment this year we've rolled out and talked to you about, about $180 million of incremental investment in both technology, as well as infrastructure upgrades about that same amount next year. And then in '16 -- I'm sorry, in '15, it's pretty much completed. So we're done with it. But our cash flow model that we said includes all those investments in it, and they pretty much are all done worldwide on both the fleet, as well as on the facilities by the beginning of '16. So we feel real confident that we can invest in that, and we get a much higher return on that investment than we would on anything else we can do. So these are all around driving utilization up. Some of that technology in the car gives us higher fleet utilization because we know where all the cars are, and it also allows us to disable the car instead of having a car stolen. We get about 2,400 cars stolen a year. It's a lot of cars, and we can disable the vehicle immediately, but we also will know where the car is. And today, we don't know where about 15% of our fleet is at any given moment. I mean, we have that kind of slump in the system because of late rental returns, because of weather, because of body shops not turning the car back in time, et cetera. Scott, you want to add to that?

Scott P. Sider

There's one thing. So on the -- everybody's familiar with NeverLost in the vehicles. We have 80,000 NeverLost in the car. The technology for 24/7 in totality is about the same per unit cost. But instead of just doing navigation, it has all the other benefits that we've been talking about. And we have very high returns on our NeverLost.

Unknown Attendee

[Question Inaudible] of Hertz just as a consumer. So when can we start to see [indiscernible] the revenue...

Mark P. Frissora

Well, I mean the operations are being integrated now, and a lot of work's being done. They're a pretty efficient company. Having said that, we'll become much more efficient together than we were apart. We are revamping the entire technology system of Dollar Thrifty and integrating it into Hertz. We will have by the first quarter of next year, 1 counter system, 1 pricing system everywhere, globally. So it's a big event, and we're doing it right now. That's part of the investment in the technology piece. So we're rewiring the whole fleet system. Everything will be 1 system, and that will be done. Right now, the timeline is the first quarter of next year. Dollar Thrifty will be using on-demand technology. We haven't talked to people how or where, but we will. Probably in June, we'll tell you how on-demand 24/7 will show up in Dollar Thrifty, and we'll explain it. So they're going to be able to take advantage of this technology investment in different ways. Yes, I'm going to. I'm going to do that. I have a note to do that at the end of my Q&A. So, it's all right. We do have -- I'll go ahead and do it since she teed me up through this. We have 3 Dollar Thrifty executives who have joined our senior management team. We announced this internally, so it has -- it's not an external announcement. I'll announce it now. But these 3 guys actually, right up in the front row, Darren Errington, [ph] raise your hand Darren, [ph] stand up if you like. Darren [ph] is our VP of North American revenue management. He'll report -- he's actually reporting directly to me. He's assumed a very senior role as has Joe [indiscernible], who's the Vice President of global revenue management and processes and systems. And then Charlie [indiscernible], which is our new Vice President of marketing and distribution. And he is -- all 3 joined our senior team, so significant presence on the senior team with Dollar Thrifty. And that integration has been -- going pretty well. And you can talk to these 3 gentlemen if you'd like at lunch. We got 2-our lunch. They're going to be available for questions. You can ask them how the integration is going, et cetera, but -- and they can also answer questions here if we have any come up over the next half hour here while we answer Q&A. Okay. Back here.

Unknown Attendee

Just had a couple of questions. Can you give us some color on the utilization assumption underpinning your -- the new outlook? And also on the 3-year cash flow, can you give us an idea if the global economy goes into this recession, just want to get an idea about the -- if the cash flows, the sustainability of the cash flows through the cycle?

Mark P. Frissora

Utilization assumptions, I think Scott talked about some of those, about there being 3 points of upside, if you will, just looking at combining a leisure fleet with our business fleet at airport. And then -- go ahead, Scott.

Scott P. Sider

So Mark, we did build the 3 points of utilization in for the car sharing, for the synergies are the 3 points for the technology that we think is out there. We built like a point of that into our 3-year strategy.

Mark P. Frissora

Okay. And the other question was?

Unknown Attendee

On the cash flows, [indiscernible]?

Mark P. Frissora

For us, cash is something that really works well, believe it or not, in a recession. And we can get out of these assets immediately. So typically in a recession, every recession since 2001, there was some history on, we generated incremental free cash flow. There was $1 billion in, not after 9/11, of incremental free cash, we'd sell the cars. So the man drops, you sell the car and you stack cash on the balance sheet. Now in 2001, we had debt covenants. We were tied to MBAK [ph] and MBIA because the debt was wrapped and insured. We don't have either of those now. So the balance sheet is much stronger today than it was in '06 and '07. And we think that during a recession, because we have these scalable assets, fleet -- there's 42 million vehicles in the U.S. sold. Used car network is very large and liquid, so we feel pretty good about our ability to survive any kind of recession that may come up. Over here?

Unknown Attendee

Yes, Mark, I wanted to ask about the acquisition environment. Even excluding Dollar Thrifty, you've been very opportunistic with the HERC deals. Do you expect that to continue over the next couple of years? And then when you think about Europe, I thought that slide you put up was pretty powerful with the 8 brands consolidating into 3. Do you see that potentially happening in Europe over the next 5 to 10 years?

Mark P. Frissora

Yes. I guess in talking about Europe for a second, I believe that there is an opportunity for consolidation over in Europe, obviously. I think over the next 3 to 5 years, there will be consolidation. How that works, I certainly don't know. But yes, it wouldn't surprise me if we saw some movement over the next 3 to 5 years in Europe. The first part of your question again was…

Unknown Attendee

On the advertiser deals in HERC, I think you've done a lot of them over the last 2 or 3 years?

Mark P. Frissora

Yes. We're not going to do a whole lot of, probably a whole lot of deals in HERC. We've done a lot over the last couple of years. We -- there may be a tuck-in acquisition here or there that will do, but nothing significant that would generate a drain on cash flow. We're very focused now on just trying to optimize and maximize our cash right now during the up cycle. We have a question over here, mic?

Unknown Attendee

Just a couple of questions. Can you give us the potential for splitting Thrifty and Dollar into a low and high-value brand?

Mark P. Frissora

Okay, let's stop that. Let's just go and answer one at a time if we can, so I don't have to go back and ask the question again. So on Dollar and Thrifty and splitting those brands into a low-mid, we are not likely to split them by much. They already occupy a space that's different. So in terms of making that bigger, not likely to do that. So I hope that answers that question. We finished our brand study kind of in we're experimenting now for the next couple of months where the brand study was completed internally, but I would say not likely to really do anything in terms of splitting the brands other than from what I would call a differentiation standpoint in off-airport and airport. So there, you'll see some segmentation, I'll say, and where we pursue growth with Dollar and where we pursue growth with Thrifty. But pricing, nothing, not really much differentiation.

Unknown Attendee

And the second question is on the classic brand, to what extent will that, the brand benefit from having the Dollar and Thrifty? And can you actually quantify that? And is that number included in your forecasts?

Mark P. Frissora

Yes. I mean, we are getting, obviously, a big lift from the Hertz brand from the Dollar Thrifty acquisition. This is -- it prevents us from going at lower mid-tier price segments and still get the utilization that we need at the airports. So we haven't maximized that yet, but that will continue to help us pool higher RPD rates with the Hertz brand. In terms of what we did, again I -- on pricing or how we estimate that in our model, it's again very conservative assumptions where we really, generally speaking, don't try to assume any price increases in our models. We try to just assume de minimus numbers when it comes to pricing. But we don't -- we're not giving that out in terms of where we think the pricing is going to be in 3 years. We're not talking about that really, but they're conservative assumptions, we think.

Unknown Attendee

Was it all in your $300 million revenue benefit from the acquisition?

Mark P. Frissora

There's some pricing synergies in that $300 million number, but not very much, yes. Yes?

Brian Arthur Johnson - Barclays Capital, Research Division

Brian Johnson from Barclays. Just a few questions around the aftermarket. First, when you say 70% retail, you do mean retail direct to consumer, you just don't mean off-of-auction channels?

Mark P. Frissora

Yes. Retail, and Scott talked about that, that would be either through Rent2Buy, direct or through retail lots. That's correct.

Brian Arthur Johnson - Barclays Capital, Research Division

And in terms of the incremental contribution, the cost of operating the lots, is that -- is the $1,100 net of that cost or do we have to think about that cost? And if so, how do we think about it in relation to operating profits and so forth?

Scott P. Sider

No, that $1,100 is a net cost. [indiscernible] you need to realize, I think Mark mentioned before, these are relatively small lots, 40 or 50 cars. And in all of our car sales, lots are combined with off-airport rental car locations. So they share all the overhead, which keeps the cost fairly low.

Brian Arthur Johnson - Barclays Capital, Research Division

And does that mean a car available-for-sale was also available for 24/7 rents to reduce the idle inventory, if you will?

Scott P. Sider

We would have 24/7 available at the car sales locations because we also rent cars there, yes.

Brian Arthur Johnson - Barclays Capital, Research Division

Okay. And I guess the final question is, as we kind of think about that, as we think about Donlen taking advantage of that for remarketing, how much of that is built into that 2015 guidance? Or is this just one thing that could further improve that?

Scott P. Sider

That could further improve it. Donlen's cars, they come off a lease. That's a nice mix of cars that we really haven't fully taken into accounts. That's -- I think that's opportunity for us for these lots.

Brian Arthur Johnson - Barclays Capital, Research Division

And could Donlen get from [indiscernible]? Can Donlen get paid if it's in a fleet management versus lease situation for that remarketing value add?

Mark P. Frissora

Yes, we could potentially, absolutely. It could be a revenue opportunity for us. A question back there?

Unknown Attendee

In the slide deck, the improved financial profile, there's the line that says the ability to separate the rental car and HERC business. You were prevented from doing that in 2006, but you're no longer prevented. Is that just a statement around what your -- what restrictions you had in your credit agreement and bond and interest back then versus what you have now? Or is that something you actually are more practically looking at doing?

Elyse Douglas

No, it's added flexibility that we gained as we renegotiated the debt. And obviously, we look at the portfolio all the time to look at ways that we can maximize shareholder value. So it's always an option that we have an opportunity to look at.

Mark P. Frissora

Yes, right here.

Unknown Attendee

Just on HERC, could you give a little more insight into what you think the pricing gains might be over the next 1 to 2 years there?

Mark P. Frissora

That's really, again, prospectively talking about pricing. We can't do that. We're not smart enough to, number one. Number two, it's kind of against the law. So I mean, we -- no, you can't talk prospectively about pricing to investors. That's just a no-no. You shouldn't do that. So in terms of historically and what we see, we think the market right now, as we see it, is good on pricing. As long as you have growth historically, we've seen very good pricing. So pricing is something that when you're in an up cycle, historically, we've always been able to pool. So I think that's the way to answer it is that when we look at history and we think we're in the middle of another up cycle, that you will see positive pricing trends with that increase in demand.

Unknown Attendee

Can I ask a follow-up?

Mark P. Frissora


Unknown Attendee

Just in terms of the overall company, the various assumptions you used on your guidance, if you're too pessimistic on anything, where are you likely you have been too pessimistic on what you've given us?

Mark P. Frissora

I think HERC growth was kind of pessimistic. Yes, it was. And pricing, yes, probably pricing. We're very pessimistic on pricing.

Adam Jonas - Morgan Stanley, Research Division

Mark, Adam Jonas. This is a 5-part question, all right, so you record it. So in your forecast for 2015, you showed the fleet cost, the percentage of sales kind of remaining constant around 25, 26. You don't want to talk about pricing, obviously, but implicit in there is some form of an up cycle. Is it safe to assume that in those forecast that the net between pricing for RAC and your fleet cost, is that net-neutral or net-positive? I'm not asking an order of magnitude, just directionally?

Mark P. Frissora

No. I don't think -- I wouldn't think about it that way. That's not the way we thought about it when we set the numbers up. On our depreciation, the way we calculate that is we assume that the industry is going to -- residuals were weakened, and then we assume what we can offset that by through either a change in mix of our business. And remember, our mix is changing significantly into lower-cost fleet. As we grow Dollar Thrifty faster, their fleet is a lot less expensive than the old Hertz fleet. And as we grow off-airport, that's even lower-priced fleet yet. And so that mix change is helping us to offset residuals going down or suffering. The other thing is we're selling into those more profitable channels. So we did assume based some assumptions on channel shift and mixed shift in keeping those fleet cost flat. But again, we were conservative on pricing. Scott, you want to add to that?

Scott P. Sider

We pretty much made it wash. It's pretty close. They're pretty neutral.

Adam Jonas - Morgan Stanley, Research Division

Okay, that's fair. And this as a follow-up, on Slide 24, Mark, of your opening remarks, when you talked about focusing on key customer preferences, and you mentioned things like speed of return and speed of pickup, I didn't -- I was kind of surprised I didn't see pricing as a key customer preference. I was wondering, I mean, Scott, where does pricing show up amongst what customers care about.

Scott P. Sider

We would've ranked in that list.

Mark P. Frissora

Well, it's value for the money. That's how you ask the question. And typically, when you look at the data and you weight it, you'll get about a 20% waiting for value for money, and that's where it shows up. Having said that, I think that every day, you look at what we pull all-in at Hertz. And today, in the most competitive environment the rental industry has ever seen, we average $54 a day all-in. That's all what we have. So our average rate per day is around $54. Enterprise is at $20-something. I don't know what it is now. Is it $29, $32, depending on the rate.

Scott P. Sider

Right somewhere in the 30s? I mean, at airports, 1 in 4 customers rent from Hertz. I mean, that kind of gives you a perspective. 1 in 4 airport customers rent from east to Hertz brand.

Mark P. Frissora

So my only point is that it's not commoditized. I mean, there are people, even though they can shop Orbitz and Travelocity and AutoRental.com is growing like crazy, and you can do that, we continue to pull a higher price on the differentiation. And we feel like price is an important segment, but with technology, we think we can overcome prices as one of those things you don't need to worry about, right, especially with our customers, the customers who are looking at it at Hertz level. And then we're pretty excited with the Dollar Thrifty brands and making sure that low-cost model there stays low cost and the opportunity again to leverage those brands into new wide spaces. The price is important. There's no question about it. Like any industry, pricing is important, but the transparency today is much greater than it was back in '06 because of the growth of the OTAs, so a very important issue still. Yes, we have a question back here.

Unknown Attendee

On the topic of your woefully underpriced equity, do you think you improve it more by repaying debt or returning cash to shareholders?

Mark P. Frissora

I mean, I think we're going to do both, right? We're going to be very balanced at what we do. So we really look at it pretty thoroughly all the time in terms of what's the best value for creating shareholder value, where all management team has a vested interest and increasing shareholder value maximizing it. So we look at our usages of cash frequently to see what is the best value creator. So I think a balanced approach is the best, and we'll probably continue to use the cash over the next couple of years, but then start returning it over the next 24 months, probably 18- to 24-month period when we look at returning cash to shareholders in some form. Okay? Question here? Fred?

Fred T. Lowrance - Avondale Partners, LLC, Research Division

Along the lines of that last question, just looking at the convertible debt, you guys have come in due next year. It seems with stock valuations where they are and in doing the math on what is taking that convert out with cash rather than settling it in shares, it might be a very accretive and positive thing to do. I know you just recently modestly changed your approach to that convert a month or so ago with the shares you bought back in secondary. Can Elyse maybe -- can you talk about how you think about settling in shares versus just levering up a little bit and taking it out on cash now?

Elyse Douglas

Sure. I mean, we took the opportunity to basically lock in the dilution at the current levels with the buyback on top of the sponsors sale. Clearly, right now, we're indifferent to settling that from a dilution standpoint, but we do know that sometimes, the bonds do trade at below value, given the fact that they're hedge fund owned and there's a cost to carry. So we'll constantly look at the opportunity, and we'll decide whether it's -- what the best mode is to take that out, if we choose to do that.

Mark P. Frissora

Okay. Chris?

Unknown Attendee

How are you thinking about the opportunity in China?

Mark P. Frissora

About the opportunity in China?

Unknown Attendee

And what sort of in -- will it require some sort of capital investment from yourselves?

Mark P. Frissora

We think the opportunity in China is large. We're working, let's say, pretty hard there to figure out what our strategy will be going forward with different partners. And in some of those cases, there may be some cash investment, not huge, but some capital deployed in order to make some of those happen depending on which one becomes available. We're working in a parallel path on a couple right now, and we'd like to be in a position to say that we're -- we have a significant presence in China, and we're working towards that goal. So it may involve some cash, bring in that large investments. Okay, one more question back here.

Unknown Attendee

Can you talk a little bit about what has been driving Europe? But it looks like about doubling of one-way pricing from south to north?

Mark P. Frissora

Scott, you want to answer that? I don't even know if that's true, but go ahead.

Scott P. Sider

Doubling? What's causing the doubling of the pricing?

Unknown Attendee

What appears to be kind of from a low to maybe single-digit to low double-digit to maybe close to $20 looks like?

Mark P. Frissora

Are you talking about rate per day doubling? Or are you talking -- okay, rate per day?

Scott P. Sider

You mean the drive-out program out of Florida?

Unknown Attendee


Scott P. Sider

We price it where we think we need to price it to get -- to move the cars, that's all.

Unknown Attendee

Would that suggest that there's been lower demand, lower fleets? Hot? What?

Scott P. Sider

I wouldn't speculate. I mean, we price that business to move the cars in the direction we want. It's a program we do every year out of Florida, and we price it where we think we need to, to get the cars moved out.

Mark P. Frissora

Okay. Any other questions? Anyone?

All right. So today, what we've done is we prepared a room right across the way here, where we will have a 2-hour opportunity for you to interface with management and talk to us in an informal setting. We also have show-and-tell over there, some pretty exciting technology stuff, some exciting equipment rental opportunities on technology and businesses. So we'd like you all, if you would, to join us right across the way, and we'll be available. Thanks.

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