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Hertz Global Holdings, Inc. (NYSE:HTZ)

November 15, 2011 9:45 am ET

Executives

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

Analysts

Unknown Analyst

Brian Arthur Johnson - Barclays Capital, Research Division

Brian Arthur Johnson - Barclays Capital, Research Division

Okay. I want to continue this. And Mark, if I were a Hertz Gold customer, Mark would probably already be -- red lights would go off with this process control that it was taking too long to get us into the next speaker. So we'll work on that process changeover and maybe Mark will send an improvement team over to help us. But it really is a pleasure to welcome Mark Frissora of Hertz Corporation. I've known Mark since his days at Tenneco where you saw the successor management yesterday.

What makes us -- while we can't currently have a rating out on Hertz, what we find very interesting about the company and exciting are 2 things: one, its growth strategy, not just on the airport, but in a variety of close to the airport discount channels and in off-airport, its Equipment Rental strategy, its fleet strategy. And as well and it's something we've heard it from Sonic, we've heard it from Don here at GM, we heard it yesterday from Jim Farley. Just kind of cultural change based on processes and conscious metrics that Mark's driven across Hertz has been quite impressive.

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

Mark P. Frissora

Okay. Thanks a lot, Brian. Good morning, everyone. Thanks for joining us. We'll dispense with the normal customary cautionary legal notices. Forward-looking statements exhibited here, disclosure on financials in the presentation and then key investment considerations.

We've had, we think, very stable and superior top line growth. We've grown in general over the last 3 years at quite a faster pace than the industry. We have a lot of global building blocks in place in China and India and Brazil, and we're expanding our capability there. We also have had Europe obviously been working the European, North American corporate contract thing for 5 years and feel pretty good about the way we've been able to synergize our efforts globally, making sure that we don't have duplicate overhead costs. For example, we have Oklahoma City nerve center, we have a nerve center in Dublin and in some cases, they're global on their own respective processes and we're starting to get a lot of efficiencies as a result of that.

We think we've got the benchmark when it comes to cost takeout and efficiency. We've been efficient in terms of revenue per employee every single quarter since the fourth quarter of 2006. So even during the recession when revenues were under pressure, we were driving higher revenues per employee.

Our whole management team is paid on EVA and an asset-light strategy, and what that means is that about 40% to 50% of our bonuses of the top 400 managers in the company are tied to our EVA performance. And we have a much stronger balance sheet today than we had 5 years ago, and we'll talk about that in just a minute.

In terms of having a premier global brand, some of the evidences is here on this slide. You can look at the last 12 months Q3 '11 and you see the adjusted pretax for the Worldwide Rent-A-Car business is $810 million and the EBITDA is $948 million. Note -- look at the Equipment Rental business and you can see that the corporate EBITDA is $454 million.

What I want to point out to you is that in 2007 prerecession, Equipment Rental business was approximately $840 million of EBITDA. So we doubled, almost, our pretax on Worldwide Rent-A-Car and replaced all of the EBITDA loss during the down cycle of the Equipment Rental business with Rental Car margins. So our Rent-A-Car margin improvement has been dramatic. We're now at about 11.7% pretax, LTM Q3, and that is much higher than what it was in '06 or '07. So -- and that's all been driven by both efficiency as well as growth programs, which I'll talk about in a few minutes.

But you can see that the company has really transformed itself, and all we have is upside now in Equipment Rental. It's coming out of the cycle 3 quarters in a row of double-digit growth in Equipment Rental, coming out of the cycle now. And as we get back to an $850 million EBITDA Equipment Rental business, again, that allows you shareholders to participate in what we think is a lot of value creation because they've been taking out costs just as religiously as the Rent-A-Car side and that will be higher margin business than it was in '07.

Looking at our revenue sources. We've tried to convince investors that we are extremely stable in terms of our revenue base even in spite of, let's say, weak economies around the world. We have so many different types of revenue base, this makes us more stable whether it's Europe Rent-A-Car, which is totally different than U.S. Off-airport, which is totally different than U.S. Airport, which is totally different than Worldwide Hertz. So a lot of different rhythms to our business, which gives us more stability in revenues.

Switching gears here to Worldwide Rent-A-Car. We just did this study. It's done by an independent firm. It's done in the second quarter of '11, and we have a lot of people claiming a lot of things about brands. And I will just tell you that out of the 65 global travel magazines that give who is the best rated brand and who is the best service provider, we won 62 of those awards in the last 12 months as the best brand that travelers pick, right?

This is a survey we do on asking the question when -- which rental car company do you prefer, and on business airport renters it's 37% of the time, leisure airport renters is 26% of the time over competitors. This is consistent over time. We expect to continue to grow this as we launch new technology that enable business travelers as well as consumer leisure travelers to get the best possible service in the industry.

We've just, again, showing prerecession revenue and profits in Rent-A-Car. Look at 2006, you can see that in Worldwide Rent-A-Car, revenue was $6.3 billion; last 12 months through '11, $6.9 billion. So we're already back over prerecession revenues. If you look at adjusted pretax margins in '06, we were at 7.4% and as you saw in the previous slide, we're now at 11.7%. Lots of drivers. We were just as aggressive on driving revenue as we are cost [indiscernible] the business. This is not a cost story. It's a revenue and cost story, which I'll demonstrate hopefully in a few slides.

U.S. Rent-A-Car off-airport growth, as you see, is a big market controlled by one player pretty much over the last 20 years. We've been making a lot of investments in this over the last 5 years, and we're getting very, very high profitable growth. It's now turned the corner on profitability. It actually turned the corner about a year ago and now it's accelerating. Very high RONA business, return on net asset business, for us.

You can see the number of locations that we have here, 2,100 from 1,300 in '06. You can see that same-store revenue growth is 13.2% in 2010. That will continue to accelerate based on shared gains we continue to garner every single month. In the third quarter, I think our replacement business was up almost 20% or up over 20%, the replacement piece of off-airport.

We look at brand initiatives and looking at Advantage specifically and buying that brand in 2009, you can see that we've grown the revenues significantly at $198 million last 12 months Q3 '11, and the number of locations has gone from 4 that we bought out of bankruptcy to 75.

In terms of emerging markets, we just take a look at everything in emerging markets, which in 2007 was $765 million. And we could translate that to where we were LTM Q3, we're up 26%. A little bit higher growth rates than what we were getting from our core businesses in the west.

Some of our cost programs have been driven by much better buying, but we've also been able to sell cars in a much more efficient way as well as a more profitable set of channels. All of this gives us a 19% improvement in depreciation costs in 2011, 2-year improvement of 21% versus Q3 '09.

Big question by a lot of investors is, is this sustainable? And the answer is yes. And we're very excited about the fact that it is sustainable. The tsunami was the primary second quarter phenomenon, but tight off-lease used-vehicle supply is a 3-plus year phenomenon. We're doing a lot of things to drive improvement in fleet cost, and these things are listed -- I'm going to go ahead and demonstrate a couple of slides for you to show you the evidence that suggests that this is a real, sustainable phenomenon.

When you look at the off-lease volumes that feed the used car market, they continue to go down. And you'll notice that between '11 and '12, they go down the most. They're going to go down a lot faster than what they did in '11. So this is going to drive, if you will, a continued strong residual market, we believe, in 2013. And even in '15, if you look at '15, it's still significantly below '10, 13% below '11 and also below '10 levels. So again, this is very helpful for us in terms of residual value markets going forward. OEMs continue to have good pricing discipline, and that also keeps used car prices high.

We are doing a number of things this year to improve, if you will, the mix as well as drive of better growth. Again the question is, is this sustainable? 50% of the source of depreciation savings were driven by things that we did, whether it was procurement and fleet rotation or higher sales channels, higher return sales channels. The market and the tsunami were 2 other factors. The market driven primarily by, again, off-lease vehicles.

So everything will return for us next year except for the tsunami. That's about a $40 million headwind for us as a company, but we've already come up with enough savings to offset that in the fleet area. So we feel very confident that our fleet cost will only go up. We've forecasted somewhere between 2% to 3.5%, which is like a normal inflationary number. That's what we've given as fleet cost overall net depreciation per vehicle go up. Our goal is to keep it flat of course, but we've told investors that next year, the way we see the world, it would go up no more than 2% to 3.5%.

In terms of our remarketing strategy, there's been a 10% shift wholesale to retail and that reduced our depreciation expense $12 million. Growing -- we are growing into higher return resale channels like retail. Rent2Buy, what we call R2B, is growing exponentially. It will be 15% of our total car sales this year. That's an online channel. You go online to the website and it's pretty much a virtual model. We redeem it at existing airport locations for the most part. We do have some retail locations, about 8 or 10 in California.

But as we shift into selling more cars directly ourselves, the margin on all those are much higher. You can see we make $1,100 more a car on retail than we do at auction. We make $500 more a car on Dealer Direct. So we've made some pretty big channel shifts but there's still a lot more to go. So there's a lot more room, if you will, to change that mix to 100% online -- either online, auction and/or Dealer Direct and/or Rent2Buy.

Just switching gears for a minute to Donlen. Again, this is a leasing company. Probably one of the highest end leasing companies in the United States. They participate in Canada a little bit, Mexico. They have some European partnerships as well. $350 million revenue company growing significantly, and we are now able to go to corporations, which is our strength. We have probably about 46% share of the Fortune 500 companies and go to those corporations and offer them a leasing product.

And our leasing solutions will be much more economical than the ones out there. We feel very good that there have been 3 new products already developed internally. We'll be launching those new products next year. It's a combination of a rental product and a leasing product new to the industry. We think these products will be revolutionary and will drive significant revenue growth over the next 2 years with us.

So lots of revenue synergies, and certainly the cost synergies are significant. I've identified those between $10 million and $20 million, and they're at least that number because of our efficiency and the way we process licenses, process cars. We did that, obviously, a little bit more efficiently than Donlen does, and we can buy cars oftentimes more efficiently with a different type of financing than they can. So our financing is much more levered and much easier, if you will, than their business model was before they became part of Hertz. So I'm pretty excited about this. I think you're going to see a lot of excitement being announced next year. So this is something we've got no credit for from investors, and people really have not seen anything from us yet, but you'll see a lot next year on this.

Worldwide Equipment Rental. Again, looking at the overall industry 2010 market share, you can see how we stacked up. We're one of the top players. The top 10 rental companies make up only 35% of a very fragmented industry. Our recovery is clearly underway. You can see that on quarterly volume trends. We're significantly higher year-over-year. Employee productivity continues to go up, whether it's using refreshed fleets, Lean/Six Sigma. We still have a lot of fleet that has not been delivered. We got quite a bit in the third quarter, but in the fourth quarter, we probably have another over $100 million more fleet being delivered, which will help grow our revenues.

We have a lot of growth initiatives. We've been buying small acquisitions. We've acquired some things that are specifically Delta Oil & Rigging down in the Gulf Coast, and we bought another company up in Montana to take advantage of the oil sands exploration as well as other projects going on up there. So all of our acquisitions are strategic. They're all to get us away from nonres construction and more into what we call oil exploration, as well as what we would call the industrial segment, the broad industrial segment. So those acquisitions have been going on for a couple of years now and they're accelerating and should percolate maybe 3% of our total revenue growth will start coming from those acquisitions every year. So we've come -- pretty much developed a business development department within Hertz now that is very good at identifying these candidates and then bringing them home. These are smaller companies that trade at sometimes just 2x, 3x EBITDA.

Just switching gears now to cost management. Our continuous improvement programs have been recognized, I think, in the industry as being excellent. You can see our cumulative cost savings of $2 billion is the estimate right now for 2011. And you might say, "Okay, that's great. How do you count that?" It's real money, traced down to the general ledger. It doesn't take into account every time we reduce fleet because of revenues or every time I reduce headcount because revenues are going down. Doesn't count any of those savings. It only counts real productivity savings, real dollars, hard cost savings. No soft savings are in this. Real money, $2 billion out of a $7 billion cost base. So it's been continuous, and it's part of a cultural transformation that has now -- it's pretty much firmly seated in our company that we -- every year we need to take out hundreds of millions of dollars of cost to get even and try to put what I would call the automotive supplier mentality into a rental car company.

And if you look at the evidence of that, I think in '07 you can see that 28% of every incremental dollar of pretax went to -- every incremental revenue dollar went to pretax and this year, we expect at least 48% flow-through. So for those of you -- those that understand flow-through and understand this is a huge deal for us. And it's a huge deal for investors as well to see that kind of productivity out of a company in the rental industry, which is very competitive.

Our strategy overall is an asset-light technology driven growth strategy, and these are all very distinct sets of people and teams that are driving this asset-light technology-driven strategy. I don't have time to go through all these with you, but certainly I'll just talk about one of them, the virtual kiosk. This is where you get an actual person on a live screen whose in Oklahoma City or in Dublin, and when you pick up the phone, they come on, you identify yourself and they are able to immediately pull up your records and tell you where your car is, what slot it's in, and they can drop an RFID card at the bottom of the actual unit, self-service unit. That RFID card has been activated by them remotely. They are able then -- you could take that card, go to the car and the door locks pop open and you drive away. It's a complete virtual experience.

We're doing it in 10 airports right now, real live virtual Rent-A-Car experience. It's in Paris-de Gaulle right now if you want to go there. So we are on the move on this. This is also a great productivity tool. I don't need an off-airport location where I can drop a kiosk with 10 cars into an auto dealership or into a collision repair center. I don't have to have a store within a store. All I need is my little kiosk here and then put those cars there, stage them, 5, 10 cars whatever. And so it's really a productivity enhancer in a lot of ways.

Better yet, it's a high customer-satisfaction driver. We dropped these in the top 50 airports, and we're getting higher consumer satisfaction with this than our counter people. Why? Because there's no distraction. When you're talking to this person online, there's nothing distracting them. Whereas on the counters, we're finding there's a lot of distractions. So we've done some consumer research on this and these kiosks -- again, we're selling actually more services on the kiosk than we are at the counter. So I'm getting more ancillary revenues on the kiosk than I'm getting on the counter.

So again, great investment, 3 patents pending, worked with 4 different vendors on it. It's a great technology. We'll probably at least a 2-year head start against any competition. I'm sure our competitors, like they always do, will copy this very rapidly once they hear how successful it is, which they're starting to do. We already know that they are starting to copy it now. But we got about at least 2 years head start.

Asset-light franchise opportunity. We have a very distinct franchising strategy in the company. We've shown investors that we expect we'll get an additional $600 million revenues of corporate that will go to franchise. That will drive at least, let's say, $100 million EVA improvement. You get about $35 million to $40 million of that from reducing the capital. You have no fleet invested. You have essentially no facilities invested. And then it adds income because the franchise fees are 8% to 10%, and we're getting those fees upfront as soon as we sell the location as well. So again this is a very positive EVA story, and we'll continue to be more aggressive than the numbers you see here. But we have lots of negotiations going on, and I think you'll see a significant installment against this strategy being played out in 2012.

Balance sheet is not even the same balance sheet it was in '06 or '07. So today, Hertz sits here with a much stronger balance sheet, much more secure. We don't -- we have staggered maturities, higher advance rates and generally speaking, lower interest rates than we had in 2006, 2007. And the maturities -- we also don't have any debt covenants that apply to debt-to-EBITDA ratios, any coverage ratios, so the covenants are gone too. So -- and we're not tied to bankrupt OEMs. So again, this is a balance sheet that stacks up probably twice as strong as the one we had in '06, '07. And of course in '07, the stock was $27.55 for any of those of you tracking it and today it stands at $11 and change. So it's a big opportunity because the balance sheet's stronger, the growth is stronger, the margins are higher. And I promise you, next year we will not fall down, so unless something -- some worldwide crisis happens again. So we feel pretty good that our growth will continue through 2012 in both earnings and revenues.

This just demonstrates the near-term debt maturities. Nothing significant other than the fleet debt, which we feel good about in 2013, coming due, and it's not significant. But there is some coming due just on the fleet side.

So how does this all stack up? If you look at our economic model, this is a model that we presented to investors. Actually, it was over a year ago, about 1.25 years ago. We presented this model this year and all I can tell you is those 3-year goals that you see there, they look pretty strong. We actually increased them after this year. We increased these goals. All these numbers on the right, the 3-year goals, are stronger than they were the first year we showed it at our Investor Day and we feel very confident we'll hit these numbers. These numbers are conservative. So again, as investors look at the company, if they believe the numbers, then you can see the upside the company has.

All right. These are the non-GAAP measures and terms. And now I'll open up for Q&A. Any questions?

Question-and-Answer Session

Unknown Analyst

Can you give any kind of an estimate as to what you think the kiosk might do over a 3-year or a 5-year period?

Mark P. Frissora

No, we've not put those into any of the numbers and I don't -- I mean, in terms of these kiosks, the biggest -- there are 2 things that I think we'll get a lot of benefit. One is off-airport expansion. We'll be able to expand much more rapidly into locations. The second one is really built around driving ancillary revenues. We were -- actually, it's a pleasant surprise that the credibility of a very well-trained customer service agent on a line, we're getting 20% higher NeverLost penetration, fuel purchase option, insurance. All those things that drop a big piece of our bottom line to us. So that's very important. And then there's the issue of, I don't know if you know this, but in every major airport, I'll say the top 30 airports today, every one of them during 4 different times during the day, Hertz gets -- because we have the highest share on airport, we get a lot of people in line. And that line can be half hour, 1 hour. We're getting those lines so they're getting down to nothing where we can. But the kiosk gives us a way to get the line down to nothing. By basing these kiosks -- and they only cost about $8,000 each. By putting these kiosks in banks, we expect to have the highest customer satisfaction scores very quickly, and we're rolling out significant sets of banks of these in the top 50 airports. And the top 50 airports represents about, I'll say, roughly 70% of our revenues, okay? So we see a big customer satisfaction boost as a result of the kiosk. And I want to say one more thing on customer satisfaction. We launched a program this year and it's now in the top 10 airports where it's called Gold Choice. And if you're a Gold traveler, you can get off your bus and they drop you off in front of the car and you drive away. The car is ready, it's got your name in it and you're ready to go. Your name is in lights on the boards. We just now we're offering at -- right now, 10 major airports, we are offering Gold Choice, which allows you to get off the bus and decide whether or not you want that car. And if you don't, there's an island of cars that are other cars that either at a premium upgrade if you want, some of them are premium, some of them are exactly the same price, it's about half and half. You can get in that car and go right to the exit gate, not talk to anyone at the counter, no customer service. People just get in the car and drive away just like National does it. So you have the best of both worlds, Gold service from Hertz, the original Gold service, or pick any car in the aisle if you want, either one. We're the only rental car company to offer that, and it will be rolled out in all airports next year and it's already in 10. So we think we've got something that's better than anyone else has in addition to the virtual kiosk. So again, we're very focused on improving customer satisfaction with technology. And technology enables us to do what we can do on this Gold Choice because there's an RFID code that we put into the car. So when the car goes to the gate it's wand-ed, right, by the gate agent. So there's no paperwork. It's just wand-ed, okay? So it's a pretty cool, slick set of technologies and customer enhancers that we'll be rolling out next year and are already being rolled out right now. We're getting wow factors in Atlanta. If you want to go to Atlanta, they've got Gold Choice. Fly to Atlanta, take Gold Choice and tell me what you think about it. Other questions?

Brian Arthur Johnson - Barclays Capital, Research Division

Mark, since you have operations in both U.S. and Europe, could you maybe comment on the state of the consumer and business traveler in both markets in terms of, A, just volume levels as we go through the year, recognizing fourth quarters are normally lower volume quarters? In particular, given those volume trends and just given competitive behavior, where pricing is shaping up for the quarter.

Mark P. Frissora

Fourth quarter in the U.S. Rent-A-Car space, pricing is getting better than it was. In general, fleets are tighter for the industry. Volume trends were, I think, spot-on kind of where we thought they'd be. Things were a little soft in October because of the holidays. You had a Jewish holiday shift and you had Halloween shift. And the way those things shift, they hurt the rental volume in October. Having said that, October -- I'm sorry, November is shaping up very nicely, had a good weekend, advanced reservations for Thanksgiving as well as for the holidays at the end of the year. Both of those time periods are double-digit advanced reservation growth. So we feel pretty good about that. In Europe, just to contrast that a little bit, Europe Rent-A-Car volume and pricing has not been shaping up. Volume has gotten a little bit softer. It's not down -- volume is not down year-over-year. It's still up, but it has definitely gotten softer the last 60 days, every single week. We're hopeful it's bottomed out. Pricing is good in business. We're up a couple points on pricing in the business segments, and business segment itself is holding up on volume pretty well. It's the leisure segment year-over-year that has the biggest decline, and it's primarily in France and Germany. Both those countries have taken a hit with the consumer, and the consumers are reeling in a little bit. We don't think -- I don't want to be an alarmist on this. It's just it's been a little bit of softness. Europe only contributes 20% roughly to us, and we've more than covered it with other cost reduction programs and feel confident that what this allows us to have is upside next year. It'll be an easy comp as we get into next year. Europe was growing before the recession about 12%. U.S. was growing 6%. So the point is it's a much better travel dynamic there for the rental car business in Europe. Once Europe gets its sovereign debt crisis kind of solved and there's some kind of a base of stability, we think there's a lot of upside in Europe's volume levels. Volume levels in the second quarter, we were seeing 15% in some countries, 20% in some countries just before this sovereign debt crisis really hit critical mass. And then that all dropped back to single digit after this thing became widespread and known within -- and the taxation occurred in the U.K. as you know. That hurt volume there as well.

Brian Arthur Johnson - Barclays Capital, Research Division

A couple more European questions. What's your business-leisure mix in Europe?

Mark P. Frissora

About 50-50.

Brian Arthur Johnson - Barclays Capital, Research Division

Okay. And 2, is Donlen active in Europe now? And given the preference of corporate fleet cars, do you see an opportunity for fleet management in Europe?

Mark P. Frissora

No. I mean, I think there could be some opportunities, but right now the immediate opportunity is for us in the U.S. There's a midrange market that very, very right market for us, midrange businesses, what I would call fleets of 1,000 cars, 2,000 cars that is ripe for our taking. And so we feel really good that U.S. worked that mine first. We're sending people over to Europe. We'll look at Europe. We actually have a lot of customers that are leasing customers in Europe where we do the maintenance and the service on their vehicles. So we don't want to compete with them. But there are other markets within Europe that do leasing that we would not compete with those existing customers in. There is a question over here I think.

Unknown Analyst

Yes. I have a question. Could you give us a little update on the Hertz Connect program?

Mark P. Frissora

Say it again.

Unknown Analyst

Hertz Connect program. How is that...

Mark P. Frissora

It's called Hertz On Demand now. We renamed it from Hertz Connect to Hertz On Demand, and program's going great. It's growing about 30% a month. We -- Hertz On Demand, that car sharing program is primarily in New York City now. We just launched in Cambridge as we just launched in Boston, San Francisco and in Chicago and Washington, D.C. The only thing preventing our growth there is waiting for technology. In January, we are going to populate all of our cars with a new version of our car sharing technology, and that new Zibox that goes in the car will set a new standard for an enhanced customer experience. And so we haven't added to the fleet very much even though we have a lot more demand than we can handle. I mean, we have a lot more demand in New York City than we can handle right now. We're the only ones that offer one-way rentals. You can go one way to the airport for $12. It's a heck of a deal, or you can go round trip if you want. They'll hold the car for you when you fly back for $29, total trip, round trip. So we actually have more demand than we can handle right now. So we're taking care of existing customers. So we are continuing to invest in this big time, and we think it's a great service offering to deal with the car sharing segment, but we think it's bigger than just car sharing, right? We think that all consumers and 100% of our whole fleet should have this technology in it over time. So if you want to have the fleet of Hertz, which is, right now we have 360,000 cars in the U.S. and all that fleet will have that technology in it. So anytime you want to come into any airport or any off-airport location, you will have the capability to have a car sharing experience. And once that gets done, which will be over the next 18 months, a lot of the car sharing companies that are well known right now I think will have a difficult time matching that value proposition. So we're feeling really good that our investment will continue to pay off. It just takes time, as you know, to convert an entire fleet to that. And we want to make sure we put the latest technology in it and that's coming. We'll have that ready, and we'll have a pipeline of that technology in January, February, it will start populating our fleet. I had a question over here I thought. No? Maybe it was answered. Okay.

Brian Arthur Johnson - Barclays Capital, Research Division

We've had both Jim Farley and Don Johnson in here talking about the improved price discipline at both of the big 2 players, and a low reliance on daily rental fleet sales. Can you comment from that and just also the overall market, which of course includes the transplants and the Koreans, in terms of how you're doing your fleet buying, what pricing you're seeing and how that affects the optimism you have on depreciation going forward?

Mark P. Frissora

Yes. So on the acquisition side of the fleet, definitely the OEMs this year were tougher negotiators and trying to downsize the amount of fleet they're dealing to rental car companies. We typically don't have a problem with that because we're preferred because of our brand, right? They notice that our brand actually -- the cars that we sell usually are a little higher priced at auction. We buy our cars fully equipped, which is the way they like to sell them. They don't like to sell them stripped down. One of our competitors, a big one, buys them really stripped down. They don't like to put leather seats and special wheels or anything else on them. We do. We buy the cars fully equipped. So they typically give us better deals. We buy a much richer mix. And so when you look at the year-over-year pricing, we're not looking at a strip down model. We're looking at models that are typically well equipped. And so our pricing is about flat year-over-year when we look at the acquisition price. We ended up being flat on our mix, with our mix, as well as with our overall net depreciation as it relates to the acquisition costs. So we think we're going to be pretty close to flat. The other piece then that goes in the net depreciation would be the car sale piece, the residual values. And again, we feel good about that and overcoming that tsunami issue. So there has been though -- I know I've heard people in the industry say they couldn't get enough cars or if they got them, they were at a much higher price. We really honest to God do not experience that. We had to fight to get what we got. So it was not easy to get the price we did, but we played one off against the other and worked with them on other incentives and ways to get there and net-net, we came out pretty good this year, okay? Yes?

Unknown Analyst

Could you give us an update for the strategy in Brazil and the other emerging markets?

Mark P. Frissora

Sure. Right now Brazil is growing at a 25% growth rate. It's growing at a 25% growth rate from our corporate locations. We have a licensee strategy as well as a corporate greenfield approach. So we're looking at any cooperation we can develop with existing partners there. So we've had lots of discussions with other partners. Unfortunately, in Brazil, there are some laws that deal with rental car companies on franchising. And those laws prevent you from doing business sometimes with other rental car companies. They get in the way. It's very unusual. It's very stringent laws, and it's difficult to sometimes joint venture. Having said that, we're committed to growing in Brazil both on the Equipment Rental side. We're looking at acquisitions, as well as the Rent-A-Car side where we're looking at smaller acquisitions and more aggressive greenfield strategy where we open up more new locations. So we've grown there dramatically with existing locations, and we want to take advantage of that market. I would say that Brazil and China and -- so this order, Brazil, China, India is our investment strategy, in that order, highest to least. So we'll continue to invest in China aggressively. But Brazil is where we're really trying to throw some real weight. It's a big area of emphasis for the company right now. So too soon to talk about because I got a lot of irons in the fire. But hopefully, we'll announce some things, like, I'll tell you that we're going to have another 20 stores or 30 stores or we'll have a joint venture. But we're working hard there. It's a good country to invest in, very much like the American consumer and the market is very immature there in rental. Localiza has done a great job and there -- and the stock story there is outstanding, Localiza. And they've done a great job because they're really one of the few people that have a very good standardized set of processes that are integrated in both car sales and acquisitions. And they run a good business model. So we think Hertz could do the same. I think there's room for another competitor. It's a very fragmented market. A lot of mom-and-pop, a lot of leasing 2 and 3 car fleets, et cetera. So big opportunity in Brazil. Other questions?

Okay. I'm on time, I guess, right? Or is there another...

Brian Arthur Johnson - Barclays Capital, Research Division

Yes, your gold standards. If there's [indiscernible] quick question, people can grab you because we have about a 5 minute break now.

Mark P. Frissora

Okay. Thank you, everyone.

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Source: Hertz Global Holdings, Inc. Presents at Barclays 2011 Global Automotive Conference, Nov-15-2011 09:45 AM
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