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Executives

Neal Goldner

Ronald L. Nelson - Chairman, Chief Executive Officer, President, Chief Operating Officer and Chairman of Executive Committee

Larry De Shon - President of EMEA

Patric T. Siniscalchi - President of Latin America/Australasia

Thomas M. Gartland - President of North America

W. Scott Deaver - Executive Vice President of Strategy and Pricing

David B. Wyshner - Global Chief Financial Officer and Senior Executive Vice President

Analysts

Afua Ahwoi - Goldman Sachs Group Inc., Research Division

Christopher Agnew - MKM Partners LLC, Research Division

Brian Arthur Johnson - Barclays Capital, Research Division

Emmanuel Rosner - Barclays Capital, Research Division

Emily E. Shanks - Barclays Capital, Research Division

Stephen O'Hara - Sidoti & Company, LLC

Michael Millman - Millman Research Associates

James Irwin

Avis Budget Group, Inc. (CAR) 2012 Investor Day May 8, 2012 9:00 AM ET

Neal Goldner

Good morning, everyone. My name is Neal Goldner, Vice President of Investor Relations. It is my pleasure to welcome you to the 2012 Avis Budget Group Investor Day. I see an awful lot of familiar faces out there, as well as some new ones, and I know you're anxious to hear what the speakers have to say. But before we begin, I need to remind you that each of the speakers will be making forward-looking statements which are based on the current economic environment and are inherently subject to uncertainties beyond management's control.

Now with that behind me, we have a busy day planned today. Starting with our Chairman and CEO, Ron Nelson; following Ron, Larry De Shon, President of Europe, Middle East and Africa will come up; and then Pat Siniscalchi, President of Latin America and Asia Pacific. Following Q&A, Tom Gartland, President of North America; and Scott Deaver, EVP of Strategy, will present following by a second Q&A. After that, David Wyshner, Senior Executive Vice President and CFO, will come up.

Now before I welcome Ron to the podium, I do have 2 small housekeeping items. First, the restrooms can be accessed through the back of the room, make a quick left and another left. And second, we'd really appreciate it if you put your phones on mute or on vibrate. And with that, it's my pleasure to introduce Ron Nelson.

Ronald L. Nelson

Okay, can everybody hear me? I'm having a little hard time hearing Neal. So let me add my note of thanks to all of you for coming out this morning. While this is the 2012 Investor Day meeting, it is also the first Investor Day meeting that we've had. So I hope that we do it well, and I hope you'll walk away satisfied and hope that it engenders a lot of good questions and even more importantly, I hope it engenders some activity in our stock.

So with that, where do we start? Well, seems to me like this is probably a pretty logical place to start. Why are we here? More than a couple of you have asked us this question. Why are we doing this? Why this year? Why this quarter? We haven't really done this in the past, and arguably, there are probably times that were more deserving of the large-scale meeting than today. Now for those of you who are maybe anticipating an announcement of sorts, I hate to disappoint you, but today, we're going to talk about business as usual.

But before you all get up and leave, you should know that we think business as usual is pretty darn compelling, and we'd like you to hear it from the guys who day in and day out make it happen. And those guys plan to peel back the onion of their respective businesses, so to speak, showing you why the business is so compelling in ways that we probably haven't done in the past.

There's another reason for doing this and maybe it's a little more on the childish side, and that is that there are times when I feel like this guy, take a look.

[Presentation]

So why do I feel that way? Well, here's a quick summary. When you weigh all the facts, it's clear that for some reason, our performance is not getting the respect, otherwise known as valuation, that our board, our senior leadership team and even many of the analysts and shareholders in this room today think we deserve. Why do I say this? Well, let's play a quick game of then and now. To start with, although our organic revenue growth is not yet taken us back to prerecession levels, it is up more than 10% from the trough of 2009. Now that alone may not be impressive by itself, but what is, is that our profit has improved by more than 50% since 2006; our margins have expanded by more than 300 basis points; our pretax income has almost doubled; and along the way, we reduced our leverage by 20%. Now I think these results are pretty respectable. In fact, I think a lot of companies probably wouldn't mind being able to show these charts. After all, this just hasn't been any old 5-year period.

First of all, in the middle of this 5-year period, there was an 18-month global recession declared to be the worst since the Great Depression, followed by one of, if not the, slowest recovery periods ever recorded. Our country was at war on 2 fronts, contributing to public fears and tension that served to limit growth in international travel. And then just for a little added flavor, the automobile industry went through a fairly substantial upheaval.

Now remember for us, this wasn't only about their economic viability and survival. This period marked the paradigm shift in rental car fleet management, as most all of the industry competitors were forced to move away from the predominant fleet structures that had been in place for years, reliance on 1 or 2 manufacturers, 90-plus-percent program cars. Pretty much overnight, everybody had to figure out how to deal with risk car sales strategies, along with fleet purchasing and management strategies that contemplated how to balance risk and program cars.

So given the global economic climate over the past 5 years, grappling with all these challenges, we still delivered strong earnings growth. And yet -- well, that's a big aside [ph] . So having satisfied my childhood tendencies by blaming someone else, let me just say it's a little too convenient to blame Rodney or to use Rodney as an apologist for our stock price. I learned a long time ago that when something doesn't seem right and you can't figure out why it is, it's probably good time to look in the mirror, that generally provides the best reflection of the truth. And that's exactly what we did with your help in January, we undertook a broad-ranging survey, survey of investors and analysts, shareholders and non-shareholders, to understand better what we could do to improve the profile of our company in the marketplace. I'm not sure I was too terribly surprised by the results, but more importantly, I was not at all confused by what the game plan needed to be.

So to be very clear on this, you've told us loudly what you expect. First, you want transparency. A generous view of our survey results would have graded us a C or a C+ on this area. It was clear you expected greater transparency, not only in how we record our results but in how we're driving them, and more importantly, what they mean for the future. In short, we have to better communicate our business model, our strategic growth plan and our expectations.

I suspect that most managements overlook the fact that you don't spend all day thinking about them. You have literally hundreds of companies competing for mind share among your analysts and TMs, not to mention competing for your capital allocation. This is why we have changed our guidance policy and provided a straight full year expectations just last week. It's also why we're having an Investor Day.

Second, you want better access to senior management. Now it is hard to imagine that David, Neal and I don't satisfy that need, but in our defense and it's probably a fairly limp one, the Dollar-Thrifty endeavor did keep us out of the IR circuit for way too long. But access needs to go beyond the 3 of us, which is why today's presenters include our 3 regional presidents, along with our Chief Financial Officer and our Chief Strategy Officer. And also in attendance, I know that many of you had an opportunity to meet them, is the rest of our senior leadership team, along with our key functional department heads who I encourage you to speak with during the breaks and lunch.

And then finally, you expect to see a track record of sustained revenue and earnings growth, as well as a plan for driving continued profitable growth. Hopefully, the last 3 years has delivered on this requirement and we're hopeful that you leave here today with greater confidence in our ability to deliver on this expectation.

So with that, let me give you a brief summary of our plan for growth and why we believe Avis Budget is an attractive investment opportunity. Just before I do that, I'd like to emphasize what I said a moment ago. We are painfully aware that there are competing alternatives for your capital, so our goal today is to convey to you that we do have a strategy, we are going to trying and communicate it simply and clearly, so that all of you have the facts and information needed to facilitate your investment decisions.

So there are 4 pillars that define our strategic growth plan. First, accelerating organic revenue growth in the most profitable channels; second, geographic expansion and strategically important markets and channels; third, greater understanding and delivery of the customer value proposition as a means to drive loyalty; and finally, rigorously controlling our costs and enhancing the efficiency of our operation on a continuous improvement basis. You'll hear from each of the regional presidents today about the opportunities that form the basis for these 4 pillars in their regions.

Now these pillars quite simply define what's behind the full year revenue and earnings guidance that we recently initiated. At the risk of disappointing you, though, our strategy is not new. It's the same strategy we laid out 15 months ago, the one that helped accelerate our profit growth in 2011 and the one we expect to be able to continue to grow globally for many years to come. As you'll hear today, we've refined the strategy a little bit as we've discovered even more ways to accelerate our profitable growth.

So let's put some context around each one of these pillars. The various initiatives that underlie each of the 4 pillars can be viewed in 3 categories. The first is investment for growth and profit. These are initiatives that can be executed quickly and at relatively low-cost, but they represent more of a change in emphasis than an entirely new direction. These initiatives include our efforts to grow our small business customer base, to substantially and sustainably improve the profitability of our airport business and to capture a higher proportion of high-margin cross-border travel. These are among our most profitable segments, and so this is where we focused our energy and resources.

These tactical efforts actually provide the funding for the next level of growth, which we describe as evolutionary value enhancement. In this category, we have our price yield technology, customer relationship management systems and our new loyalty program. Each of these takes more time and resources to execute, but can be transformational in terms of achieving our strategic objectives.

And then our third category is sustainable growth initiatives. These include our Performance Excellence process improvement initiative and our virtual rental initiative.

The speakers you're going to hear from today will be providing the color and detail on these specific initiatives. What I want to underscore, however, is that we don't want to be all things to all people. We believe we understand well which segments of our industry offer the best returns; our plans are designed to capitalize on all the profitable growth opportunities that exist in those segments; and for the foreseeable future, we think there's ample opportunity without straying from the basic business.

So in terms of accelerating growth, let's think about the longer-term economic context in which we're executing our growth plans. As consumers in developing countries gain more affluence, think China, and the developed economies of the world eventually move out of the current economic malaise, one constant is that economic prosperity breeds travel. More and more countries are embracing travel and tourism as a critically important revenue source, and so places that actually may have seemed off limits or untenable as travel destinations in the past, think of the Balkan states or the former Soviet Republics, these governments are now investing in tourism and providing travelers with more options and more experiences.

Business travel remains a requirement for business success. Technology has still not replaced the value of face-to-face meetings. So while we expect the growth in leisure travel to continue to outpace business travel growth, both will contribute to the overall industry growth. So as the global economy continues its slow improvement, we're very bullish on the industry's prospects and even more so on our own.

So back to Earth. For this year, we expect revenue will substantially exceed our prerecession levels, and that we will deliver significant adjusted EBITDA growth on a year-over-year basis in 2012.

So let's take a look at some of the other pillars of the plan. Expanding our global footprint. We are uniquely positioned within our industry as the only company today that operates both a premium and value brand on a truly global basis. We've achieved great success in our legacy regions by providing our customers with a dual brand solution that can be tailored to each person's and organization's need. Now we have the opportunity to do this on a global basis and at the same time, expand our footprint around the world. While we currently operate from that unique positioning, we do expect that there will be -- and we will have multi-branded global competition within the near future. We fully expect the industry consolidation and expansion to continue beyond the U.S. borders, and so this element of our growth strategy has a greater sense of urgency to it to take advantage of the competitive position that we now enjoy.

Our business is diversified and well-balanced in terms of our brands, our segments, our operations and our geographical footprint. We operate Avis and Budget in North America, Australia, New Zealand, each of the major European countries, primarily through corporate-owned locations. Our operations in India and China are run via joint ventures. And in the rest of the world, notably Latin America, Africa the Middle East, Avis and Budget are operated by a network of licensees which generate over $130 million of very high-margin revenue.

Our global expansion plan is focused on the fast-growing regions, such as India and China, as well as establishing a greater presence for our brands in both the established and developing countries in Africa, Middle East and Asia. For example, in Taiwan, where we actually recently sold an Avis license for the first time.

Key to our ability to generate growth through global expansion obviously stems from our acquisition of Avis Europe last year. We now control the brand proposition on a global basis, which provides a number of opportunities. One, it gives us the opportunity to ensure brand consistency. Travelers value brand consistency higher than almost anything else. And if one considers the impact of social media today, you don't need too big of an imagination to understand how important it is to control the presentation of your brand on a global basis. Two, it enables us to pursue opportunities for brand growth, such as Budget in Europe, where we had a share in the market that's approximately 800 basis points behind the lowest underdeveloped territory in which we operate Budget. Three, it allows us to pursue cross-border traffic with alignment around a single P&L and avoid the challenges of mixed priorities. And fourth, it allows us to be a single-source provider for multinational accounts that want to do procurement on a global basis. All of these are enhanced by a single point of control over the brand proposition.

It's only because of our acquisition that we can now benefit from the leadership presence established for Avis in places like India and China by our former licensee, Avis Europe. You're going to hear today from Pat Siniscalchi about the opportunities both these markets represent in our long-term planning.

Some of the synergies are here now in Europe, but you're going to hear from Larry De Shon that more -- many more will materialize over the course of the next 3 years. You'll also hear about the early successes of growing the Budget brand, as well as some of the other growth initiatives.

And then finally, you're going to hear from David that we expect both our top and bottom lines will be enhanced by the addition of Avis Europe to our legacy operations.

So let's pause for a moment and give this next pillar its proper emphasis. Sometimes, in the middle of all these various strategies, tactics, segments initiatives, regions, organizations, fleets and rental locations, if you're not careful, you forget about the customer. Too many companies, in my view, think the customer will follow the lead of the brand, but in fact, it's just the opposite. Brands followed -- the brands must follow their customers or they're going to lose them. We're not planning on making that mistake. We've taken a number of aggressive steps to ensure that we're listening to our customers, that we know what they want, when they want it and where they want it. Customer needs and preferences are changing and evolving every day. You'll hear how we're addressing that today from Tom Gartland and how we will be addressing that tomorrow from Scott Deaver. But briefly, here's how the customer fits into our strategic growth plan.

It starts with a commitment to be in a customer web-service-driven organization. As you can see here, we've made this our corporate tagline because it is the approach through which Avis Budget Group will operate its 2 global brands. Avis' premium customers will define what premium service means, and that's what will provide. Budget customers will tell you what value means, and that's how we will define the Budget value proposition.

In more tangible terms, it works like this. First, we listen to our customers. We ask them to rate the quality of their rental experience after each and every rental, and then serve up that information in real-time to an online portal to our managers so that they can affect immediate improvement. Armed with this information, we're able to focus our resources and energy on providing new services and technology that conforms to what our customers want. For example, we now offer Avis mobile apps on all major smartphones platforms, which all at once helps customers save time, allows them to manage their reservations from anywhere at any time. New technology such as our virtual rental platform connects us to our car and customers remotely, enables us to significantly expand our distribution network, bringing our cars closer to our customers but without the expense and investment in brick-and-mortar rental locations.

Every single touch point is under a microscope. Every single way we interact with each customer is being reviewed and approved. This is what we mean when we say we are a customer-led and service-driven organization.

Our fourth pillar is driving organizational efficiency. Our Performance Excellence initiative will continue to be our primary weapon here, but it is, by no means, the only one. You're going to hear from David later about the undeniable success of our Performance Excellence, or PEx, as we call it. It's been a major success in our legacy regions, and we're in a process of expanding it to our new global regions.

In addition to the numerous projects we have had underway in our preexisting areas, we have already had more than 20 projects underway in Europe and another 20 or so in the pipeline.

Our new price yield systems, which you'll hear more about from Scott later on, will be another way that we drive efficiency throughout the organization. We're making changes in the way that we purchase and allocate fleet vehicles between customer, airport, and off-airport, and how and when we yield up or yield down in pricing, is just one example, to lower our fleet costs significantly over time and improve our profitability.

And finally, all of our growth strategies are based on comprehensive research and the consumer trends, global economic dynamics, competitive activity and so on. But we're also managing our initiatives by challenging the conventional wisdom. What do I mean by that? Well, here are 4 assumptions that have been or are widely held in our industry, and even within our own company, and we're challenging each and every one of them.

Truth is, that profitability varies greatly across different books of business. For example, in many insurance replacement transactions, the prevailing rate is such that profitability tends to be very low and the opportunity to take meaningful share from the market leader is very difficult. International inbound business, on the other hand, has been -- has a higher average rate, significant high-margin ancillary penetration, capitalizes on the global brand positioning that we enjoy and delivers transactions that are the most profitable rentals that we have, and they're ones that tilt the playing field our way.

Next, a Budget transaction is a lost Avis rental. This is essentially the view of our colleagues at Avis Europe, which drove a pricing algorithm that actually suppressed the natural share of Budget. Our experience around the globe proves that this just isn't the case. The key to this though is creating the necessary price differential to go after a different segment of the market. One that in Europe is actually serviced by independents that account for over 35% of the market. The pricing necessarily takes advantage of the infrastructure already in place with the Avis locations.

Utilization taken alone is another red herring. The Chevy Impala that's add-on [ph] rent every day, typically under prices charged through corporate rate agreements does need to be managed by a utilization metric. BMW, on the other hand, will deliver far more profit by selectively renting at higher prices and sacrificing utilization. In that instance, utilization is really unimportant, and what drives the profit is RPU, or revenue per unit, per month.

The truth, some decisions should be made at the local level. Handling customer service problems is an example of something that should be handled at the local level whenever possible, and we're making actually system and empowerment changes to enhance our ability to do this. However, other decisions, such as those affecting brand positioning, fleet purchasing allocation, back-office functions and the like, should be made on a centralized system-wide global basis. That's the way we've done it for years in our legacy operations, we think it's the right way to optimize brand and cost structure and that's what we're just starting to do in Europe where virtually all those decisions were made at the local level.

So back to where, why are we here today? In the end, we're here today as part of our efforts to provide the transparency, access and growth plans you require to make informed decisions. I hope you'll develop a good sense of the quality of our management team and walk away with the same confidence I have in our future.

With that, let me turn the podium over to Larry De Shon, our President of Europe, Middle East and Africa, who will provide you with a deep view of our European operations, our strengths, and our opportunities and our strategies to grow the business. By way of background, Larry joined Avis 6 years ago from United Airlines. He had a 25-year career that culminated in running all of the customer-facing operations at United. He was running our domestic operations for the last 5 years, and has moved over to Avis Budget EMEA at the closing to run that business for us. Larry?

Larry De Shon

Thanks, Ron. Good morning, everyone. Well, I've been overseeing the European operations for about 7 months now, and I now know what I know. I have a better feeling for what I don't know and I still have yet to learn, but there is one thing I know for sure, and that's what I want you to walk away with from today -- from what I'm going to talk about, and that is that we should be pretty excited about the business we have today, but we should be even more excited about what this business can become. So we're going to talk through that.

I have to say that I've had fantastic support from the European teams. They've all seen this as a logical reunification of the network. They have been very open, almost surprisingly so, to all of the ideas that we've brought in from other regions, and they have some pretty good best practices as well that we'd like to share with other parts of the world. Their support and commitment has really facilitated all this synergy work that we've undertaken so far for this year. So for today, what I'd like to do is share with you what we've been up to since October 3, and we're going to talk a little bit about the synergy, our work that we're doing and how we're doing against those targets. And then in the short term, where we are focused on cost elements of the business. And for the longer-term, where we see the opportunities with the right blocks in place, if you will, to create a new margin expansion opportunity, so that when the volume starts to return, the economy starts to improve, we're positioned in a very different place than where we're starting.

So first of all, let me just talk a little bit about the business today. The European business is significant business for the corporate countries. We have about $1.7 billion in revenue. We have 18% market share between the 2 brands, now Budget being very small, less than 2 points of share on the Budget side. And that puts us in second place after Europcar.

The revenue is very nicely diversified. Here, you can see the opportunity for Budget only represents 4% of our revenue currently today, and that's going to change. But otherwise, you can see how the business has really diversified very, very well, so half of our business really comes from the leader side, half from the corporate side. And then what's very different for us than the U.S. is off-airport represents almost half of our business as well, so significantly higher than in the United States.

The revenues really diversified well across all the countries, the 5 big markets all fairly equal, France being the largest market. And then you take all the other smaller countries, add them together, and they represent basically the size of one of the big markets.

The fleet. We have really good relationships with our car manufacturers, which we use very well to make sure that we provide the right types of the makes and models for our customers. We have a really nice product offering for our customers, very diversified across the manufacturers. We offer over 200 different models for our customers.

We also have a lot of flexibility on how we build the fleet, particularly in this type of environment where the economy is changing and you're not quite sure how you can peg -- forecast some of the demand is that we've got the ability to upside the fleet, if we need to, to really change towards the opportunity that might be out there, and we've also got some downside in the fleet that we keep right through the year.

In addition, we've got 2 countries that are a little bit difficult to fleet for, and that is Spain and Italy because they have huge peaks that go up into the summer. So we work really hard this year to make sure that we're going to provide the fleet for them to capitalize on the opportunity they have in the peak and be able to get that fleet back down quickly after the peak is over with. Our current program and risk mixes is very good from both a cost perspective, a car mix perspective and also fleet rotation.

This is what I call the good going to great slide. Avis Europe has already made a lot of changes to try to improve their profit margins over the years in areas like improving utilization, rightsizing the network, getting rid of kind of nonproducing good rentals, if you will, getting rid of the ugly rentals. However, this was all done in a very capital-constrained type of environment and not with much focus really on process improvement. So those are 2 areas that we have an opportunity to work in as well.

So building on this position, we've got a nice opportunity for improvement here. And the strategies and initiatives that we're talking about today are all enablers to help us realize the margin expansion opportunity we believe that we have. So things like leveraging our shared service center in Budapest, centralized procurement, Performance Excellence, ancillary revenue growth, Budget growth, operational excellence through metrics and scorecards in poor-performing and best-performing location reports, sharing talent across the countries, more accountability and better organizational effectiveness are all initiatives that are part of our journey right now.

The team. The team is excellent. We're really proud of how this team has come together. I'm very impressed with their knowledge, their experience, their passion around the business. And they've been really phenomenal for me. They've been very supportive. I'm fortunate to really have a really superb team. Martin Smith is our CFO, he's up here in the front, and he'll probably help me answer some of the questions that you have. He's been with the business for 10 years. He's terrific. So and it doesn't stop with these folks. The bench strength is very, very deep in the organization.

So as excited as we are about the opportunities, we would be naive if we didn't acknowledge the fact we're facing some economic headwinds here. But I've been asked several times since I joined over in October, am I nervous about coming at this time in Europe with the economies under pressure? I answer the question the same every way. It doesn't really matter because it doesn't change the work that we need to do. This is all about positioning the company to be stronger and better for the future. This is about putting the right disciplines in place, the right metrics in place, the right measurements in place, to make sure that we're able to capitalize on the upside when the volume starts to return. So it doesn't really change the work that we have in front of us.

So we have put the right business in place to ensure both utilization and productivity is in line, that we have the flexibility to downsize or increase the fleet and increase our staff to be responsive to the volumes that are changing. The organization has embraced the Budget brand, and we're seeing a significant growth, which we'll talk about in all the countries across the region, and we put in place some pretty tight cost controls in spending and developing relevant metrics, we wanted to develop metrics for basically every euro we spend down to the location level, so that we can see exactly the relevant metric and how we're spending our money, so we know where the opportunities are. Metrics and scorecards and best-performing to lowest-performing reports will help us focus on our best practices and also our management opportunities that we may have across the region. So in addition, we'll look for opportunities to expand that the conditions of the marketplace might create, particularly when some of the smaller competitors are really struggling in this environment. So in short, the economic environment has probably increased our energy around getting this synergy work competed.

So let's talk a little bit about the market dynamics. There are some key differences between the market in Europe and the U.S. 65% of the share is across the biggest 4 rental car companies. Half of our business is across border, which is why we are so focused on selling internationally, and intermediaries represent about 40% of the business. And although there has been some reduction in auto manufacturing capacity, we've not seen the level of reduction that we've seen in the United States.

Strength. Our brands are outstanding and they really resonate with our customers. Although share for Budget currently is very low, thankfully, awareness of Budget is not low at all.

Technology. Scott will be going through more detail about technology and mobility solutions, but we offer a number of apps in Europe to meet the needs of our customers by giving them more control over the rental experience, saving them time and offering them opportunities to provide the car choice and so forth before they get to the actual rental experience.

Service. I'm very impressed with this kind of service ethic of the front-line employee group. They're very focused on providing excellent service, not just for all of our customers, but particularly for our preferred customers where we make a 3-minute promise. So within 3 minutes, you'll have the keys to your car in your hand or we'll give you a EUR 30 certificate for a future rental. And thankfully, we don't have to pay that out very often.

Our partners, our Avis Budget partners have enjoyed -- we've enjoyed long-standing relationships with all the major airlines internationally. We built strong partnerships with marketing coalitions through loyalty programs and we develop many of our partnerships to be truly global, as well as cultivating some regional partnerships in the Middle East and Africa as well.

The European market is a $13 billion market, and we have 18% share of it. And that share, as you can see, has been fairly consistent over the years. So big lever that we have for us, a nice opportunity is to grow Budget. And particularly, as you can see, the 35%, 34% share is made up of a lot of small companies, and that's a great opportunity for Budget to really focus in that.

We have a nice distribution of business in our countries across different segments. As you can see here, insurance replacement is a pretty significant segment of business for us. And naturally, we achieve more leisure business in the seasonal Mediterranean market and more contracted business in Northern Europe.

Our partnerships. We have a nice partnerships that are spread kind of equally over the countries, as you can see here, with the airlines, with British Airways and Lufthansa, Air France, KLM, very strong airline partnerships. The difference once again in Europe and in the U.S. is that we have very strong partnerships with rail, which is a huge business for us. We're partners of Eurostar and exclusive partners of SNCF.

I love this slide. This is showing what our licensees' revenue contributes to royalty revenue that we get from licensees, and you can see a very consistent contribution kind of year after year after year. Now we've got licensees in 84 countries, and year-after-year, that may change a lot between licensees inside [ph] , but you can see overall being diversified across 84 countries, if one country is down, there might be a lot of growth in another country. But overall, we have a pretty consistent revenue stream coming in from our licensees.

I've met many, many, many of our licensees on both brands already, and our licensee community is terrific. Very smart, smart companies, smart entrepreneurs and we work very closely to manage the relationships with them. Our licensees' staff that works with them really works with them on how to grow the business, laying out their business plan, going in and doing business reviews and trying to help them find ways to market and sell inside their countries.

And their share is pretty significant. We have a lot of our countries that represent significant share. If you take a look at South Africa and you combine Avis and Budget share together, they have 50% of the marketplace in South Africa. In Saudi Arabia, Budget alone is over 40%. Israel combined brands, 48%. Turkey combined brands, 31%. So you can see that these businesses are well-established and have a huge amount of the market. So working with our management team that supports them, our licensees are continually looking for ways to further develop their business.

All right, let's get into the integration and some of the growth drivers that we're looking at going forward. So this is the slide that you just saw from Ron. You'll probably see it from everyone today. These are the pillars of our strategies going forward, and we have already a number of examples of different initiatives. I won't go through all of them. I'm just going to give you example of a couple on each pillar. But we have a number of initiatives working across all of these pillars. Strategically, accelerate growth outbound, inbound. We can do a lot better job there. Ancillary revenue, Budget growth, Avis on Demand.

On expand our global footprint, well, Avis Europe is the biggest example of that, but also dual branding locations to grow Budget.

Put the customer service first. 3-minute promise, our service and sales training that we're providing for our rental sales agents, action planning off the feedback that we get from our net promoter surveys.

And then driving efficiencies throughout the organization. Performance Excellence is a great example of that. But also, operational excellence, making sure that we've got the right standards and best practices and the right reports and the right accountability across all of our locations.

So let me just talk a little bit about how we've bucketed these. So we put them in 3 different phases as you saw in Ron's chart earlier. So we're approaching it that way. So the first phase is really the $35 million run rate that we have to hit by the end of the year. So we'll talk about how we're doing in Phase I. And Phase 2 is really what are the opportunities beyond the first $35 million over the next couple of years to 2015. And then the Phase 3 are probably the ones who have bigger, longer-lasting, more sustainable over time, so what's opportunity past 2015. And what I like about Performance Excellence, it goes across all of them. This is the gift that just keeps on giving. So we've launched our Performance Excellence team. We'll talk a little bit how they're doing in their progress so far.

So let's first take a look at inbound. This is highly profitable revenue. And although we've had a nice increase in 2011, as you can see, up 6% from North America and so forth, we know we're not getting our fair share of this business. And there's no reason now that we've joined the company's, we are one network, we're selling each other across the globe, there's no reason why we can't do a lot better in this business. It's a multibillion-dollar business out there.

So we need to put the appropriate sales incentives and programs in place for our sales team, for our travel agents, for our GSAs and for our licensees. It has to be clear to us in every lane of traffic, who is responsible for selling that business and how are we incenting them, how are we rewarding them. We need to make sure our sales force is trained in all the products and services that every country offers. We're going to start putting our sales folks in Europe in training starting next month, and we'll train right across the region. And we need to make sure that we have products available from every country into EMEA. Products that are competitive, pricing that's competitive coming in. And we need to leverage the partnerships that we already have with one brand, leverage them over into the other brand. As I have talked a lot of our partners and a lot of corporate accounts and so forth, and I was at ITB and I met with several accounts, there was a lot of excitement about the dual-brand strategy, a lot of excitement about Budget. Many people saying let's sit down and talk about how we bring Budget into our portfolio of business.

So Phase I, how are we doing? I am really pleased with where we are in integration process. We have an incredibly professional and well-organized shared service center in Budapest. The management team has obtained ISO 9001 Certification, has developed the processes using Six Sigma and Lean principles. They've developed metrics and reports and scorecards and service agreements with all the countries that they support.

We're going to leverage this infrastructure, we're going to leverage the skill set that we have and we're going to send an additional 235 positions from the various countries into Budapest, which will take their employee count up to 535. We have already reorganized the senior team to significantly reduce management costs and also to improve the talent that we have in key roles in the company. We eliminated an entire structure that supported what we used to call the Zone 2 countries, the smaller countries, and we've realigned that to where we brought Benelux together with France. And in Germany, we brought Austria, Switzerland and Czech Republic with Germany and support each other, and they have resources in each country to help each other and we're able to take significant amount of costs out.

PEx. I'm really pleased with how the entire organization has embraced Performance Excellence. The countries offered up their very best talent to be assigned full-time to the PEx team. So we have 25 people now full-time working on Performance Excellence projects. And I have to say that since I've been deeply involved with PEx since the inception of it in the United States, the assessments that we've done in the countries in Europe have proven to be some of the best assessments that we've actually done since we started PEx. So the pipeline is full, we have plenty of opportunity, plenty of initiatives to work on in Performance Excellence.

Our IT consolidation is progressing very well and not only will we reduce cost, we'll also stabilize the operating environment as well. And we've even renegotiated our lease on our Bracknell building, our headquarters outside of London, and reduced our cost by $1 million a year.

So Phase 2, here's an example of a good Phase 2 project. Ancillary sales. We do fairly well with ancillary sales but there's a lot of opportunity. We have a proven track record with growing ancillary revenue in United States, we have a proven process. And it's more than just training rental sales agents. It really starts with recruiting. Who are you recruiting? How are you finding the best person possible to be able to sell? Is it in their DNA? How are you testing them to find that out at the recruiting process? Once you get them in, how do you train them, how do you on-board them and then what incentives are you putting in place? Then most importantly, once you've done all that work is how are they managed once they get out into the environment? So you really have to focus on the right reports, the right observations, the right incentives for our management team and the right accountability to make sure that they are managing this process going forward. So it's one building block after another. It's not just changing your training program. It really starts at the beginning of who you're recruiting and getting into the organization.

So we know we've got opportunity to increase our penetration across a whole host of our products, and we also are trying to expand our product offering as well. We just launched eToll in Portugal and we just launched Wi-Fi rental in Germany.

So every department is working on growing Budget. Everybody. We are working with our sales teams to educate them on dual brand sales strategy. We are leveraging our partnership synergies with second brands, with Expedia and American Express as an example. Our marketing folks are working to strengthen our websites on Budget and develop our country marketing strategies to help grow the brand.

Our operations and marketing team are expanding the network by dual branding our current Avis network. We have already expanded our Budget network to 480 locations, and we are planning to dual brand another 385 locations this year.

Our fleet teams are working to make sure that the countries are fleeted up with the Budget growth opportunity, and I have to say overall that there's just a great deal of excitement about growing this brand. In the past, they've been somewhat capital constrained, so they didn't have the fleet to really focus and growing Budget. They were very focused on growing Avis. We told them, look, we've got the fleet. So if you can build the business, we'll fleet to it. And I have to say so far in the first quarter, Budget volume was up 64% and March alone is up 80%. If you take a look at the advance bookings that we have over the summer, already, we're up 150% on the Budget side. So a lot excitement there, a lot of opportunity and everyone's focused on growing Budget.

So if you take a look at Phase 2 and how that all comes together, we think we've got -- if you roll up all the initiatives, we think that we've got an opportunity here to really grow our EBITDA by another $55 million to $75 million on top of the $35 million synergies that will hit the run rate by the end of this year. So this is for a total of $90 million to $110 million opportunity.

Now to Phase 3, Performance Excellence. In Phase 3, Performance Excellence, we're just driving it through the organization. We really believe over the long-term that we possibly have a total of $40 million to $60 million opportunity on Performance Excellence. With every project the team gets into, they find 3 or 4 or 5 more things that they want to get into. So the pipeline, like I said before, is really filling up. And we're already running projects like credit card charge backs, vehicle quick prep, how to reduce damage costs, faster damage repair, improvement in shuttler scheduling, these are all just examples of projects that are currently running. We're running over 23 projects right now with a 25-member team. So a lot of opportunity on the Performance Excellence side.

So it gets really exciting when you start thinking about kind of all these initiatives coming together over the long term. Initiatives that we've already put in place, and how they hit the run rate and how they hit their pace with new initiatives coming over time into the region, how they role in. When we can leverage new technology that's developed in the U.S. and bring it over to EMEA and have the benefit of that, like demand fleet pricing optimization; when Performance Excellence projects continue to deliver on the run-rate basis across the countries and more and more new projects role in; when we think globally about our work, and if there are greater synergies to be had across the different regions globally; and when operational best practices are shared and common across the region, and metrics and scorecards create a competitive continuous improvement environment across the organization.

So Phase 3. Taking a look at the longer-term opportunity out there. When you look at it all in the aggregate, it's a huge opportunity. You can see I chickened out on the number there. It's a huge opportunity for us. So as we continue to look through all the different initiatives and find more and more, we just kind of keep populating the ideas going forward. So the key is that we have the initiatives, we have the discipline and we have the talent in place to really seize this opportunity. I just keep thinking about it's all building blocks, putting blocks in place, creating a new foundation, if you will, for this company so that we can actually be a very different company when the environment returns and the demand starts to return.

But while we're building for the future and developing a new foundation and a new roadmap, we're not going to take our eyes off the business that we have today. I've talked about the economic headwinds earlier, and even though GDP for the region is down slightly, we are achieving good summer reservation deals on our early bookings. And on a full year, expect our overall growth to benefit from both our Budget brand strategy and also our ancillary revenue push to improve our revenue by 3% to 5%. The integration work is on plan and producing the targeted savings numbers, and with every project, initiative, new report, new metric, we're finding additional opportunity across the region.

So how do I feel about where we are today? I feel great. The work the team has done and continues to do to drive the integration process makes [ph] this as excellent. The synergies we have already delivered and expect to deliver by the end of the year are significant. But that's not all. There is tremendous amount of opportunity over the longer term. And what gets me out of bed every day is the margin expansion opportunity that we know we can drive to, and then we'll be ready. When the economy improves and the demand returns, we'll be ready.

Thank you. And with that, I'd like to introduce Pat Siniscalchi, our President of Latin America and Asia Pacific.

Patric T. Siniscalchi

Larry, that was a great story. Let me get my water here. A really good story. When Ron called me and told me we're buying Avis Europe, I said to Ron, "Ron, you're a rockstar." For someone that's been around 40 years and I've been with the company 40 years, it was the best news that I've had in those 40 years. We are, again, a global company and it gives us enormous opportunity. For someone who's been in international business for over 30 years, I really saw the possibilities.

I have been around 40 years and you may ask yourselves, "Why would somebody do that?" And it could have something to do with the alternatives. So picture me with my brother sitting on a bench and my wife, and I say to them -- my wife asks, "What are you doing?" I said, "Nothing." My wife then asks, "Didn't you do that yesterday?" And I said, "I wasn't finished yet." That is not me. But -- and so I'm not anxious to do that. And there's a real good reason why, and that is because when I come to work every morning, I have 2,000 people that are working on my business that are filling my tank every day. And so my tank is full and I'm very excited.

I wanted just to give you 2 examples of that. One, in 1994 -- see, I've been around a long time, so I do go back in history a bit. So in 1994, our Avis licensee in Argentina went bankrupt. We started that business with 5 cars. We're now the #1 operator in Argentina, and we've been that way for a significant amount of time and we've been very profitable. September 14, 2001, Ansett Airlines. Any of you ever heard of Ansett Airlines? Major airline out of Australia went bankrupt. Avis had a an exclusive relationship with it. 60% of our rentals came from Ansett Frequent Flyer. We lobbied and cajoled and we got into the Qantas program May 1 of 2002. We had a goal of December 2002 having a 40% share in the Qantas Frequent Flyer program. July 31, Qantas called us and said, "You guys have over a 50% share." 90 days. Pretty incredible. That's what our people do. The things they accomplish is what drives me.

We have a mantra in international -- in Black Pack [ph] I got to call it now, [indiscernible] And it's called H2O. Be humble. Hunger for success. Strive to over-achieve. I have 2,000 people that are doing that every day and that creates passion for me. So I'm here and now Ron is giving me the opportunity. Ron and the Board has given me the opportunity to apply what I've learned over 40 years, and I think I've learned something, to the big opportunities we have in China and India. and I'm going to talk a little bit about that later.

So what are the key messages I'd like you to walk away with? One, we have great market positions in the 6 corporate countries that fall into Asia Pacific and Latin America. Two, we have strong margins. We understand the importance of exceeding customer expectations. We have great partnerships and we are better positioned we believe than our competitors in the 2 largest emerging markets.

So our business today. We're about $700 million in revenue, or approaching $700 million of revenue. But the key number is the EBITDA number, where our net $670 million would make $125 million in EBITDA. I really thought this should be my last slide, and that should be my last comment because that's a pretty incredible margin. But that is about -- having very healthy businesses, everyone in the corporate operations has double-digit margins, and we're very proud of where we are. We do about 8 million rental bays [ph] a day -- year in the corporate markets. The 1,600 locations include our licensee locations.

So when you look at commercial and leisure business, we have a very good mix. Avis in our region is pretty much 50-50 leisure and corporate. Budget is very much skewed towards leisure. And what that does for us, it gives us a good length in rental. Leisure has a strong -- has a longer length around business opportunity to sell ancillary products.

So locations by region, you can see we have a distribution across, but most important thing is we're in -- Avis, I believe, has at least as large a presence as anybody in the regions, and I think probably the largest presence in the region -- in the 2 regions. And Budget is also well represented in Latin America and Caribbean, but we have an opportunity with Budget in Asia.

If you look at the manufacturers slide 5 years ago, it would really be 3 manufacturers: General Motors, Ford and Toyota. We've diversified the fleet, we've moved away from the buyback programs that General Motors and Ford used to offer us. And for the last 4 or 5 years, we've been very much a risk fleet. What I really want you to know about this slide is that we know how to buy and sell cars. We've been buying and selling cars for a long time, we've been 80% risk product for the last 3 or 4 years and we're good at that and it really does help drive profit margins because we are able to maintain a really very competitive cost per unit.

We had strong revenue growth in 2011, and it was driven by 2 things. One was FX. The U.S. dollar got weaker, half the growth is FX. Half the growth, which is more than double-digit growth, is really the strength in our corporate operations. We had really good growth in 2011 in Australia. A lot of that's driven by our Qantas partnership, and we had great growth in New Zealand where they had the Rugby World Cup and also an awful lot of recovery work to do with the Christchurch earthquake.

Maybe I should stop after this slide because this is also great story. I like to think that we breed profit-center managers in our business. That's what I like to think. You know we're not a big business, we're very close to the business. Jerry, whose been my partner in business for too long, his wife calls me, his second wife, which I actually had higher aspirations in that. But anyway, the 2 of us plus an HR director is really what we have a headquarters to drive the business, but we're very, very close to it. And we -- like I said, I think we breed profit-center managers and we have a very healthy business as a result.

Competitive strengths. I think we have a lot of those. A lot of them are driven by our market position in a corporate countries that we have very strong market position, but also our licensees in many of the markets have great market position in Mexico, in India and China, where there are number of countries where Avis is the #1 brand and there are in Central America, Panama, Nicaragua, Costa Rica, Budget has very, very strong market positions.

We have 2 or 3 global brands, it's pretty hard to do that, and it's a very, very strong position. Budget is globally recognized. Even though the location distribution isn't like Avis', Budget is very well known in all marketplace. And of course, Avis is very well known. We have pretty good ancillary revenue penetration. I'll talk about that in a minute.

These are our market shares in our 2 largest corporate operations, Australia and New Zealand. The combined share is 45% in Australia, 55% in New Zealand. We gained 2 share points last year. We are very, very happy with that. That helped drive some of the revenue growth.

I really want you to take away one thing from this slide, and that is the $30 million that we're receiving from licensees today is going to get bigger. My world is a world where there's a lot of growth in the next 10 years. We have good licensees across the region. Our loyalty stream is going to get bigger over the next 5 to 10 years. It grew 10% in 2011. We actually had very, very good first quarter. Our licensees had a very good first quarter. We would expect that similar growth to go on in the future years.

We have very, very strong partnerships. We don't seek to be the best rental car partner. We seek to be the best partner. And because we are very focused on delivering value to our partners, it's allowed us to really have very, very strong partnerships with Qantas in New Zealand, Jetstar, Fly Buys, and they really see us. And if you were to ask Air New Zealand today, you would ask Qantas today, they would tell you that ABG is their best travel partner. And we're very proud of that. That's what we strive to be.

You know there's a saying, there's no profit in cheese pizza. We've got to sell the mushrooms and the anchovies and the meatballs or you don't make any money. And the same thing goes for rental cars. There's not a lot of profit in T&M. You got to be able to sell the ancillary products. We've been focused on this for a long time, and I think we're -- today, we have a greater focus than ever before. We still think there's more opportunity here, but we -- certainly, it's part of the success of our business and what drives our margins.

This is our Voice of the Customers score. We do brand -- we do the brand analysis in Australia and New Zealand every year. What we're told is that Avis is very, very well known and very, very well recognized, and our service score [ph] was very high. We think there's still room for improvement here, but we also -- but we're very appreciative of the fact that our service creates loyalty, creates revenue opportunities. This is about revenue taking care of the customer. And the way you take care of a customer is excite employees, and I think that's what we're pretty good at. We're pretty good at getting our employees excited about what they do.

So we have the same umbrella of the 4 underlying strategies. We're looking to accelerate growth. When Ron talked about expanding our global footprint, a lot of that falls right on our regions. And of course, we're very much riding the coat tails on Tom and Gina's [ph] strategy on putting the customer first, and we're always looking to improve our cost efficiency.

So what are a couple of things that we're looking at doing? One of the bigger things that some of you may be aware of, is that there's a resource been going on in Australia, I mean, there's a number of just huge resource projects in Australia is in that, and that gives us a big opportunity in what we call commercial vehicle. A lot of those are what we call mine-equipped Land Cruisers and big SUVs, there's a great demand for it. It's growing every day. And we are certainly getting our fair share of that business. That's a big opportunity. The other opportunity, we have a professional team of people that work with our licensees on growing their revenues. And we see that as a big opportunity, especially as we expand the Budget footprint in Asia.

When we talk about growth, we are very focused on China and India, and we're going to talk about those in a few minutes. And expanding the Avis, the Budget brand in Asia Pacific is a big opportunity for us.

So these growth numbers are unbelievable, right? I mean, business travel and tourism in the Latin America is going to be up 17% over 10 years. I mean, that's just huge. And China and India are kind of off the charts. So we believe we're in a great position to take advantage of that and I'm going to explain why in a minute.

Actually, I'm going to explain it right now. You know, there is -- it can be said that ABG's largest opportunity is in China. We have a joint venture in China. Our partner is -- it's a 50-50 joint venture. Our partner is Shanghai Automotive Group. They are very good joint venture partner. We chose the joint venture because it gave us access to capital, access to people, access to cars, access to government relationships. So I think we made the right decision in China 10 years ago when we went into the joint venture and it has just tremendous opportunity for us.

We have 70 locations today. It's going to grow to 110 locations by the end of this year, far and -- way and above any other international rental car company's number of locations. So we had $88 million worth of revenue in 2011, and that number is going to grow significantly in 2012.

So why do we like China so much? Well, China is really a 2 car-rental markets. How many of you have been to China? Okay. How many drove yourself while you were in China? No kidding? Okay. So you know the story, right? If you go to China and you want to drive yourself, well, you got to go pass the driver's test in Mandarin and that takes about 6 hours, and not a whole lot of inbound customers are going to do that. So a good part of our business is car and driver. We have 2,500 drivers in China that work for us. And those drivers are professionally trained, and we believe, deliver the best service in China.

But that's the small part of the opportunity. The big part of the opportunity is the domestic self-drive market. There are, today, 151 million Chinese with driver's licenses. There are only 61 million cars. If you look at Western markets, those numbers are equal or there's actually more cars than there are driver's licenses. It's actually pretty incredible that there's 61 million cars, 151 million people have driver's license. Those numbers are going to increase over time. And the question is, well, how these people do what they need to do if they're not going to own a car? And understand that the Chinese government wants to limit the number of cars on the streets in China. Their environmental constraints on how many cars are going to allow in the street. So the opportunity for car rental companies to fill the needs of Chinese citizens when they need cars is a must [ph], and we think that is the single biggest opportunity we have in China, and we think we're in the best position to take advantage of that.

China is also a very, very fragmented car-rental industry today, and we believe there's going to be a lot of consolidation. The revenues going to grow from $4.5 billion to $8 billion, we think, by 2016. And we believe we're going to have our fair share of that revenue in 2016. Whether -- which we think is somewhere between around 1/3, so we think we're going to have a fair -- our fair share of the revenue.

This tells the story that really -- you really should pay attention to because we are profitable in China. We've been profitable for the last 6 years. I don't think there's any -- too many rental car companies in China that can put up their hands [ph] and say that. Certainly, not ones that are [indiscernible] size. So -- and you can see why we're profitable. We drive a much higher revenue per car month than our major competitors.

Second largest market is India. How many of you have been to India? How many of you drove yourself? You know, this group does not get out a lot. You guys need to get out more. But in India, you will not have to drive yourself. Let me tell you, it is -- we have 1,100 vehicles, we have 30 vehicles for self-drive.

So whether you're an Indian citizen or you're an inbound customer, if you're going to use a car service, you're going to have a driver. And we have, again, very, very well-trained group of drivers. They offer a very safe and secure transactions to our customers. Avis really fits very well in terms of fleet and professionalism of the drivers. It's very well into the premium market and being the premium product in the Indian market. We've been there 12 years, we have a joint venture with Oberoi Group, very, very -- they build great hotels and very, very professional group to be partnered with, and we're very happy with that relationship.

And then the growth drivers are the same. I think it's 51% of the population in India is 19 years or younger. So it's a 1.2 billion population, so you're going to have an awful lot of people going into the workforce over the next 20 years that are going to become middle class and upper middle class since the economy is going to expand. Now, what they haven't done as well as China, I mean, China's road infrastructure is there already. India's isn't. But that is coming and that is going to really open up the Indian market. So when we talk about China and India, China is a little bit earlier than India, but it's going to be -- it's going to get there. This is our opportunities for the Budget brand in Asia. We opened in Singapore July 1. One thing I should have mentioned, because Ron mentioned it, we not only opened in Taiwan with the Avis brand last month, but we're the only international rental car company ever to operate in Taiwan. Avis has a great position in Taiwan, and Taiwan has some really good market dynamics as China. But back to Budget in Asia, there's a big opportunity in Asia for Budget, and we're going to start July 1 by opening Budget in Singapore. We expect strong revenue growth. Our first quarter has basically been in that 6% to 9% range. We see really continued growth in Australia and big growth in Argentina and Puerto Rico, so we're going to grow between 6% and 9%. Our licensees as I said before, we expect the licensee revenue to grow and we expect as the emerging markets -- and the emerging markets are more than China and India. I mean, you have -- when you really take a longer-term view of Asia and Latin America, you have Colombia and you have Ecuador and you have Peru and you have Indonesia and you have Vietnam. And these markets are going to become substantial rental car markets in the future. And of course, we have further expansion in China. So in whatever time it's taken me, I hope that I convinced you that these are the leading, the messages that you should walk away from. We are in very solid ground in these 2 regions. We perform at a very high level. We made substantial EBITDA margin. We have great partnerships and we're very well positioned in the emerging markets. So if you're all wondering, what is a guy that's been with the company 40 years do next, well, I'm actually almost one year into my second 40, so thank you very much. I would like to invite Larry De Shon up the stage and we're going to answer any questions about the operations outside of North America. And so you guys should feel free. This is your opportunity. There will be another opportunity later on, but this is your opportunity to ask questions specific to -- okay. Is there -- and you're walking around with a mic, Neal? Right.

Question-and-Answer Session

Afua Ahwoi - Goldman Sachs Group Inc., Research Division

This is Afua Ahwoi from Goldman Sachs. Two questions. First on your Europe program risk mix, it's 80-20, do you have any plans to get it maybe more lower, more closer to the North America or Latin America mix and again on Europe for the Performance Excellence, 40 to 60 target range you mentioned, do you have any time frame within which you expect to achieve that? I know it's beyond 2015, but is there any year we should think about?

Patric T. Siniscalchi

On the PEx question, you've been talking to my boss. He asked me the same question on that. First of all, yes, on the PEx, we're really in the initial throes of this. So we're just launching the 20. We've got 23 projects we've just launched. The team just got trained literally just a couple of months ago. We know that as we get into the projects and we start working through the projects and doing the assessment that we find a lot more opportunities that we're just parking over to the side to put into it. So picking a date beyond 2015, I mean I think you've seen what we've been able to accomplish in North America over the 5 years and how much we've been able to accelerate the opportunity that PEx has presented for us to get over the $250 million mark. Europe is slightly different, though, because half of the revenue comes out of local markets whereas much more revenue in the U.S. comes out of the airport, which is most of the synergy savings or PEx savings that we really get are mostly in on-airport versus local markets. So we're a little bit the different animal when it relates to that. So I would say, are we on the 5-, 6-, 7-year kind of trajectory? Probably so. On the mix, I like the mix, the way is it on the fleet. It's very different situation in Europe as it is in the U.S. right here, different from the U.S., and that is the residuals markets are not great in Europe. And the volume is somewhat fluctuating with the economy. Some of the economies are going down. We want to really make sure that keep all our options open for rightsizing the fleet. So the types of terms that we have on the buybacks give us the opportunity to really flex the fleet. And also we just want to be careful about carrying too many risk cars into this kind of environment. I think the other thing is that there are a lot of manufacturers in Europe that don't offer risk. So to the degree that you try to increase that, you are increasing it with a fewer number of manufacturers, which then causes your mix of vehicles to kind of get off kilter. So we really are focused on making sure that the mix of the vehicles are correct, that they're matching the volume that we need, and start getting too much probably on the risks you start kind taking that out of the right cycle. So we're pretty happy with the mix we have.

Unknown Analyst

Could you talk about how you see the potential for change in competitive dynamics if and when Hertz, for example, buys $1.50 and your car is also sold to a store and competitor?

Patric T. Siniscalchi

For my regions or outside North America in general?

Unknown Analyst

Both of your regions.

Patric T. Siniscalchi

Do you want to go first? Go ahead. I'll go? Okay. Well, actually I had Ron down with me in Australia, New Zealand and China a couple of months ago and one of the things he said to our people was you should be thinking about the fact that -- Enterprise [indiscernible] Europcar and Hertz is going [ph] to $1.50. And what will that change in terms of the business dynamics? Because today, Europcar doesn't really -- I mean, National, Alamo or Enterprise don't really exist in very much of the Asia Pacific region at all, if any of the -- there are a couple of National licensees around Asia, but they don't really exist there. So what will you do differently? How are you going to prepare for that? And we do -- so we have that mindset where we try to be very competitive on price with both our brands, Budget obviously more than Avis but on both of our brands. We do really look at the IR business because we don't want Enterprise to just come in and think they have a home in the IR business. And we say very, very -- lot of the big drivers in the business in Australia and New Zealand are the government, and we're very, very close to the government and we established a lot of very, very strong relationships. Our Qantas partnership is for 5 years. So we're only in the second year of a 5-year partnership. Our Air New Zealand partnership is 3 years with a 3-year option. So we expect that to go on for 6 years. So we feel as if we're in a very, very strong position and we will say [indiscernible] before Enterprise is there is probably a very good tactic for us, and we have -- in some markets, we already have a strong IR component, IR positioning. Others we'll get one.

Larry De Shon

Yes. On our region, what I've told everyone is just to just work under that assumption that, that's what's going to happen and that's the assumption we should be operating under. And I actually give a lot of life and breadth to Budget to growing Budget. So it's one of the things that really resonates with everyone is that we have a dual band strategy and we can leverage the Budget brand to really be able to penetrate that kind of marketplace knowing that the competitive landscape is going to change. It's not going to stay consistent like it is. And as I showed you that in Europe, we have 34% of the market share is made of by a whole lot of little guys. And that's an opportunity for us to get in there and penetrate some of that share on the Budget side. So I think with the assumption is competitively, it never stays the same and we should just be out in front and really making sure that we leverage all the strength that we have and the big strength that we have is the dual brand strategy. When we look at the basic JVs, China and India, we recognize the fact that today we have a very big advantage. We realize that the next 2 or 3 years to really consolidate that advantage, make it difficult for some of our competitors to get shares in those countries is very important. And that's our plan. Our plan is to really strengthen our position in China so that it really is hard for someone to come in and take a position that's as strong as ours will be. Chris?

Christopher Agnew - MKM Partners LLC, Research Division

I was wondering if I could follow up on that in China. Can you describe your relationship with your JV partner? What are their objectives, maybe how's it structured? And then a little mundane question, how do you account for China? Where does it come in on the income statement and I think you said $88 million of revenues. Is that the joint venture or your share?

Patric T. Siniscalchi

No. That's the joint venture. So it comes in one line so one line income we get 50% of the profit. And China pays a royalty fee as well on their revenue. So we -- I'm sorry. Okay, we're 50-50. And so it's a 50-50 joint venture. And actually we have the Chinese in tomorrow, the Chinese board so the 3 members from the ABG on the board, there's 3 members from SAISC [ph] On board and we have a board meeting on this on Thursday, May 10. And we have a relationship where there is a lot of give-and-take but we are also focused and we talked about this at the last meeting. We're all focused on putting together a plan that will allow us to be substantially bigger than the way it was thought about the business before. And they're signed on to that and we're signed on to that, and we're using an outside party to help us develop that plan in that paper, that strategy, paper or document we hope will be completed by the end of July. And then it's just matter of executing. What we believe and what we've really tried to work with SAISC [ph] On agreeing to and I think we have is that up to now, we've look at the opportunity in a very, very small way and there is a much bigger opportunity out there for us and that's basically what I was talking about when I was talking about the Chinese domestic market.

Brian Arthur Johnson - Barclays Capital, Research Division

Brian Johnson, Barclays. Two questions, one for each. Larry, just think about the fluctuations of the business and I agree with you that as running the business you're not in control of the macro. But how should we in modeling the company's investors be thinking about the volatility of Europe where the bag-and how GDP is going to drive revenue, how it's going to drive pricing and what that means for the base Avis Europe business before you get to the offsets from the strategies.

Larry De Shon

Yes, I think the volatility that people maybe over here are sensing or feeling maybe a little bit overstated. I mean, we had a little bit of growth in the first quarter. Our rentals were up slightly. We suffered from a lot of build days down that's primarily because of insurance replacement. Last year, insurance replacement in the first quarter was huge because of all the poor weather that countries had, where it drove a lot of insurance replacement days through the quarter. This year, the quarter's one of the best quarters weather-wise that the region has had. So you went from the kind of the extreme -- one extreme to the other and you really thought insurance replacement -- we didn't really lose any account. There's just wasn't the amount of business in the first quarter. So the billable days were down, but rentals were slightly up and pricing was up. So pricing was up on T&M basis and total rental related revenue was also up. So now we're going to grow Budget and that's going to put a little pressure on price, but the 2 brands just complement each other so well. So you're taking these rentals in the first part of the week on the Avis side and now you've got the opportunity to put that car on rent at the back half of the week and over the weekend. So I would say that things are somewhat stabilized, maybe a little bit more pressure in Italy. But overall, things are pretty stabilized. We're just focused on building the Budget brand, growing it. We're focused on continue to try to gain share in the Avis side. It just doesn't seem to be kind of as bad to me over there as maybe some folks feel here.

Brian Arthur Johnson - Barclays Capital, Research Division

And a question for Pat. If you have a goal of 1/3 market share in China given where you are today, given how fragmented, I think a couple of questions. Is that organic or do you see with the fragmentation opportunities to consolidate? And number two, at this point in the market if you look at, say, the filings of China Auto Rental, you've got a clear divergence like almost in the Internet world. Are you pricing for market share or are you pricing in kind of footprint or are you pricing for short-term profitability? And I know those are 2 related questions but if you could give us some thinking on that?

Patric T. Siniscalchi

Yes. I should have brought my China handbook with me. I think that we certainly are taking a view on profitability that we want to be profitable as we grow, but that we see that there may be an opportunity to accelerate our investment to accelerate the growth. And I think that we're going to grow both ways. We're going to grow through consolidation, but we're going grow -- at 110 locations, there is probably the opportunity. You have the first tier, tier second, tier third cities in China, we're going to have thousands of locations in 5 to 10 years. So there's going to be a lot of organic growth, but there will also be, I think, kind of consolidation in the industry. I mean you guys know that there are rental car companies in China that aren't making any money now and so I would think that there will be some consolidation in the industry as well.

Emmanuel Rosner - Barclays Capital, Research Division

Emmanuel Rosner from CLSA. First question on China. Obviously your revenue broke hard there. Four months is pretty impressive and well ahead of the competition. How much of it do you think has to do with like a premium we can command with the Avis brand and how much is really the fact that you're much more of a chauffeur business versus self-drive? And I guess related to that, how sustainable is this as well as the margins as you move more towards the local market?

Patric T. Siniscalchi

I think there's an opportunity in China for today if you were take their business model today and say that we're going to apply the business will become self-drive versus chauffeur drive, I would say, well, yes. The profit margin is going to suffer, but having now been there twice, having had a couple of detailed financial reviews and we have one tomorrow, I feel that there's a real opportunity to apply some discipline to the way they've managed the business that will increase margin. So I think that there's going to be a balancing act between the business discipline that runs -- that will dictate how the business runs and the expansion in the self-drive market that -- which is, remember, the self-drive market, that's what we do. And that's what we do the best. So we're going to be I think very safe and do very well in that territory. We're excited about getting self-drive.

Emmanuel Rosner - Barclays Capital, Research Division

Thanks. And then one for Larry. You had a good slide on the differences between the European rental market and what we see in the U.S., especially the fact that, there is a [indiscernible] capacity among the manufacturers there and the fact that a lot of the business is cross-border. Can you please elaborate how that impacts the way the business is there and the how you run it?

Larry De Shon

Yes. I mean on the cross-border opportunity, obviously with half your business being cross-border that's the highest kind of profitable business that you can go after. So it's a very important piece of business. And when the companies were separate, there really wasn't -- it doesn't matter how hard you try and best wishes on both ends. The coordination really wasn't able to be there when you have different kind of objectives. So you can go out and try to sell global account, but if it wasn't right for certain countries and part of the world, they may not want to jump in to that global account, which is now we're saying, look, if it's good for the group, it's good. And even though one country may not get the right type of contribution that they were looking for from a profitability perspective, it's still what matters is, is it good for the group? So we're looking at global accounts very coordinated now and we're really working hard in trying to make sure people understand how to sell products across the border. And I think we assume people knew how to do that. What we're finding is that there's some education that has to take place on that. So it's a huge focus of ours because it is the best kind of revenue to get. And if you're undershared in it, it's a great opportunity for us to be able to grow it.

On the overcapacity thing, we look for opportunities for us and some good deals out there, which we'll continue to get. We purposely leave a hole in our fleet on these -- to make sure that we've got the capability to jump into some spot deals throughout the year that can actually provide us some really good opportunities. And that will continue as long as the capacity situation is sitting like it is.

Neal Goldner

And we're going to take a 15-minute break right now. It's almost 10:30. So 10:45. Everybody can come back at 10:45 and Tom Gartland, who runs our North American business, will be up at the podium. Thanks. Good job, Larry.

Neal Goldner

Right. It's my pleasure to welcome Tom Gartland. Tom is the President of our North American region.

Thomas M. Gartland

Thank you. Good morning. I'm following Pat and Pat has inspired me all along for -- since I've been with ABG and this morning, I was inspired by his travel survey of China and India and how many have driven themselves. So Pat if you turn around, I'll ask 2 questions, how many have been to Chicago? Raise your hand, and how many have driven yourselves? There you go. Thank you very much, on behalf of the North American business. We appreciate that. Okay. Before I start, I would like to just say on behalf of our 19,000 employees in North America and the senior the leadership team that's joining me here today, Dave Crowder, our Head of Finance; Joe Ferraro, Head of Operations for North America; Gina Bruzzichesi, Head of the Customer Experience team; Ned Linnen, head of HR for North America; and Jeannine Haas, our Chief Marketing Officer for North America. I'm very proud to share with you the strength of the North American business.

First of all, I think we are well positioned in North America in the vehicle rental market. We have initiated and are working on strategic initiatives that are accelerating profit and growth and we'll talk specifically about those in just a moment. We continue to invest in our business for long-term sustainability, both in revenue and profitable growth and we are very, very focused on the customer experience.

So let's talk about the business today. First of all, our business, the North American business, is a $5 billion business at $4.5 billion in car, our dual-brand strategy, both Avis and Budget, and then a $400 million truck business. North America is comprised of Canada and the United States. Here's how our revenue breaks out. It's very diversified. First of all, 66% of our $4.5 billion in car revenue is Avis, 34% is Budget. The split on commercial and leisure volume is 46-54. And you heard yesterday in our earnings call that our volume growth in commercial in Q1 was 3% and our volume growth in leisure in Q1 was 13%. Our on-airport and off-airport mix, you can see, is 77% and 23% and our time and mileage versus our ancillary sales is reported as well. This is how the $4.5 million breaks down in commercial and leisure and I think this is an important chart. We have $2.1 billion of commercial volume within our 2 brands, Avis and Budget. Within that $2.1 billion, 60% or $1.3 billion is contracted with mid and large commercial clients, and those contracts roughly are 2 to 3 years time periods. Our small business, commercial, is a $400 million business segment for us. As you heard again yesterday, 9% growth, and that's on top of double-digit volume growth in 2011. Our leisure volume is $2.4 billion, again comprising both of our brands, Avis and Budget, and we'll talk about how we drive our strong leisure initiative and revenue and profit with our partnerships, airline partners, travel partners, et cetera. The other thing I think is important as you think about North American employment, the employment has really been flat over the last few years. In fact, last year was down 1%, but the car rental industry itself is growing at 18%, which is why the local market initiative that we've implemented a few years ago is so critical to our North American business.

Our local market business is an $800 million segment for North America and it's growing volume growth of 7%. Now this might be my favorite chart that I'll share with you today, and this shows the margin and how we've improved margin in North America since before the recession and through the recession. In fact, in 2011, we finished roughly 10% in EBITDA margin, almost doubling the pre-recession margin of 2007. And really this is a direct -- there's a direct correlation here on the overall profitability in North American business because of a few key issues. First of all, we have a sales segment focus and we're 100% focused on profitable segments. You'll see more about that as I go through this presentation. Because of the PEx initiatives that were initiated 5 years ago, you saw charts on those from Ron earlier this morning. The strategic initiatives that we put in place beginning at the end of 2011 and all of -- sorry, 2010 and all of 2011, and I'll give you some more transparency to those strategic initiatives today and the revenue and the profits they are driving for the business. And last but not the least, our focus on ancillary sales.

So what are our competitive strengths in North America? First of all, we have a dual brand strategy and have focused on a dual-brand strategy and have focused on a dual-brand strategy for the last several years. We have terrific and strong partnerships, both commercial partnerships, travel and airline partners. We'll talk specifically about those in a minute. We have a diversified fleet portfolio within North America to meet and exceed our customer expectations for all of their needs. We have a sales focus segmentation approach, so our sellers are subject matter experts by the segment in which they sell. Small business, big market, large commercial, travel, partnership, associations and International Inbound and we have a newly formed at the end of 2010, dedicated customer experience team, driving the voice of the customer and our overall customer experience in North America.

Now this is another slide that I'm proud to share with you. If you look at the logos on this slide in each of the segments, I like to say that our company is known by the company it keeps. And we have some very tremendous partners, long-term partners, within our business. I shared with you that we have $2.1 billion in commercial revenue, $1.3 billion under contract, long-term contract, and our travel and partnership space, we have over $1 billion of long-term contracted partnerships. And in the last 2 years, we've been successful in either gaining new or expanding our current relationship with these partners. So let me highlight just a few if I can: MGM Resorts out in Las Vegas. We sold that as a new client in 2011. Our expanded, exclusive partnership with Starwood Hotels and Resorts. Our expanded partnership with Costco Travel in 2011. For airline partners, our exclusive arrangement with American Airlines, our expanded partnership with the new United Airlines, expanded shelf space with Southwest Airlines, our exclusive relationship with Air Canada, exclusive relationship with Frontier Airlines and our expanded relationship with Aeroplan, just to name a few.

The expansion, either selling of new or expansion with these partners has driven $100 million in incremental, highly profitable business for the North American business in the last 24 months. Let's talk a little bit about the diversification of our fleet in North America. On the left, you'll see that we have no more than 26% with any one manufacturer within the North American portfolio. This certainly mitigates risk for our company. We have many different car classes and products available to meet and exceed our customers' expectation, up to and including our BMWs that Ron talked about earlier and we have a risk program profile of 60%, 40%. Now one of the things that I thought would be important to share with you, for example, is that as we report these percentages, this is a North American number. It includes both the U.S. and Canada. And in Canada, we've been very fortunate to put together a program car portfolio for the 4 months of peak summer. There's 100 days of summer in Canada and we have been able to put together a significant deals on program cars for that 4-month period. So our overall mix in North America is 60% 40%. And I'd be remiss if I didn't talk a little bit about our truck business in North America. It's a $400 million piece of business for us, and you can see that while our revenue has been basically stable for the last several years, 2007 through 2011, the margin and EBITDA have substantially improved over that time frame. Joe Ferrero, who runs operations for our business in North America, previously led the truck business and you can see what he and his team have accomplished in 2007. And it's really based on a few key issues. First of all, the segment focus in the truck business, again, specialized selling organization selling commercial truck volume and our customer one-way focus on truck. That's driven profitable revenue and sustained our EBITDA margins. In addition, we have improved utilization by 4.5 points during this time frame and we exited 2,500 trucks from our fleet. So improved utilization, right segment focus and exiting too much fleet or too much truck fleet.

I will share with you that with a truck business, we also are adding 4,700 new trucks in 2012. Those are replacements as our fleet ages, and it's an investment in our truck business that's certainly well warranted based on the margins that we're now achieving. I want to talk a little bit about our customer experience team. And my colleagues, both Larry and Pat, talked about Voice of The Customer scores in each of their regions. You can see that our customer scores have improved in the last few years by 6% in Avis and 4% in Budget. And that is really a direct reflection of our customer focus, laser customer focus on the experience. And why is that so important? That increases revenue. It increases loyalty from our same customers renting more often with us on an annual basis and then that increases incremental profit for the business. Now let's go to the growth drivers. You've seen from both Ron and Larry and Pat the 4 pillars of strategic growth for our company. And let me share with you how those growth drivers affect the North American business. First of all, if you look at this bubble chart on the bottom left-hand side, we refer to those strategic initiatives as clear line of sight initiatives. We implemented this strategic plan at the end of 2010 all the way through '11 and then we have continued focus on this plan again in 2012. I'm going to talk specifically about small business, international inbound, our brand marketing, our local market focus and a few other strategic initiatives. We also, in the middle circle on this page, is the midterm strategic initiatives for the North American business. CRM is our Customer Relationship Management execution that our marketing team is leading. And our fleet disposition, which I think David will speak about more later this morning. And then on the far right-hand circle or bubble is our long-term and continued strategic initiatives for North America. They include the customer experience, which is a continuous process throughout all 3 regions, throughout our company and as an emphasis for the entire organization and connected car or virtual technology. And Scott Deaver, our chief strategist, who will follow me, will talk more about our connected car and virtual technology for the business, for our global business in just a moment. So let's talk about the clear line of sight strategic initiatives and what they mean to the North American business and what they have meant in the last 18 months or so. First of all, in small business, there's -- the revenue is 13% higher per transaction than our normal corporate business. You can see the average daily rate is $4 higher and the ancillary revenue per day is 77% higher. Our strategic focus in small business in the last 18 months has led to in Q1 of this year a 9% growth rate. And again, that's following an entire year of 2011 at double-digit growth rates, all focused on highly profitable margin business. Next is our expansion to International Inbound. And you heard both Pat and Larry talk about cross-border sales today. In the end of 2010, we formed an International Inbound team focused primarily on driving European volume from Europe into North America or into the United States. And you can see why. If you look at the metrics, average daily rate plus 12%, length of rental, plus 37%, ancillary revenue per day 200-plus percent and revenue per transaction, 83%. We -- our share, our Avis and Budget share in North America is roughly 27% to 30% share in the marketplace. We were undershared in volume coming from Europe. Europe is about a $1.5 billion inbound market into North America. We were undershared about half of what we believe is our fair share based on our brands. And so we invested in a team to focus on driving incremental revenue into North America.

In 2011, we drove $44 million of incremental revenue for our business in North America, and you can see by the metrics that very highly profitable margins. Our International Inbound volume growth in Q1 was 14% as reported yesterday by Ron and David. Now let's go to co-branding. We have talked about co-branding, maybe even tri-branding. This is a very important strategic initiative in the local market. Our overall local market growth is at 7%, but where we have combined both of our brands, our Avis brand and our Budget brand, into a single local market execution, our growth, our volume growth, our revenue growth is 13%. In 2010, we only co-branded 53 locations. By the end of 2011, we're at 470. We're at 520 locations today, and we'll be at 600 co-branded locations by the end of 2012. And where zoning laws will permit, we will tri-brand; Avis car, Budget Car and Budget truck. Again, capitalizing on the infrastructure, driving highly profitable revenue for the North American business.

We're working on other strategic drivers as well. And you can see since 2010, we have achieved mid-double-digit revenue growth with margin 14 points higher than the remaining core business. And we expect revenue in 2012 to be $450 million to $470 million with these other strategic initiatives. A great accomplishment by our revenue and pricing teams. Now let's talk about ancillary sales for North America. So I told you how Pat inspires me. He inspired me this morning about selling cheese pizza versus selling pizza with sausage and pepperoni and anchovies, which is where you make the money. We're learning from Pat as well here. In North America, you can see the revenue growth for our business from 2007 to 2011 has been 3%, but our ancillary growth in that same time frame has been 7%. So this is a continued focus for our North American customer facing sales organization at every single one of our stations, both airport and local market, to drive profitable ancillary sales. And as we prepare for the peak, our summer peak, starting very soon, we have already hired ahead of the curve our 800 additional rental sales agents that we add for the peak. They've been hired into the organization. Larry talked about he recruited the right ones with the right combination of sales service expertise. They've been fully trained and they're ready to execute during our summer peak. So that's complete.

Now the other thing is our brand investment. Over the last several earnings calls for the last year or so, you've heard Ron and David talk about our investment in our brands, both our Avis brand and our Budget brand. In fact, we've reinvigorated our investment in these brands and I don't believe that it is any coincidence that our leisure volume is growing at 13%. I think it's a direct reflection of what we're talking to and telling our customers via TV and other forms of media. We've hired Wendie Malick as our spokesperson for our Budget brand. We've been on TV with Wendie at various times of the year to drive incremental revenue. And I'm going to show you in just a moment the new commercial spots that are in the marketplace right now. And on January 1, we kicked off our official marketing partnership with the PGA. Now the PGA for our Avis brand index is very high with the commercial travelers in particular that frequent our Avis brand. And so we've joined partners with the PGA. We sponsored the leaderboards, as you can see on this slide at over 40 PGA events and we also have hired Steve Stricker as the ambassador for our Avis brand. And for any of you who play golf, you certainly will recognize Steve Stricker as one of the top 10 golfers in the world and epitomizes, we believe, the Avis We Try Harder spirit. And lastly, I'll share with you a brief commercial on the Avis brand that started running 2 weeks ago on CBS and NBC. I don't know if you saw them this past weekend, but I will share one commercial with you. So, John?

[Presentation]

Okay. So just a couple of thing about our investment in marketing. First of all, the Wendie ads that you see for Budget appear during the shoulder periods. You won't see those ads run this summer during the peak time, but they appear during the shoulder periods, while in between holidays and when we're looking to drive incremental revenue.

Talk a little bit about our partnership with Steve Stricker, for example. About a month ago, Steve and I hosted 24 of our clients and prospects in an event in Jacksonville at the TPC, the famous 17th hole, which by the way, The Players, is this weekend. And within those 24 customers, we had $700 million worth of contracted volume and $1 billion in prospects. And that is how we are utilizing the Ambassador Steve Stricker and our PGA partnership to drive revenue and overall profitability. And I think you'll agree that the 15-second commercial created by Jeannine and her team is very unique and incorporates a little bit about car rental with the ball and the horn and the ball in the hole. So that's our reinvigorated marketing spend. And again, I believe, there's a direct correlation to the 13% growth that we're talking about in leisure volume. Now let's talk about our customer experience and customer relationship management and our execution of CRM. And I like this slide because at the bottom, the tag line is, "Our customers spend $2 billion annually in car rental with our competition." Our customers. We have mid-60% share of wallet with our Avis brand. We have mid-40% share of wallet with our Budget brand. And $2 billion in car rental leaks away from us each year spent with a competitor. So if we can drive the customer experience, increase customer loyalty, exceed their expectations through our CRM execution and targeted marketing, we can hold on to that customer base and drive more incremental revenue, $2 billion to be specific within our own existing customer base, people that know us and we have a significant share of their wallet. So that is the whole idea around Customer Relationship Management and the customer experience. The next thing -- we talked about the customer experience team, the dedicated team that was formed in 2010 and simple things like listen, own and resolve. Well, this is a simple example of listen, own, resolve. On the left-hand side is our old rental agreement, pretty difficult. Pretty difficult to read. It's in car language speak, and it was a complaint point for our customers. And we listened to what our customers said and made the change on the right. First of all, it's customer friendly language. It's fully transparent to the customer so they know what they're getting when they rent from either of our brands. That's an example of listen, own and resolve. And when we talk about the customer experience, I'm proud to announce today for the first time ever that starting June 4, we are offering a new service through our Avis-preferred -- with our Avis-preferred customers, and that is Select & Go. At 50 airports across the United States and in Canada, we will allow our customers if they choose to make their own vehicle selection. Through our CRM execution, we fill out the customer profile, we'll know what our customer normally wants for the vehicle when they come to one of our locations and we'll assign that vehicle to them. But if they choose and they would like a different vehicle for that rental experience, maybe in fact it's a bizcation so they're extending their business trip for a vacation over the weekend, they may want to choose a different vehicle. And, for example, a convertible, full-sized SUV if they're going to golf or maybe a BMW, if that's what they so choose. So we will begin rolling out Avis Select & Go for our preferred clients on June 4. We will complete the first 25 airports by July 30. The second 25 will be complete by the fourth quarter. This is truly a new and exciting program for our company and it is in direct reflection of listening to our customers and resolving the issues that they would like us to solve. So

let's talk about the outlook for North America in 2012. First of all, we expect to continue to drive revenue increases in mid-single digits. We will increase the penetration of our high-margin ancillary products as we continue to go through 2012. As you heard a week ago and yesterday, we do expect the used-car market to be -- continue to be strong in 2012, and we are laser focused as a North American management team on productivity, revenue generation, sustained profitability and improving the customer experience. So on behalf of North America, Thank you very much for listening. It's now my pleasure to introduce Scott Deaver, our Chief Strategist for ABG. Scott?

W. Scott Deaver

I guess I'm turned on. Thank you, Tom. Thanks. Good morning. I'm going to talk today about change. I'll talk about change, change for our industry and change in particular for Avis Budget Group. Change that's going to have a huge effect on our business in terms of our size and our profitability going forward. We think that we are at the beginning of very large changes indeed. I'm going to start, though, with the 4 strategic pillars that you've been seeing in every presentation so far. But to make a slightly different point, you've seen the 4; growth, global footprint, customer first and efficiency. But the point I want to make is that as we look at our strategic initiatives and as we do the things we need to do, these are not discrete strategies, they're really interrelated strategies. Everything we do, every strategic initiative we have addresses not one but many. When Larry talked about growing Budget in EMEA, he is talking about strategically accelerating growth but he's also talk about expanding the global footprint at the same time by having a strong brand in the second largest car rental region in the world, and at the same time really driving efficiency by taking 2 large brands, much more volume, through a single infrastructure. When Tom talked about CRM, CRM is really about putting the customer first, about the best possible customer experience. But by the way, it accelerates growth because it gets more loyalty from the customer. And in the end, it drives efficiency, because it's that much less that must be spent on acquiring new customers. International travel, perhaps the best example of all, it definitely strategically accelerates growth. It expands the global footprint by strengthening our brands around the world. And in the end, it will put the customer first as we develop products that are best designed for international travelers. The point being, we don't succeed in each of these categories of strategy, we succeed in all of them, and the things we do inform them all. It's is that in mind that I want to enter into a conversation about technology. The car rental industry, we believe, is at an inflection point in our development enabled by technology. We're investing to capitalize on this global opportunity in several places and what I'm going to talk about today is new systems that will drive efficiencies and customer value and ultimately mobility and virtual rental capabilities that are going to vastly expand the addressable market of car rental. As we think about technology's effect on car rental, we're building on our recognition that over the next 3 to 5 years, several trends are going to become apparent. First and most obviously, consumer control of the rental process, enabled by the consumer's own electronic device will drive customer preference and customer loyalty. Control is going to be the watch word for this as for so many industries. Second, we see that the cars' computer will be the hub of new development and of additional revenue and efficiency opportunities going forward. Third and related to that, our fleet will be 100% connected and managed from the center. And finally, changing technology is going to morph the car rental business. It's going to change our business model and it's going to change how we make our money going forward. We have to be prepared for those changes not only with strategic investment and technology but with the flexibility of thinking and with preparedness for change in every aspect of our business. The particular investments in technology I want to talk about are: how we can leverage technology to optimize efficiency, how we can maximize customer value, and finally, capitalizing on the virtual rental opportunity. First, levering technology to optimize efficiency. This is the technological development that we are closest to and that we are now very much within a clear line of sight. This initiative has already begun. Optimization systems for revenue management really were pioneered by airlines and hotels, and only now are they making their way into car rental fully developed. The way it's going to work for us and the ways we see the pieces of it are in this way: First, dynamic revenue management, which already exists to some extent in car rental. In general in car rental now, the availability is controlled by what we call length of rental restraints by sheer availability of supply. Integrating price into that equation is being done, but we think we can do it faster and better. But we'll take the current industry practice and expand it by controlling demand not only with availability but also by changing price and incorporating into that assumptions and learnings about elasticity. The second piece then is improved forecasting. Forecasting not only in general about demand but by segment, by channel and most importantly, by price point. A price adjusted forecast in effect that tells us not only what we can expect but what we can expect at each price point. The third piece is targeted pricing strategies. What this means and what this system will enable us to do is to ask ourselves, do we want to raise our prices above the rest of our competitors? Allow the market to clear underneath us in extremely high demand periods and have the last cars in the market? Do we, on the other hand, want to take price-sensitive demand early to optimize total revenue? Those choices we make now on intuition guided by experience. But a proper optimization system is going to allow us to make those choices with much more knowledge about the profitability outcomes that each will drive. And finally and most importantly, integrating fleet decisions into the whole process. Our systems now know exactly how much fleet we have, how much we can get out of, how much we can add at what pace in what places. When we can integrate that knowledge with our revenue management optimization system, we can create an algorithm that says, when should we add fleet to optimize profit so that we can grab more demand, and when should we restrict market supply to force demand to express itself not in volume but in price. When we put all of these pieces together, we really will have an industry first optimization system that puts both price and -- both demand and supply together, price and fleet together and creates, we think, the opportunity to generate more than $50 million in EBITDA beginning in 2014. The improvement comes in 2 ways. First from about 1% improvement in utilization in fleet efficiency by having exactly the right number of cars for forecast demand and secondly by about a 1% improvement in achieved price by knowing when to make the most out of price opportunities and when to take demand in terms of its price sensitivity. As you see by this chart, we begin to get some benefits from the system over the next year, we get more of the benefits in 2013 and by 2014, it will be fully employed in North America and we'll be ready to roll out internationally where we also think it can have an enormous effect. So that begins us with our ability to use in improving capabilities of optimization systems to maximize profits. The second thing I want to talk about is how we can use technology to maximize customer value. Many of the technologies that are changing car rentals are still in their developing stages, but this technology is already here and already very much present. And that is mobile applications, customers wanting to control the process and use their own device and their own control to do everything that is now done by employees in the car rental business. First and foremost, smart applications for reservations. Right now, Avis alone, among car rental companies, has applications on all 4 of the major mobile platforms and we are able to access websites and give reservations in 35 languages anywhere any time. We're also living into the world of mobile tracking. So as the customer who controls his reservation process controls at the same time the ability to complete the rental agreement and choose the car via mobile device. That then moves us to a place where, lo and behold, not only have we put the customer first and made the customer experience better, but also we're achieving considerable efficiencies by not having to answer the phone, by not having to have as many employees to touch the customer and by giving the customer something the customer wants at the same time. As we progress on mobile applications, future rental experiences will allow us to enhance the customer's experience by putting even more capabilities on the mobile device. Right now, the Avis iPhone app allows on the rare occasions, when roadside assistance is needed, allows the customer to facilitate roadside assistance. We're going to be able to do more and more with these applications as time goes on, making a better and better customer experience and maximizing the customer's value because this enhances loyalty. This causes the customer to want to come back to Avis, to have a cost of changing from Avis to any other car rental company and importantly, to shop at the company store, to be in a place where they are shopping from directly Avis so that we can offer them the products we want to offer them. And at the same time, so that they're not working through an intermediaries and we're able to maintain control of the process. You can already see how fast we're going here. This is an area of the business that's going to grow extremely fast. We already see a sharp curve with the apps we've been putting in over the last 2 years. As we expand the capabilities and we think we're industry leaders here, the shape of this curve is going to get sharper and sharper and sharper, giving customers what they want and at the same time improving our efficiency. But it's not only for our customers that enhancing technology is going to improve customer experiences. We also are changing the technology available at our counters. Tom talked about CRM and importance of CRM. The delivery device for CRM now is a new user interface, which we're deploying at our counters all over the country so that at the important moment of face-to-face contact with the customer, our employee has individual information about that customer to make the experience better, increase loyalty and importantly, to sell the ancillary products where so much of our profit comes from with knowledge of what that customer has bought in the past and with knowledge of what ancillary products to offer and in what order. All this together is going to allow us to maximize the value of every customer we see, increasing their loyalty, getting more rentals from each customer and selling more products and ancillaries because we know about the customer's habits and history. Finally, let's talk about the virtual rental opportunity. Virtual right now is still a space in our industry that's evolving and is not clearly defined. Developing business models must be bridged with rapidly changing technologies. The industry is still learning how we'll give customers what they want and also build profitable businesses. We think that the things we're seeing now could be sort of looked at as the prehistory of what virtual rental can be. So we have a variety of tests underway in all our regions, experimenting with different business models, different customer offerings and different technologies. In the U.S., 4 major corporate customers are already up and running with self-service models available on their corporate campuses. In Europe and beginning soon in Australia, we have other automated tests of virtual products aimed at businesses and individual consumers and scalable down to one car. We're now testing 4 different technologies. We are seeing more technologies arrive. But all of them have a few things in common. First, low-cost technology solutions are continuing to be developed. We're seeing in the car rental business our own little car rental mini version of Moore's Law. Technology is getting more powerful. It's getting less expensive. It's getting more scalable every time we turn around. This is something that is going to change a great deal over time, offering customers more ability to get what they want. Second, all these models have in common automated checkout and check-in anywhere. In the end, it gets back to customer control. It gets back to the individual user being able to control the experience they have from their own device in their own way. And not too surprisingly, what that means is, it lowers our costs. Every virtual technology has a variety of efficiency byproducts. Fewer people are required because the customer wants to serve themselves, so they don't need our employees to be there. More to the point, we can create rental locations, so to speak, without bricks and mortar. We can compete better with our competitors without having to build buildings. We can spread the availability of car rental out further and further. And we can create ways to deliver car rental in places where we could never have actual locations. At the same time, when we can have virtual locations at airports, we can create a much less employee-intensive and much lower cost rental process for our customers. Most important of all, though, virtual rental expands our addressable market manyfolds. Pat talked about the fact that in China, we look for a world in which there might be as many as 250 million drivers licensees and as few as 90 million cars. The business models that that's going to entail are going to be business models that will speak directly to the capabilities of virtual rental. So what we see is in general, varying business models are going to be required to serve different global needs. The thing that's now happening in the United States, a market is fully penetrated with automobile ownership, is going to be very different from the thing that happens in Europe and Australia, where increasingly we're seeing municipalities enter into this space to try and create efficiencies and to try and reduce car ownership by encouraging car rental.

And those in turn, will be extremely different from what we are beginning to see in China, where we believe that car sharing, the benefits of driving a car are easy to see, the benefits of owning a car not always so easy. In China, we think that, that's going to be the marketplace from the beginning, and that we're going to really be seeing a market where car sharing, virtual car rental and the ability to get in and out of a car is going to be right at the heart of what allows the car rental business to grow and what allows us to reach the size and scale comparable to what we see in the rest of the world.

All this then is how we see the changes growing in virtual car rental. But it's also how we see our need to be open-minded to change, which brings me back to where we started, which is the industry's at an inflection point enabled by technology. Technology is the enabler. The inflection point is technology is enabling us to give our customers more and more of what they want, to provide it better and better, and as an aside, to provide it at a lower and lower cost, and therefore, better and better profitability.

We have new systems that will drive efficiency. We have new systems that will maximize customer value. And most of all, we have the opportunity to create a business that addresses a far, far larger market than traditional car rental has addressed. So that's a summary of what we think is going to change around technology enablement.

And with that, I'll ask Tom to join me on stage, and we'll take your questions. Question?

Unknown Analyst

I wanted to ask about the ancillary revenue per day, a lot of color there. Where do you think that number can go over the next few years? How -- what inning are you in, in terms of the penetration there? And maybe where is that growth really coming from?

Thomas M. Gartland

I like your analogy of what inning that we're in. I think we're in the bottom of the fourth. So we still have significant upside in the on-airport market. And we're just now beginning to penetrate the off-airport market and -- with ancillary sales. So we have a lot of runway left. And our team is very, very focused on it. And one of the key things that has changed over the last 18 months or so is the recruitment of a specialized sales service organization at the rental counter. And so, it's a different mentality, it's a different incentive packages for those sales service personnel, different retention packages for them. And then we've also executed a sales specialist program within each airport, and now we're expanding that to off-airport. So I would say we're in about the bottom of the fourth.

Christopher Agnew - MKM Partners LLC, Research Division

Scott, I was wondering if you could give us any more color sort of time frame for the virtual car technology. I know you've talked about in the past about 20,000 to 30,000 vehicles having this technology some time through this year. But just thinking about beyond that, when you'd be rolling out across the entire fleet. And also, it's interesting to hear you talk about other competing technologies as you're exploring those technologies in those business models, does that cause you pause in terms of the rollout maybe in North America.

W. Scott Deaver

I don't think it causes us to pause in terms of the rollout in North America because I think that the North American business opportunities and the things that are going to be most beneficial here are relatively clearer and relatively more developed. This is a mature car rental market. Right now, we are continuing to roll out the technology that probably you've heard about, which is a connected car technology in large part, meaning much of its benefit is from the things we were talking about, about the computer in the car allows us to read gas, read mileage. There are efficiencies connected to it that have nothing to do with self-service. It does, however, enable self-service. In the United States, we feel like the most promising business model we see now of the things we're doing is with the corporate -- the large corporate customers, who we're not at liberty to name, who were using their corporate campuses. It enables some things with the corporate clients because they have the need to bus their employee -- the desire to bus their employees to work, but the employees still may need a car. It does things for them that meet their goals. And we feel that there's good possibilities there, good possibilities with military bases, good possibilities perhaps with the other kinds of government facilities. But that's going to be, at least for the time being, the place where we'll have the fastest growth. At that point though, as we deploy more and more cars, we have the opportunity to create what amounts to a virtual rental, but in our existing operations, airport or local market, that helps the consumer, who then against the self-service benefit, but at the same time, of course, it has a lot of efficiency associated with it. I don't see any reason why that would slow down or go off course. I think what we're continuing to see and need to experiment with mostly outside the United States where -- remember this, car ownership in the United States is about as fully penetrated as it's going to get. And in many, many parts of the world, that's not true. And so the kinds of virtual business models that, so to speak, scale down to one car and one parking lot and one place are likely to grow much faster outside the United States than in the United States. It's particularly true because we see more and more focus on what I'm going to call green consciousness, not necessarily on the part of individuals, but on the part of governments where the government has various incentives and encouragements for car sharing and for that kind of virtual car rental. I think that's going to require somewhat different technologies, and the technologies themselves are evolving very fast. They're getting less expensive, they're getting more robust. I think that, as I say, I think that what you see now is very different from what you're going to see in 5 years and 10 years.

Thomas M. Gartland

Chris, the one thing I would add to that is you're right, that in North America, we have 8,000 of those vehicles equipped today. By July, we'll have 20,000 -- 25,000 of those vehicles equipped, and we really are the incubator for testing for the rest of our global business.

Emily E. Shanks - Barclays Capital, Research Division

Emily Shanks from Barclays. I just have a question for you, Tom, on the truck business. I know that you showed the improvements since '06, but if you look back pre-'06 and business used to generate high-teens, low-20s EBITDA margins. I'm just curious if you think there's actually been a structural change to that business, whether it be housing or competition? Or if you think that you can revisit those at a margin level?

Thomas M. Gartland

First of all, obviously, we've gone through a real economic recession during the same time that we significantly improved margins. So -- and there is a change in the housing market. So that's had an effect on us. In addition to that though, if you think about the 4.5% improvement in utilization that we've created in and exiting 2,500 trucks in the business, we've been able to increase our profitability and will continue to increase our profitability because we're not only focused on the consumer one-way market, we're also focused on the commercial market. And the commercial market has a longer length of rental and an opportunity to drive both revenue and profit. I spoke about the 4,700 trucks that we brought in to our fleet -- or that we are bringing into our fleet this year in 2012. 800 of those vehicles are white without logos all over them, all right, with liftgates on the backs, specifically designed for the long-term, long length of rental commercial business.

Brian Arthur Johnson - Barclays Capital, Research Division

Brian Johnson, Barclays. You've talked a lot about operational and strategic and technology initiatives that should be boosting the bottom line. I think since we see 2 lines, revenue and adjusted EBITDA, a lot of what you're doing frankly, is swamped by changes in depreciation, which then gives -- so my question is kind of one, have you ever looked at the business as 2 businesses, I'm renting cars and I'm buying and selling these new cars and turning them into used cars? There's at least one player Localiza in Brazil that breaks out its P&Ls that way. And two, if you're not, how do you make sure that these are actually driving profitability? And in a particular, Tom, how are you measured internally given that a lot of what goes into the EBITDA margins is the result of depreciation assumptions?

Thomas M. Gartland

You want to start and then I'll jump in? Or do you want me to jump in?

W. Scott Deaver

Go ahead.

Thomas M. Gartland

First of all, it's an excellent question. And what we are -- we are in the car rental business. Our business is car rental and truck rental. It just so happens that right now, there's an opportunity in the secondary car market, it's a strong market for us. David is going to talk specifically in a few moments about fleet disposition and how we're looking at alternative ways to dispose fleet and driving incremental profit for the business. So it is not our focus as a business, but we do understand that in any given year, we move $6 billion worth of fleet in and out of the overall corporation. But we are focused on car rental and truck rental, and we continue to manage and harvest profitability as we acquire and dispose of fleet.

Unknown Attendee

In the last several years, the Avis brand has lost about 2 or 3 points of shared airport size. I was wondering if you could talk about whether this was a strategy, competition, that the Budget, which has lost much less, may be flattish is more profitable by some other affects that have gotten us this current position.

Thomas M. Gartland

Okay. Well first of all, we monitor share very closely for both of our brands by airport. And if you look at -- as we came through 2008, 2009, you're correct in the share loss of 2% share for Avis brand, and Budget basically flat. If you also look at what's transpired in -- at the end of Q1, in December and in January and February, we shifted that back to a flat position with Avis. But I do want to make sure that we're crystal clear. We're not in the share game, we're in driving profitable revenue for the overall organization. And when you see the charts that David's going to present, we actually did make a conscious decision to move away from some unprofitable segments. In fact, I think in Ron's chart, it says all demand is good demand, and we recognize that, that may not be the case. So when you think about our focus on small business, when you think about our focus on international inbound, when you think about our focus in local market, when you think about our focus in dual branding, those are all to drive the segments of the industry that are highly profitable for our business. So we made a conscious decision to step away from some share as we came through the recession. And we're conscious of it, we watch share very, very closely, but we're not in a share game, we're in both driving revenue and long-term sustainable profit.

Neal Goldner

So no more question? I welcome Senior Executive Vice President, David Wyshner, to come and talk to you.

David B. Wyshner

Good morning, and thank you to all of you joining us today, both in person and in via webcast. It's great to see so many familiar faces as well as many new ones. I'd also like to thank my colleagues for all of their work and help in preparing for today's meeting and for their presentations. I am confident that their enthusiasm and understanding of our business had been apparent. I share their enthusiasm wholeheartedly. Our business is performing well and even more importantly, it is solidly positioned for further success in the future. I've never been more excited about where we stand and where we're going.

I discussed our first quarter performance in yesterday's earnings call. A replay of that call is available, so I'm not going to repeat that information here. Despite the fact that we think the strength of our Q1 results could bear repeating, rather, I'm going to talk briefly about our business in total and our financial performance in a longer-term context. Then, like my colleagues before me, I'm going to focus on some important strategic issues and on our outlook.

With the acquisition of Avis Europe, we're a leader in all of the world's major car rental markets. We have a #1 position in the Middle East, Africa, Canada and Australia. In the United States, we're the second largest player behind Enterprise, and in Europe, we're second only to Europcar. We have more than 5,000 locations that we operate directly in 20 different countries. And through licensees, our brands have global presence with 5,000 additional locations in 175 countries. Operating in 3 regions, plus our U.S. truck rental business, we generate more than $7 billion in annual revenue. Substantially all of our revenue is tied either directly or indirectly to vehicle rentals. We complete some 28 million rental transactions a year, renting 450,000 vehicles.

Our revenues are diversified in many ways. While the Avis brand represents about 2/3 of our revenue, about 30% of revenue comes from Budget. We serve commercial and leisure travelers both on- and off-airport and roughly 40% of our revenue is now coming from outside of the United States. The acquisition of Avis Europe last year has obviously helped us increase the geographic diversification of our revenue and earnings. I hope it's clear that we look upon this acquisition as highly valuable to us. Both because it allowed us to regain global control of our brands and because of the numerous growth opportunities it makes available to us. For what it's worth, I don't believe that the value of this acquisition has been fully reflected yet. In part because of the timing of when the acquisition closed, but I also believe that in time, such value will be fully reflected.

We estimate that about 75% of our costs are variable within a fairly short period of time. Our fleet costs, most of our direct operating costs, and a portion of our SG&A costs can all be flexed in response to changes in demand. In fact, this flexibility is demonstrated not hypothetical, since we do flex our fleet, our staffing and our selling costs each year due to the seasonality of our business.

And as many of you know, we use a 3-tier capital structure, roughly 60% of our capital is vehicle-backed debt, which means that most of our balance sheet is financed at investment grade rates. Because vehicle-backed debt is typically our lowest cost form of funds, we optimize by maximizing the amount of such debt in our capital structure. We also use corporate debt to reduce the amount of equity we need for our operations in order to maximize return on equity without putting the business at undue risk.

Just a few quick notes on the balance sheet. We have no corporate debt maturities until 2014, and with the refinancings we completed in March, our corporate debt maturities over the next 4 years average about $125 million a year.

Our asset-backed debt is also well laddered. We have a larger than usual amount of ABS maturities in 2012, but we've effectively addressed those maturities already through the $1.4 billion of ABS debt that we've issued since August.

While our first quarter results were strong in their own right, I think they're more noteworthy as evidence of a solid positive continuing trend. Rental demand was significantly impacted by the 2008, 2009 recession as well as, as Tom mentioned, the tough decisions we made in 2009 to step away from unprofitable channels. Since then, we've achieved steady growth in our revenue.

At the same time, we've been relentless in managing our costs, which has allowed us to increase our revenue per employee by 17% over a 3-year period. At the risk of being immodest, I think this represents us as a management team committing to doing some very difficult things, communicating that commitment to our Board and our investors and then over delivering.

A key element of our progress in this area has been our Performance Excellence initiative. It's focus on process improvement has touch nearly every element of our business, from rental check-out to check-in, from vehicle maintenance to vehicle disposition, from gasoline to printed material, and from damage claims to vehicle preparation between rentals. Both the savings and our organization's embracing of this approach have been phenomenal. We estimate that this year will cross the $300 million threshold for annual benefits from this initiative.

The combination of revenue growth, cost reductions and productivity improvement expresses itself in our margins, which have not only rebounded, they have surpassed pre-recession level. Margins are up more than 400 basis points since 2006 to north of 11%. LTM-adjusted EBITDA is $646 million, $810 million if you include Avis Europe's second and third quarter results, and more than $850 million if you also add back stock-based compensation expense and deferred financing fees to make our numbers more comparable to how some others report results.

Our business is a largely a cash business, so the improvement in margins translates into a fair amount of free cash flow, some $900 million worth over the last 5 years. I'll talk about how we intend to deploy our future cash flow in a few minutes.

What our historical cash flow means is that despite completing the important and sizable acquisition of Avis Europe last year, without issuing any stock, our leverage is actually lower than it was pre-recession.

As much as I enjoy reviewing our 10-Q and ensuring compliance with Sarbanes-Oxley, it's often the strategic elements of my job that I enjoy the most, particularly focusing on earnings and cash flow growth. Clearly, one of the themes of today's meeting is our organization-wide focus on key strategic initiatives to accelerate growth. I want to highlight a few such initiatives, particularly a few that can significantly impact our profit growth, even if they have limited effects on top line revenue. The initiatives I want to discuss are our focus on growth in the most profitable channels or segments, Performance Excellence and fleet cost optimization.

We spent a lot of time to become, we believe, a leader in our industry in understanding the relative profitability of various transaction types, channels, segments and customers. And we're in the middle innings of using that knowledge to skew our mix toward the most profitable transactions. Our transactions have wide variability in their profitability, and shrinking our share of less profitable transactions and growing our share of more profitable transactions can therefore have a significant impact on our earnings. Our initiatives in the small business and international inbound arenas and in increasing our ancillary revenues are good examples of how we're growing disproportionately in disproportionately profitable segments.

Another key initiative is the success I mentioned earlier, Performance Excellence. This is going to continue to drive substantial benefit for us as we are constantly replenishing our pipeline of potential improvement projects. In fact, we, as an organization, are now surfacing more processes that should be PEx-ed than we can handle.

Our progress in better optimizing our customer mix and in Performance Excellence process improvement has caused us to look for other similar opportunities. And we see such an opportunity in using technology to better optimize our largest single cost, fleet. Here, while we had made good progress, we are in the early innings of applying optimization technology to inform what literally are millions of decisions we have to make each year about when, how, where, from whom and to whom we're to acquire, deploy and dispose of our vehicles.

To try to make things a bit more tangible, let me give you an example, an example that's actually a small one in the context of this opportunity. We often have some sizable differences in the holding cost of different trim or amenity levels for the same model vehicle. Sometimes, it's the lowest trim level that is least expenses, sometimes it's the highest, sometimes it's the one in the middle. We estimate that if we can better optimize trim levels choices for risk vehicles with nothing else changing, we could save $4 million to $8 million a year. Needless to say, the opportunities associated with some of the larger decisions we need to make are much more significant.

One of the larger decisions we need to make is how to dispose of our vehicles. Traditional auctions have been a great place to maximize residual values over the last year, and we expect that they will continue to be an important part of our vehicle disposition process. But car sales through online auctions and alternative channels represent about 1/3 of our vehicle sales volume. And we think it will make sense to increase the portion of vehicles that we sell through alternative channels in the future.

To be clear, our focus will be on maximizing the residual value we achieve, net of selling and transportation costs, and not on hitting any arbitrary targets for channel mix. Nonetheless, we believe there's a potential $10 million annual opportunity associated with increasing our direct-to-dealer vehicle sales with the principal source of savings being the elimination of a third-party middleman and of unnecessary transporting of our vehicles through a physical auction site. We intend to invest modestly and probably $2 million to $3 million over the course of the next year to see whether this opportunity is as realizable as we think it is.

Our analysis indicates that this is a very real cost-saving opportunity, but there are 2 other elements of it that I like. The first is that we will be able to measure precisely how the car values realized through direct-to-dealer sale compared to how we're doing at auction, and adjust accordingly. And the second is that if I'm wrong and the opportunity isn't what we thought, we will fail cheaply. We would never set out not to succeed particularly with the component of one of our strategic initiatives. But there's honor in understanding and limiting downside risk. Lastly on this topic, I should also mention that we were piloting a direct-to-consumer partnership with a leading auto retailer and are hopeful that this also can help us increase the realized residual value of some of our vehicles.

The headline on this next slide tells the story. These initiatives really matter. It's not a leap of faith, call it a short cut, to believe that growing in disproportionately profitable segments and ancillary revenue can each contribute more than $10 million of pre-tax earnings growth. Fleet optimization can contribute $20 million a year, and PEx has clearly that it can add $40 million or more year in and year out. As a result, these initiatives, when added to more than $100 million opportunity that Avis Europe represents over the longer term, can help add $180 million or more to our earnings, whether it's to offset the effects of inflation on our costs, or falling straight through to the bottom line.

Our strategic initiatives, our focus on controlling costs, a strong used car market and healthy demand for vehicle rentals are all favorably impacting our outlook for 2012. We see revenue growing by 25% to 30%. While much of the growth is due to having Avis Europe for all of 2012 compared to only one quarter in 2011, we expect organic growth as well. By way of example, we had 5% organic growth in revenue in the first quarter. We also expect the used car market to remain relatively strong over the course of the year. In the used car market, off-lease vehicles are often the next best alternative to an off-rental vehicle, and a number of vehicles coming off lease will be lower in 2012 than it was in 2011, and it's projected to remain below the historical average all the way through 2015. At the same time, the auto industry seems to be keeping production in line with natural demand. We believe the shortage of off-lease vehicles combined with the auto industry's post-recession discipline, will cause late-model used car market to be supply-constrained for the foreseeable future. This supply constraint helps produce the residual values we are seeing.

And for us, fleet cost is the difference between the price in which we purchase a vehicle and its residual value at disposition. We expect our per unit fleet cost in North America will decline 3% to 8% in 2012 compared to 2011. This means we are beating what we consider to be tough year-over-year comps in our fleet costs, and that 2012 fleet costs are running significantly below 2010 levels.

Our results in 2012 should also benefit from lower borrowing rates for our vehicle-backed debt. We've been able to issue ABS debt at very attractive rates over the last year, and we estimate that our average interest rate on the roughly $4 billion of term ABS debt used to finance our U.S. fleet will be 80 basis points cheaper this year than last.

As we announced last week, what this all means is that we're looking to deliver $825 million to $875 million of adjusted EBITDA excluding items in 2012. This translates into an EBITDA margin of roughly 11% and earnings in the range of $2.35 to $2.65 per diluted share. While I think these numbers are respectable in their own right, let me provide a little context. 2011 was a record year for us with EBITDA of $610 million. The midpoint of our 2012 estimate represents a roughly 40% increase from 2011, as well as close to a 10% increase from what our results would have been last year if we had owned Avis Europe for the entire year.

Importantly, the increase in diluted EPS is around 50% year-over-year. Part of this growth is organic growth, driven by all of the initiatives we've discussed over the course of the day. And part of this growth is due to completing the acquisition of Avis Europe on financially attractive terms without issuing any stock or impacting our debt ratings. We are excited about both parts of this equation.

Given the nature of our business, we expect that the substantial majority of our pre-tax income will also be free cash flow over the course of the year, and this slide walks you through the math. Most importantly, free cash flow works out to be around $4 per outstanding share.

Near term, our top priority for the use of free cash flow is debt reduction. Yes, we will look at tuck-in acquisitions, particularly of licensees when they offer good strategic and geographic fit and provide an attractive return on capital. But our best guess at this point is that we will reduce our corporate debt by $300 million or more over the course of 2012. This figure includes the $100 million repurchase of convertible notes that we completed in the first quarter.

Perhaps most importantly, while we are happy to be positioned to deliver $825 million to $875 million of adjusted EBITDA this year, our focus and our enthusiasm are not limited to the here and now. The strength of our brands combined with the initiatives that we have spoken about over the course of the morning, positions us well for future growth.

Over the next several years, we see the combination of modest growth in developed markets, a boost from faster growth in emerging markets, our global push to grow ancillary revenues, our optimization and productivity initiatives, our other strategies and the deployment of our free cash flow is allowing us to grow at an annual rates well into the teens. While I will be the first to tell you that such growth almost certainly won't follow a straight line, I think the individual components of an 11% to 17% growth target are each quite achievable.

Needless to say, we hope that our progress will be fairly reflected in our stock price. I don't want to dwell on this point, but I do want to mention that we feel our stock can be considered undervalued from a variety of perspectives. We're trading at a multiple that is only 1/3 of our own multiple 5 years ago when we had neither the track record nor the geographic diversification that we have today. And we're trading at about a 50% discount to the S&P 500 and nearly a 50% discount to our largest public competitor, but that's primarily for you to sort out.

I want to wrap up with 2 slides that summarize the key messages not only of my presentation today, but of our Investor Day as a whole.

We know that a lot of you have followed us closely for long time, so here, in a nutshell, are some of the key items that would be new news that we tried to highlight today. We're launching Avis Select & Go this summer to provide our preferred customers with the ability to select their own vehicles. We're actively pursuing significant growth opportunities in China and in the space we refer to as virtual car rental. We expect to further increase our use of alternative channels for vehicle disposition activities. We are intensely focused on the customer experience both because it's the right thing for us to do for our brands and because it will provide long-term financial benefits. We see large opportunities in Europe beyond the initial integration, where we're realizing substantial fleet cost savings, and we're looking to use free cash flow this year to reduce our outstanding corporate debt by $300 million.

And while those messages are the new news, the core of our story remains the same. We are a global leader in the vehicle rental industry with 2 great brands. We are managing for growth and are implementing strategies that will help us accelerate our growth, and we're generating significant earnings and cash flow.

It's been a great pleasure to speak to you today. Thank you for your time and attention, and it's my pleasure to reintroduce our Chief Executive Officer, Ron Nelson.

Ronald L. Nelson

Thanks, David. What I'd like to do is give everybody one more shot at all of us for questions. So if I can invite my colleagues up to the podium, you guys can have at it one more time.

Stephen O'Hara - Sidoti & Company, LLC

Steve O'Hara from Sidoti & Company. I guess first, maybe you could talk about where you see the sustainable EBITDA margins going forward after your -- the benefit of lease returns and so forth and maybe if the OEMs start to get a little more aggressive on production? And then maybe offer your opinion on why you see the large valuation discount between you and peers?

Ronald L. Nelson

Well, let me tackle that one, then Dave can chime in. 1.5 year ago, we set out a -- or 2 years ago, we set out a margin target of 8%, and we hit that in 2010, and 2011 we set an aspirational target of 10%. We hit that. We're tracking over -- well over 10% now. And I think this business should operate profitably between a 10% and a 13% margin. I don't -- I think there are too many other elements that can play into the business that would cause to put a cap on the margin, particularly given that our source of supply is essentially 3 or 4 manufacturers that provide the bulk of our fleet. I'm not terribly worried about the manufacturers ramping up production. I actually just saw yesterday a survey that Foos [ph] & Company did with a number of respondents from OEMs and from Tier 1 suppliers to the OEMs. And right now, they are sort of pushing capacity on the Tier 1 suppliers, and when the question was asked when are you going to increase capacity to deliver the supply that the manufacturers need, 97% of the Tier 1 suppliers said, "No. We're going to use the capacity constraint as a way to get pricing." And the corollary was they asked the OEMs sort of the same question without incentives. And I think 96% of the respondents said that they're going to curtail incentives in some way. Only 4% said they were going to use incentives to grow the business. So all of that works through the system in our benefit, so I'm not too terribly concerned about why it does that. Why is our margin -- why is our PE [ph] where it is? I don't know. And your crystal ball is as good as mine. I think our -- we got a little sideways on our Avis Europe disclosures. We closed it at the point in time when I think the anxiety over what's going on in the European economy was at a peak. Because of the British takeover laws, we actually didn't do -- couldn't do a lot of diligence and get a lot of inside information. So we weren't really prepared to talk about what we could do and would go with Avis Europe. We're long on doing what we say we're going to do and we're short on sort of making speculative proclamations about what we could do. And I think that hurt us going into the fourth quarter. We clearly made a mistake, I think, misstepped when we sat there and watched consensus be above what our fourth quarter earnings were. I think that when we didn't correct that, I think we made a mistake. That's partially why we're trying to be a lot more transparent going forward. But I think all those things sort of play on why our multiple is where it is. But I hope you'll agree with me that this is a very high-quality management team, they know what they're doing, they know how to drive revenue and profit. And in the end, that's exactly what we're going to do, and hopefully, the market will appreciate that and drive the stock price where we think it ought to be driven.

Neal Goldner

Brian Johnson.

Brian Arthur Johnson - Barclays Capital, Research Division

Brian Johnson, Barclays. Just following up on that quick question. As part of transparency and just part of maybe where the stock is where it is, I think a lot of question I get from investors is, okay, we see $240 to $255 monthly per unit fleet cost this year. We saw a good number last year, lots of gains on sale. You even have $40 million this quarter from the call. A couple of questions, if we just think -- if this had to wake up tomorrow and be a European-style business, 100% program, what would those monthly per vehicle fleet costs look? And would you still be making money? So my question's lastly around this business of rent-a-car, and then second, assuming car rental prices are stable, plus/minus 1%, for used car prices going into 2013, 2014, where does that $240 to $255 go? Does it go up, does it kind of stay where it is?

David B. Wyshner

Let me tackle some pieces there. I think the -- I can't help but mention that the downside associated with providing 2012 guidance is the request for 2013 guidance. But we knew that was coming. With respect to the fleet, I think it's important to know that the manufacturers who provide the program cars to us are selling the cars in the same channels, the same auctions where we're selling. And as a result, the strength of the used car market informs the program deals as well, and certainly did with respect to model year 2012. So the issue of saying well what if there were all programmed or what if there were all risk, it's 2 sides of the same coin from the perspective of both sets of cars are being sold in the same place. And over time, they will tend to move together the path can never diverge that much. As we look at our model year 2013 volumes, we're still in the intermediate stages of that, there's a lot of work to be done. But at this point, I mean, there's nothing that would indicate that for the program cars, where we can say exactly where those are going to sort out, that there would be a big spike in 2013 compared to 2012. It could turn out the that the spike was -- it wasn't in -- it wasn't last year. Despite that it was really in 2007 to 2010, when you look at the graph that's in the presentation, that period of time was much higher than the average, and we're spending time now to look at and see whether the average makes sense for the 2006, 2007 time period is a better proxy for where we'll be going forward. Our crystal ball isn't perfect on that, but it's not out of the question that fleet costs can, going forward, be significantly better or lower from our perspective than they were during the spike between 2008, 2010.

Ronald L. Nelson

I would just add to that. it's pretty -- I think it's hard to compare fleet costs in '06 and '07 to anything in the current period of time. I mean, the structure of the industry really has changed, and part of '07 manufacturers had guarantee labor contract, they had too much capacity. And for all intents and purposes, they stopped the channel. Now you've got a much different auto manufacturer. They're not providing incentives. They've taken capacity out of the system. They're allowing, so to speak, car rental companies to fleet the demand. And I think it changes the whole paradigm on fleet cost. So I think David's right, I mean, it is really going to be all about what is the MSRP of the car, how long do you hold it and where do you sell it. It almost doesn't matter whether it's programmed risk. Those are what drives the fleet cost equation.

Unknown Attendee

I guess I'm on the same wavelength, I mean when you started with the Rodney Dangerfield video and ended with a low multiple and, Ron, I think you hit the nail on head with Europe in the fourth quarter, but as I to speak with investors, potential investors, the biggest pushback is that this industry is over earning because used car prices are so high and that's going to turn around and you're going -- the tide's going to go out. I guess in that chart that David discussed, there is an upturn in 2013. I think as I've understood it, that comes from the fact that during 2008 and 2009, vehicle leases came down dramatically. And in 2010, that started to increase again and the average length is 3 years. So those -- as we've started to see the green shoots and the economy come back, those cars will start to hit the market and affect this tight supply/demand situation. I was just wondering if you could drill down a little bit further since that seems like kind of a one additional unaddressed concern about how many incremental lease vehicles will -- are potentially coming to market next year and how that might affect used-car pricing next year? Obviously, you can't forecast, but you're, at least, aware of the numbers.

David B. Wyshner

Sure. Thanks for laying out the barricade. That gives us an opportunity to respond to it, and I think the vehicle -- the used vehicle marketplace is a great example that you can't point to the fact, there are going to be a few more cars coming off-lease in 2013 and in 2012. And I think what is important about that slide is the fact that, it will increase a little bit, it still will be well below the historical average. And what we've seen is that there is a -- essentially a buildup of unsatisfied demand in the used car market. And with the fairly gradual trend and not even a return to average level, we're reasonably hopeful, and if I'd put money down, my bet would be on the fact that we'd see -- that any movements in the used car market as there a few more off-lease vehicles end up being gradual -- a gradual impact and is something that the used car market really can absorb fairly well because of the pent up demand that hasn't been satisfied as the prices where used cars are selling have been selling over the last 6, 9 months. So I think we're aware of the fact that trends -- some of these trends will move, but as the economy gets stronger over time, I think we're well positioned to take advantage of improving travel trends at the same time that we see any headwinds from some of the recessionary issues dissipating a bit.

Christopher Agnew - MKM Partners LLC, Research Division

Chris Agnew, MKM Partners. Can you give us as of the tuck-in acquisitions that could be a use of cash for you and how many opportunities are out there? I think you're taking a slightly different tack to competitor of yours who's looking actually to franchise businesses. And then, sorry, just related question, because I'm thinking about the cash flow that you outlined in earnings growth that you outlined, you kind of going to run into cash problems, if that's the case with your liquidity potential. I mean, how do you think liquidity of the stock in general?

Ronald L. Nelson

You'd have to give me a better definition of the cash problem, but I'll answer your first question first. Look, we don't do licensee acquisitions just for the sport of doing them even if they had pretty a good return on capital. I mean the 2 hurdles that they have to meet are they have to be in a strategically important market, and we have to be able to leverage some infrastructure that we already have. Montana, North Dakota -- as good as those markets are and as good as our licensees are, we're not likely to be interested in acquiring the licensees in those markets. But in areas where we have big licensees -- take a market like South Africa, I think you heard Larry say that they do over $300 million, I mean that's a big market position and a place that maybe it won't 5 years, maybe it will be 10 years, I mean, this is where growth is going to be so something like that would be a lot of interest. But it's got to be an important market. We got to be able to leverage infrastructure. In any given time, we've got a half a dozen licensee acquisitions that we're looking at. But we always have a list of the ones that we know are pretty important. We don't try to chase them, they tend to be generational in terms of how they turn over, always better when a seller comes to you rather than a buyer when you go to them. So I mean, that's generally the how we look at it. In terms of our cash uses...

David B. Wyshner

With the forecast, the midpoint of our cash flow forecast for this year is in the $400 million range, and we're targeting about $300 million of debt repayment. So that provides -- that difference provides us with some room to pursue some tuck-in acquisitions. Most of the licensee acquisitions that we look at end up being relatively small, some of them quite small. And the other point that I think is worth noting is that for a long time, the strength of our business in Australia and New Zealand has allowed us to build up a fair amount of cash in that business. So it is actually somewhat under-levered. So we have some cash available internationally that could be used for international tuck-in acquisitions and could be essentially the funding then comes in the form of vehicle-backed debt in Australia and New Zealand. So we could -- there are some acquisitions we could do without actually increasing corporate debt or using corporate free cash flow, because of the excess equity that's been trapped in Australia and New Zealand. To be clear, I do not see a cash flow problem or cash problems in any way. We feel great about our liquidity. And as we look at acquisitions, I think we will continue to do so, looking both at any impacts that they have on our equity as well as on our debt ratings and cash position liquidity.

Afua Ahwoi - Goldman Sachs Group Inc., Research Division

Afua Ahwoi, Goldman Sachs. I just wanted to switch a little to pricing, I think in the cost presentation, you talked about being able to see a point or so improvement in pricing over the next few years as part of your integrated system. And so I'm just wondering given the track record of the pricing discipline in the industry, what are the some of the things you're seeing going forward that you could give you the confidence on the comfort that you can start to see some pricing?

W. Scott Deaver

I wanted to be clear on what that optimization system can do. And it makes no prediction about what will happen to pricing more structurally in the industry. This is about really optimizing efficiency of price inside the pricing environment we find. So I think that what we are able -- what we would -- we are able to do with the demand fleet pricing system we're building, is make more informed pricing decisions and pull more revenue out of the fleet we have and also to know, in a more informed way, when to shed, plead in order not to take lower price volume that in the end would be marginly [ph] Profitable or not profitable at all. So one of the things that's always hard when you talk about the value of a system like that is, you're talking about compared to what would have happened, not I -- believe me, it would be much, much too hard nor would our council will let me say anything to predict what's going to happen in the industry pricing over the next few years. But I think that with the right kind of systems, we can achieve, inside the environment we find ourselves in -- inside the market we find ourselves in, we can achieve better than we've achieved in the past using the intuition method, which I think is common in the industry.

Michael Millman - Millman Research Associates

Following up on that and following up on the prices for residuals, one of fair questions is also industry doesn't seem to have much control in fact of its pricing. And in part because it seems to be some trade-off with the benefits of the high residual levels. Could you talk about that, I guess, without getting arrested in some way about why this industry has seemingly done the job in pricing?

Ronald L. Nelson

Yes. Look, this is a very competitive industry, Mike. And I think part of the challenge is that you get, fleet imbalances pretty regularly that cause people to change pricing, move pricing around to offset the cost of carrying fleet. And I think that creates a lot of volatility in pricing. I've said this for the last 3 years, and I do believe it -- I think there is a newfound discipline in the industry since 2009. And I think some of it has brought on by changes with the manufacturers that have given us more control over the fleet. The other thing that I'm fond of saying is if there ever was a period of time that this industry was going to reinvest price into share, and go for it, it was the last, last year and it's at the end of this year. And I think the industry has actually been fairly disciplined given the size of the profits that we've had. As you know, the biggest fleet owner and the biggest risk car owner in the industry, Enterprise, led 2 price increases in the last 45 days. That's pretty amazing to me. You rarely see them lead price increases. And I think it's one more encouragement that pricing has got some discipline here. But we're in a competitive market. One person alone can't dictate pricing. And I think that there's market-clearing prices that you have to deal with and the answer really is well, it's not as fulfilling as we're going to raise price. There's deal with it in your cost structure, and run your business as efficiently and as cost-effective as you possibly can so that you can maintain the margin that provides a good return on capital throughout any scenario. Want to add anything?

W. Scott Deaver

I think one of the things we've talked about when we talked about strategically growing is there's a lot of volume in this business that is superlatively price-sensitive. But at the same time, there's a lot of volume that's not. And with a strategic initiatives we've put in place to focus our growth on the highest margin segments, and I think that over time, the mix is going to work in our favor. The market clearing prices, as Ron says are market-clearing prices, but by geography, by car type, by kinds of demand, things we talk about like international travelers, people who cross borders, that is, they are definitely less price-sensitive segments, and we can at least stop by growing strategically in those spots and do something positive in mix that allows us to push against whatever trends are in the market.

James Irwin

It's James Irwin of Moon Capital. I just wanted to get 2 perspectives on Brazil and China. You talked at length about China earlier, but when we would look at Localiza the local regional player that's got a dominant position down there, so I wanted to know what your 3-year view is on Brazil, in terms of going after that marketplace. And I want to use that as an example of maybe be more aggressive in your China strategy to make sure you don't have some local players develop there that you have to deal with 3 years from now. And my question is China question ties into what kind of capital balance sheet risk you might be willing to take once those markets open up. Right now, obviously, there's significant constraints in your ability to finance fleet, and you're really using your JV partner's balance sheet, but its early days. That could change in 12 months. So in China, give me your sense on how [indiscernible] financing flexibility might open up to where you can maybe be a little more aggressive in building up that fleet and that rollout. You might disagree with me about the restrictions on the financing. And then also in China, if you do get aggressive, what are you doing on the used car residual value risk dynamic of that market, which is also extremely early days in terms of knowing the balance sheet risk that you might be taking on. So kind of a convoluted question, but the China dynamic, sometime in the next 2 years, 3 years, you're going to make a very big capital commitment, I would think to prevent a Localiza from emerging, which can make that market a lot less potentially attractive.

Patric T. Siniscalchi

Well, I first went to Brazil in 1987 and Localiza was a dominant player in Brazil in 1987. It was co-branded, I think at that time with National. It was the market leader there at that point and has been the market leader ever since. But anybody who has tracked Localiza knows that it's had its ups and downs over the last 20 years. And -- but has now, you're right, become a very, very dominant force in Brazil. We have a licensee in Brazil that is the largest international rent-a-car brand, but the 2 largest players are Localiza and Unidas. And Unidas is about to become the licensee for Nacionados [ph]. I don't know if any of you read that, but that is going to happen. I looked at Brazil as a place that we need to be involved in. And I think there's going to be growth opportunities. I think that we're not really -- our licensees are going through some issues now and although we suspect that when they're through that they'll be aggressively growing the business. And if there is ever an opportunity, we'll probably look at it. But it is a -- to me, I'd look Localiza and say, well, boy, they're very successful. I mean, there's nothing -- honestly, there is nothing special that they really do. The one thing that -- somebody mentioned Localiza puts their profitability in their revenue close between rent-a-car and used car sales, and they are very good at used car sales. They have an awful lot of retail lots around Brazil, they do and they sell disposable -- an awful lot of their fleet to retail car sales. And so they do have a lower cost unit than the rest of the industry, and that gives them some opportunity. But I think that Brazil is still an opportunity for us. On China, I kind of wish there was A, B and C, D on the monitor here for the questions you asked, but China [indiscernible] couldn't employ [ph] a lot of fleets, spends a lot of money in marketing and probably at a time that was probably maybe a year or 2 years too soon. And I think that's going to change. I think that our -- if you look at us today, we have only Avis in China. We are products that are premium. And it's certainly a better fleet mix than any one of our competitors has. A higher fleet mix than any one of our competitors have. Our opportunity will be possibly to use car or other brands to come and compete and grow the business at the where we can be more price and value-driven. There's is an opportunity for us to lower our costs with smaller vehicles so we can do that. I also think that we have a great partner. Our partner, Shanghai Motors sold 4.1 million cars last year. They give us a lot of ability in terms of fleet, they have a finance company that at times I know we fund some of our car purchases through them. And so their access to capital is one of the reasons why we chose Shanghai Motor Industries as a partner. So I think that I believe we are -- I said it earlier, we're just better positioned than anybody else to take advantage of the China market. But we're not going to buy a car for the sake of buying a car. We're going to buy cars because [indiscernible]. And that would be our strategy going forward.

Ronald L. Nelson

I might add, just Martin, maybe you know the answer to this. But my sense is they've not had any trouble financing their fleet. They do finance it on balance sheet. That obviously there isn't a developed asset at that market there, but they have no problems securing fleet financing for the vehicles that they do have, and we don't guarantee it. Shanghai Auto certainly doesn't guarantee it. And I -- there's no reason why that relationship wouldn't continue to exist as the fleet grows and it wouldn't require us to put in substantial amounts of equity to fund the fleet.

W. Scott Deaver

Well, we -- as you said, it's pretty early days, but we do pretty well in car sales in China. The China market is evolving, right? When were first involved in China, it's a market you may able to -- because this predates me, but my recollection is it was difficult to dispose of cars there -- cars that have a certain age to them before you could dispose of them. And we were selling cars that were maybe 5 or 6 years old when we initially started the turnover cars. Now we're selling cars that are 3 years old and actually, we're going through the plan, we think there's an opportunity to sell cars that are between 2 and 3 years old. So we're going to try to keep the fleet younger and take advantage of what, so far, has been a pretty good residual market.

Ronald L. Nelson

One more? No more? All right, well this is the only impairment -- or impediment between this room and lunch. What I want to say as I think David summarized the day very well, so I'm not going to attempt to re-summarize his point. Thank you all for joining us, and I encourage you to join us for lunch and talk to some of my colleagues that are around the room, so thanks very much.

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