Diversified services is a group of companies that you can t really look at as a whole. Beginning with the auto rental companies, there are a few keys. It s an industry that is really very misunderstood by the investment community. If you look at the way the stocks trade, it s typically viewed as a highly cyclical, highly capital-intensive type of industry like airlines and lodging and we would strongly disagree with that characterization for a few reasons. First of all, unlike the airlines and lodging, auto rental really is not a capital-intensive business.
Airlines buy a plane, hotel companies build a hotel.
That s a capital asset that they re stuck with, maybe for decades. The car rental companies, on the other hand, own the rental cars for an average of only five to 10 months. Moreover, even though they technically own the cars, it s really like a synthetic lease, because they buy most of the vehicles under repurchase agreements with the car manufacturers that enable them to sell the cars back to the manufacturer at net book value, and they finance the purchase with asset-backed debt secured by the vehicles themselves. As a result, the car rental companies bear no residual risk on the value of the cars. Most of these companies have seasoned management teams.