Dollar Rent A Car 2011 Annual Report Download - page 16

DTG Operations primarily purchases Non-Program Vehicles, for which it bears the full risk and potential benefits of changes in residual values because the
vehicles are not covered by a manufacturer’s Residual Value Program. Non-Program Vehicles typically have lower acquisition costs and lower depreciation
rates than comparable Program Vehicles, and also allow the Company to reduce its risk related to the creditworthiness of the vehicle manufacturers. The
manufacturer does not set any terms or conditions on the resale of Non-Program Vehicles other than requiring minimum holding periods. At December 31,
2011, approximately 96% of all vehicles operated by DTG Operations were Non-Program Vehicles. In 2011, 2010 and 2009, the Company recorded gains on
sales of Non-Program Vehicles of $46.9 million, $63.1 million and $35.1 million, respectively. These gains represented an average gain per Non-Program
Vehicle sold of $1,190, $1,105 and $700 in 2011, 2010 and 2009, respectively.
Under Residual Value Programs, the manufacturer either guarantees the aggregate depreciated value upon resale of covered vehicles of a given model year, or
agrees to repurchase vehicles at specified prices during established repurchase periods. These programs provide the Company with a guaranteed depreciation
rate per vehicle during the holding period, while minimizing the Company’s residual value risk.
As the level of Non-Program Vehicles in the fleet has increased, the Company has assumed additional risk related to fluctuations in the residual value of the
vehicle, and has increased its reliance on the used vehicle markets. The residual value market fluctuates seasonally with the lowest values typically in the
fourth quarter. Residual values depend on levels of supply and demand for both new and used vehicles, seasonality in the residual value market, fuel prices
and consumer perceptions of manufacturer quality, and directly affect vehicle depreciation rates. The level of the Company’s future investment in Program
Vehicles will depend on the availability and attractiveness of Residual Value Programs, although the Company does not anticipate any material change in its
fleet mix for the foreseeable future.
Vehicle Remarketing
DTG Operations typically holds Non-Program Vehicles in rental service for approximately 18 to 22 months. DTG Operations remarketed approximately 60%
of its Non-Program Vehicles through auctions and approximately 40% directly to used car dealers, wholesalers and its franchisees during the year ended
December 31, 2011.
DTG Operations typically holds Program Vehicles in rental service for approximately six to eight months. Generally, Program Vehicles must be removed from
service before they reach 30,000 miles to avoid excess mileage penalties under manufacturers’ Residual Value Programs. DTG Operations must bear the risk
on the resale of Program Vehicles that cannot be returned.
Fleet Management
The Company utilizes fleet optimization software (the “Pros Fleet Management Software”) from PROS Holdings, Inc., a leading provider of pricing and
revenue optimization software. The Pros Fleet Management Software allows the Company to improve fleet planning and efficiencies in its vehicle acquisition
and remarketing efforts.
Vehicle Financing
The Company requires a substantial amount of debt to finance the purchase of vehicles used in its rental fleets. The Company utilizes asset-backed medium-
term notes and variable funding note programs to finance its vehicles. Under asset-backed medium-term notes, the Company is required to provide collateral
at different levels depending on whether vehicle manufacturers maintain investment grade or non-investment grade credit ratings, and whether inventory is
comprised of Program Vehicles or Non-Program Vehicles. Under variable funding note programs, the Company is required to provide collateral at a fixed
level. See Part II, Item 8 - Note 8 of Notes to Consolidated Financial Statements.
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