Thrifty Car Rental 2009 Annual Report Download - page 16

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Vehicle Residual Value Risk
Vehicle depreciation is the largest single cost element in the Company’s operations, and is dependent
upon the future residual values of vehicles in the fleet, in addition to the overall mix of Program and Non-
Program Vehicles.
DTG Operations primarily purchases Non-Program Vehicles, for which it bears the full residual value risk
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, 2009, approximately 95% of all
vehicles operated by DTG Operations were Non-Program Vehicles.
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. Residual values depend on levels of supply and demand for both new and used
vehicles 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.
Vehicle Remarketing
DTG Operations typically holds Program Vehicles in rental service for approximately six to seven 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.
DTG Operations historically has held Non-Program Vehicles in rental service for approximately ten
months but extended holding periods in 2009 to approximately 18 to 20 months. DTG Operations
remarketed 67% of its Non-Program Vehicles through auctions and 33% directly to used car dealers,
wholesalers and its franchisees during the year ended December 31, 2009.
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 primarily utilizes asset backed medium term notes to finance its vehicles. Under
these programs, 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. See Item 8 - Note 10 of Notes to
Consolidated Financial Statements.
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