But what has happened since then is an even better story. Under the management of Miller and his partners, Budget has turned staggering losses into profits expected to top $60 million this year - and earned rave reviews from virtually all of the securities analysts covering the industry.
None of this has been a surprise to Miller, chairman and CEO of Budget Group. The most extraordinary thing about the car rental business, he says, is this: "Here is a $16 billion industry that has only become a stand-alone, publicly held, run-for-profit enterprise in the past three or four years."
For the previous decade, almost all of the rent-a-car firms were owned by U.S. automakers, who used them as a guaranteed market for their vehicles - sometimes a dumping ground - without much regard for the best interests of their rental subsidiaries. "When the auto companies owned the business, rates dropped like a rock," Miller recalls, because Detroit only cared about market share. The result, in most cases, was huge losses for the rental companies.
One of the worst performers was Budget, which lost $130 million in 1995. That was enough to persuade Ford management to look for a buyer. Enter Sandy Miller and his partners in a mid-size Daytona Beach company called Team Rental Group. A collection of 13 Budget franchises with 155 locations, which made it the company's biggest licensee, Team Rental in April 1997 bought all of Budget for $350 million.
Team Rental was new, but its leaders - Jeffrey D. Congdon, John P. Kennedy and Miller - were anything but car rental neophytes. All three, in fact, have spent their adult lives in the business. Miller's first job after graduation in 1975 from the State University of New York at Oswego was as a management trainee for Avis. Within a couple of years, he went to work for Congdon, a former Avis manager who had a small, independent rent-a-car firm in an unpromising section of the Bronx. When Congdon sold his rent-a-car holdings, Miller took a salaried job at Budget.
In 1981, eager to get out on his own again, Miller was looking for a small franchise that he could afford to buy without a partner. Then, as he tells the story, "I met a young woman in New York who used to work for Avis.
Her husband had been killed in an auto accident and she wanted to make an investment with some of the insurance money. So she loaned me $50,000 and said, 'go buy something bigger.'"
At the time, Florida held no special allure. In fact, his wife, Mary, was reluctant to leave her native Long Island and the excitement of New York City. But there were only two or three affordable franchises available and a Budget outlet in Daytona Beach seemed the best opportunity. So the Millers packed up and headed south.
"She had never been here before," Sandy Miller recalls, "and when we got off the plane and drove down (North Nova Avenue), we passed a couple of hub cap shops and some old houses and she said, 'Five years and we're out of here.' In those days the place didn't even have a bagel shop."
Build-up to the big league
With only five employees, it was distinctly a Mom-and-Pop operation. Mary Miller, a French major in college and a former Peace Corps volunteer, became the accounting department. "That took half of the work off my shoulders," Sandy says. "It wasn't easy. We were leveraged to the hilt and had personally guaranteed all of the debt, so if anything had turned soft, we would have been bankrupt." But a year and a half later, when their first child was born, the business was doing so well that Mary chose to bow out and become a full-time mother (the couple now has four children).
Meanwhile, Miller had hooked up with Congdon and Kennedy, a former Avis vice president of operations, in a partnership they called Team Rental that went on to acquire 40 additional Budget franchises from San Diego to Providence. In 1989, with Ford eager to increase its hold on Budget (and the partners eager to cash in on their hard work), they sold all but the San Diego location back to the parent company. Miller went to work for Budget, helping new franchisees establish their businesses.
In 1994, the partners revived Team Rental, floated a public stock offering, at $9.50 a share, and started buying up Budget franchises, again - this time insulated from some of the personal risks of individual ownership. Meanwhile, Ford had grown disillusioned with the rental car business as losses mounted and it now wanted to sell; in April 1997, Miller and partners were ready for the big leagues. Team Rental took over the parent company and changed its name to Budget Group.
It was clearly good timing. With car rental companies passing into the hands of people focused on profits, the business is proving to be remarkably healthy. In 1997, earnings of the industry as a whole shot up 40% and are expected to grow another 25% this year. Security analysts, who paid little attention when the automakers ran things, say there are a number of favorable auguries for the future. Most cars are rented by airline passengers, and in spite of the ups and downs of airline profits, airline travel has shown a steady increase for 18 years - which means that the car rental business has continued to grow, by 8% to 9% a year. And with so many people clamoring for cars, rental rates have little impact on demand. What's more, auto manufacturers are compelled to treat car rental companies favorably since they remain important customers. Typically, if overall sales slip, the automakers discount even more heavily to the rent-a-car firms, reducing their costs and enhancing their profits.
In Budget's case, says Sandy Miller, the outlook is even better. While the company is not neglecting its airport business - it has already boosted its share of that market by two and a half percentage points and is remodeling 60 of its sites - half of Budget's revenues come from non-airport trade. "We have locations away from airports that would astound you with their volume. In Philadelphia we have a location that does $3 million in business and is 30 miles from the airport. If there's population, there's car rental business. We're also different in that we rent cars and trucks out of the same location. That means we can afford a busy corner in a location that wouldn't be justified by the car business alone."
To expand its truck business exponentially, in June Budget bought Ryder TRS - the country's second largest truck rental firm - adding to its earlier acquisition of Premier Car Rental, which specializes in providing cars for insurance company customers, and Cruise America, a major renter of recreational vehicles. With their years of experience, Miller and his partners have impeccable credentials as franchise operators. The question now, as he admits, is: "Does this guy Miller and his two partners - who ran little businesses - have the brains to run a big business that's worldwide, has seven or eight subsidiaries and does $3 billion in revenues? It's only been a year and a half, but so far so good."
Miller waxes enthusiastic about the "synergies" of his subsidiaries. Still, car rentals remain the heart of the business - and he is unabashedly confident about his own and his partners' credentials and their knowledge of running local operations. Unlike most other rent-a-car companies, Budget owns the lion's share, 82%, of its U.S. locations. Also Budget directs its own advertising program. "Now we tell the advertising agency how we want to market our product," Miller says. "We don't sit and listen to a bunch of smart guys from Yale tell us how to do it. We think nobody knows more about how to market car rental than we do."
Global market, local marketing
And how do you best market car rental? "It's local market advertising," according to Miller. "It's join the Rotary Club, the chamber of commerce, being involved with the local community. It's direct sales, call on local corporate accounts, talk to insurance companies for replacement vehicles, body shops, car dealerships. Yellow Pages are obviously a significant piece. Airports are easy, but if you let the other half go, you're leaving money on the table."
Indeed. With revenue and profit projections growing rapidly, Budget is regarded by stock analysts as a turnaround company within a turnaround industry. Goldman Sachs, for example, declares that "we expect Budget to have the fastest growth in the industry (approaching 20% a year)." And in spite of a 40% dip in the stock price over the summer to $17, all seven analysts who follow the stock recently listed it as a "buy." In fact, some see the fall-off as an opportunity. Meg Saegebarth, an analyst with Goldman Sachs in New York City, says some early investors expected too much. "Bad weather and competition kept the industry from raising prices quite as much as expected," she explains, so a few speculators decided to bail out. Her 12-month price target is $43 per share. That's good news for Miller, who holds more than a million shares.
At age 45, life is good for Miller. From his sunny second-floor office, he can look out on the marina where his 32-foot Luhrs sportfishing boat is docked. A few years ago he took up golf, and he cheerfully acknowledges that he is "terrible." In spite of initial misgivings, 17 years after his arrival, Daytona Beach is very much his home, and home for Budget Group's 13 local employees. (Budget Group has 13,000 employees worldwide.)
Although new responsibilities compel Miller to travel much more - for one thing, Budget's newly acquired Ryder TRS subsidiary, with 700 employees, is based in Denver - he remains active in local civic activities and in his synagogue. He is on the board at Avteam (Nasdaq-AVTM), a Miramar-based remanufacturer of jet engines, and belongs to a group starting up a new bank in Daytona Beach called Peninsula Bank. He is also this year's winner of Ernst & Young's award as Florida's Master Entrepreneur and a candidate for the national award, which will be announced in December.