Welcome to the Hertz Global Holdings Fourth Quarter and Full Year 2010 Earnings Call. The company has asked me to remind you that certain statements made on this call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance, and by their nature, are subject to inherent uncertainties. Actual results may differ materially. Any forward-looking information relayed on this call speaks only as of this date and the company undertakes no obligation to update that information to reflect changed circumstances. Additional information concerning these statements is contained in the company's press release regarding its fourth quarter results issued yesterday and in the Risk Factors and Forward-looking Statement sections of the company's 2009 Form 10-K, second and third quarter 2010 Forms 10-Q. Copies of these filings are available from the SEC, the Hertz website or the company's Investor Relations department. I would like to remind you that today's call is being recorded by the company, and is also being made available for replay starting today at 12:30 p.m. Eastern time and running through March 9, 2011. I'd now like to turn the conference over to our host, Leslie Hunziker. Please go ahead.

Good morning, and welcome to Hertz Global Holdings 2010 and fourth quarter conference call. You should all have our press release and associated financial information, which we issued last night. This morning, we provided slides to accompany our conference call. They can be accessed at our website at www.hertz.com/investorrelations. In a minute, I'll turn the call over to Mark Frissora, Hertz's Chairman and CEO. Also speaking today is Elyse Douglas, our Chief Financial Officer. In addition, we have Scott Sider, Executive Vice President and President of Vehicle Rental in the Americas; and Michel Taride, Executive Vice President and President of Hertz International. They'll be on hand for the Q&A. Before we begin, I need to remind you that today, we'll use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers in our press release and at the back of the slide presentation, both of which are posted on our website. We believe that our profitability and performance is better demonstrated using these non-GAAP metrics. Our call today focuses on Hertz Global Holdings, Inc., a publicly traded company. Results for the Hertz Corporation differed only slightly as explained in our press release. Now, I'll turn the call over to Mark Frissora.

Good morning, everyone and thanks for joining us. Let's start on Slide 6. I thought I'd quickly walk you through a scorecard of our progress over the last two years, as we work to restore pre-recessional financial strength as quickly as possible. Let me start by saying that I'm extremely pleased with the determination and fortitude the Hertz employees have exhibited during this unusually challenging period. With revenue down 11% since December 31, 2008, we've been diligent with cost management. Between 2008 and 2010, we brought adjusted direct operating and adjusted SG&A expenses down 11% each, and adjusted depreciation costs were reduced by 15%. Incremental cost savings achieved over the last 24 months are roughly $1.2 billion. These are cost savings related to standardizing processes, improving workflow and removing waste from our systems, not simply savings from reduced volume. As a result of the savings, consolidated adjusted pretax margin has increased 182 basis points. Corporate EBITDA margin is up 166 basis points and adjusted diluted earnings per share is 24% higher than in 2008. Moreover, we've generated $452.5 million of free cash flow after fleet growth over the last two years, supporting a 9.6% reduction in total net debt. If you look at U.S. Rental Car specifically, since the recession began in late 2008, revenue has come back from down 10% at the end of 2009 to now just down 1.5% over the two-year period. Despite the revenue decline, our adjusted pretax margin is better by 645 basis points over 2008 and exceeding even our 2007 peak levels. And fleet efficiency is 177 basis points higher than it was before the recession. A nearly double-digit increase in Airport Leisure pricing in 2009; the rebound in corporate rental demand in 2010; the expansion of our Off-Airport and Advantage businesses and our…

Thanks, Mark. I'm going to run through the highlights of the fourth quarter, and then discuss our balance sheet and cash flow results. On Slide 24 of the presentation, we've summarized the fourth quarter consolidated results. Highlighting the key metrics, consolidated revenue was up 5.5% on continued strength in Worldwide Rental Car. Adjusted pretax income improved 73.5% on the higher revenue, coupled with lower adjusted direct operating SG&A and depreciation expenses as a percent of revenue; and corporate EBITDA in the quarter was up 20.2%. On the next slide, you'll see that the consolidated revenue increase was primarily due to 6.1% higher U.S. Rental Car revenue. European Rental Car revenue was flat, entirely as a result of negative currency translation. Excluding currency, Europe was up 7.3% over the 2009 fourth quarter. In U.S. Rental Car, Off-Airport was the key driver of the revenue growth, representing 55% of the total increase. Our Airport Leisure business, which usually gets a big boost in price and volume during the holidays of the fourth quarter, was negatively impacted by the winter storms across the country. We estimate the storm's impact reduced December volume by 3%. I think it's noteworthy to point out, that U.S. Airport Leisure pricing was flat year-over-year despite having to overcome a 9.6% price increase last year. Corporate pricing in the U.S. continues to be under pressure, due to aggressive competition and the slower recovery of higher-priced small business accounts. You'll recall commercial volumes began rebounding in the fourth quarter of 2009, so the year-over-year comparison got a little tougher at the end of last year compared with the first three quarters of 2010. Still, commercial volume was a solid 6.7% increase in the latest fourth quarter. Consolidated adjusted pretax margins expanded by 140 basis points in the quarter. As you'll…

Thanks a lot, Elyse. We've come to an extraordinary period in our economic history and we're optimistic that 2011 will be another step closer to the peak performance metrics of 2007. Having said that, while we're optimistic, we're also cautious in the macro front. If you look at Slide 44 on one hand, we are experiencing multi-year bull stock market. Corporations are enjoying healthy profit margins, recent tax measures are positive and many individuals are reducing their debt burden. On the other hand, in advanced economies, growth remains subdued. Household's incomes is weak, unemployment is still high, the U.S. real estate market remains soft, commodity prices are rising, the Middle East is in chaos. And in a flashback of last May's events, financial turbulence re-emerged in part of the Euro area in the last quarter of 2010. With these risks in mind and the fact that GDP doesn't factor in unfavorable weather conditions or competitive pricing actions, we based our 2011 plan on macroeconomic growth of 2%. The bottom line is that our business typically reacts to whatever GDP is. So if you believe GDP growth in 2011 will be 3% to 4%, then there's upside to our expectations. In 2011, we'll continue to pursue targeted growth initiatives and reinvest in our business to support future expansion. Turning to Slide 45, you'll see that the scope of Hertz Global network today. Through corporate and franchise locations, the Hertz brand was one of the largest networks in the industry. We plan to further develop our rental car operations in existing markets through additional franchising, and in emerging markets like India, China, Brazil and the Middle East to capitalize on improving economic trends. Across both lines of businesses, we'll continue to evaluate acquisition prospects and have sufficient cash and access to capital…

[Operator Instructions] First, we'll go to the line of Chris Agnew with MKM Partners.

First question, I just wanted to ask if there was anything specifically that changed in the last several weeks that caused you to raise the full year revenue outlook.

It's really just, Chris, based on the fact that we improved the GDP forecast from 1.7% to 2% and then that was a big driver but a bigger driver was the euro has been stronger, to date, than the $1.25 rate we assumed the business plan. So closer to $1.30 now is what we're estimating it. So those are the two biggest drivers, is the $1.25 to $1.30 and the 1.7% to 2%. That kind of puts to the new revenue forecast that we gave you.

And then your approximate pricing guidance assumptions, how much of that is mix impact from the sort of faster growing businesses like Off-Airport and Advantage? And with respect to the sort of underlying or same-store pricing, is there any change in the competitive landscape or positioning by competitors? I think you mentioned briefly that corporate pricing was competitive. Just trying to get a sense of, has something changed or is your outlook just reflecting sort of how early we are in the year?

Well, I guess in terms of looking at overall pricing in the commercial sector, we continue to have pressure. Probably 1% to 2% is what we're estimating for the year in the commercial sector. And again, this is like trying to predict the future, which is impossible, right? So I don't have a crystal ball. But based on what we see today, we're saying 1% to 2%, maybe pressure on pricing at the corporate level. When you look at Leisure pricing, again, that's kind of -- it's a difficult thing to predict. In the first two months of the year, as I mentioned in my remarks, because people had lots of cancellations due to weather, we had a lot of loose fleets I think in the industry, which didn't help pricing. But we're seeing pricing improve through March, so the good news is pricing's improving. Bad news is first couple of months, I think people will call off a lot of fleet due to weather cancellations. Having said all of that, that's kind of how it meters out to us when we say pricing, approximate guidance assumptions minus one to zero, just based on what we're seeing. Europe is probably a little bit better than the U.S. from what I can see on overall pricing. But again, going into the third quarter, that's your biggest season and that's really when you can kind of get a really good peg on where pricing’s going to develop for the year, because that drives a lot of the volume transaction days. And then also the RPD growth, if you're going to get it in the third quarter, it drives an overall mix of pricing for the year that's much stronger. So again, we'll know a lot more as we head into the third quarter. At this stage, it's kind of premature to really put in any assumptions, but we just put that on Slide 49 for you, so you could see kind of what we're building into our assumptions right now.

And then if I could just ask one quick clarification on Equipment Rental, I think you mentioned that you were hoping to put into effect some pricing in the first quarter or first half. Can I just confirm, was that with respect to industrial? And when exactly does that go into effect?

No. I mean, we're trying to get increased price every day, I mean on any equipment we can, aerial especially. But in general, I think what we said was we'll get positive pricing year-over-year in the first half of the year, that we’d expect that to happen in the first half. We didn't make a forecast in the first quarter and we're hopeful, and we’ve told investors before that one of the months of the first quarter should turn positive. So we're hopeful that happens. But in terms of the first half, we feel pretty good that by the second quarter, we'll be up year-over-year in pricing.

Next, we'll go to the line of Emily Shanks with Barclays Capital.

I had a couple of follow-up questions specific to the HERC business. The first is, what's the average fleet age? Did I miss that?

49.

And then in terms of the guidance that you provided for fiscal year '11 CapEx of $300 million to $350 million, that's net, correct?

Correct.

And how should we think about presale proceeds for HERC this year? Up, down or are you willing to give a number?

The proceeds from equipment sales?

Yes.

It'll be up slightly, year-over-year.

And is there any update on the HERC head replacement?

Head replacement?

No. There's no update. I mean, obviously when we're ready to announce that, we'll let you guys know. So we've got strong internal candidates and we've looked outside as well. And when a replacement is ready to be named, I'll certainly let you guys know. In the meantime, I'm the interim manager of the HERC business. And I guess, the team is extremely strong, energized and lots of capability. So feel pretty good about how we're doing right now and hopefully, we'll be able to report even better results as we move forward in the year.

And then just my very last question is, some of your competitors on the car rental side have been highlighting the fact that their concept of rolling out prepaid reservations has been an important step in the industry. I was just curious, Mark, what your thoughts are on that, and if you think it moves the needle in any direction?

Yes. We've been doing it for about a year and a half. We rolled out a prepaid product, I guess, and I think you probably know this, Emily, we actually rolled it out about a year and a half ago and got an instant traction on it, and it's one of the important elements of our growth strategy. Prepaid rentals today, I think grew for the year, they were up at least 20% or 30%. Mike Senackerib here is in the room. What's the represented revenue?

About $100 million of revenues gross.

About $100 million of revenues right now. And in Europe, in terms of prepaid, again longer in Europe and it's something that we've had for a long time there. It represents a pretty high mix of our overall business. Michel, you're on the line right now, can you give roughly what prepaid represents in Europe as a percent of overall revenue?

Yes. It's more than 50% of what we call our piece treasury [ph] (01:01:15) revenue. So people book prepaid, but also the online travel agents and the brokers have prepaid as the basis for that business model. And finally, I would add that we're going to roll the prepaid out as well in about 20 new countries, including Middle East, Russia and countries which are significant sources of business for us worldwide. And that's coming in this quarter, in fact.

Yes. So, it continues to grow in the U.S. It's already, obviously, been part of the business model in Europe. And we expect it to grow at a double-digit rate this year again, we're enhancing it. As you know, the way it works is we give a discount if you prepay, and it certainly helps cash flow. So it's something we like to continue to foster in the industry.

Next, we'll go to the line of John Healy with Northcoast Research.

Mark, I was hoping if you could give us some color on where your outlook for 2011 stands today, maybe compare it to where your initial outlook or thoughts regarding 2011 back in the summer when you had some of the S-4 filings out there? I was hoping to get your thoughts on where each of the business units stand and how you think about them for 2011? And maybe how different your expectations for each of those businesses might compare to say six, seven months ago?

In general, if we take the HERC business, we've seen the business perform kind of exactly the way we thought it would in terms of revenues and demand. The only good news is that it happened. We were hoping it’d happen, it did happen, and maybe if anything from where I was back in the summer, I'm a little more bullish about that business in terms of its traction, revenue growth, recovery in the second half of the year. So again, we're starting as I mentioned in my script, that we're starting to see some non-res construction activity moving positive. So that's a very good sign for us, as that's our key strength, as you know, from an equipment standpoint, from a constant standpoint, we're very strong in non-res versus our competitors. So as that returns, you'll see nice growth there for us, nice profitability as well. In terms of U.S. Rent-A-Car, pretty much, again, right on the money, I guess. We're seeing really good growth out of Advantage and really good growth out of Off-Airport. Maybe a little stronger on Off-Airport than we would've anticipated. I think that as we look forward into the year, we think Off-Airport will continue to surprise to the upside. And so the good news is I think you'll see that growth rate start to accelerate actually. We signed up some good businesses and we get a lot of our networks as it expands and matures. We're just getting a big groundswell of support at the local level as well. So that will be, I think positive, more positive than what we saw back in the summer of last year. In Europe, I got to believe that the revenue growth is surprisingly stronger than we thought, than I thought. Let's say, back in August, we had this meltdown, as you know, going on in Europe last summer. And while we still have this economic volatility, we're seeing pretty good growth, high single digits, pretty good growth, given what's going on in Europe. So I'm probably just a little bit more bullish certainly than I was last summer. That doesn't mean to say there's any surprises earnings based on how we forecast into the year, but in terms of where we saw things last summer, I certainly feel a little bit better about Europe's volume and the stability of it than I would've six months ago.

And Mark, this is Michel if I can add, we see our reservations build up growing. We're at double-digit growth right now. And I think an important factor for Europe is that pricing is positive, in particular in the Commercial segment. And except Spain, which is very depressed, every other country is really quite positive right now. And the last thing is that our used car market is also improving. So we're cautious because of the economic environment, but things are really kind of improving now on all fronts.

And Mark, I wanted to get your thoughts on the opportunity in HERC, in terms of pricing. I think pricing since '07 I think is down, I want to say 13%, 14% for you guys. It seems like a huge opportunity to recover pricing in the industry and I wanted to get your thoughts regarding how long and maybe what sort of demand trend you think you need to see to get a bulk of that back? And your level of confidence over the next few years, if you can get pricing in the industry back to maybe where it was in 2007?

I don't think we'll get back to '07 levels until probably '13. It could happen sooner than that, that's kind of my forecast. We think that certainly, we're positive this year. We get a lot of progress in 2012, in terms of recovery of pricing. But if you look at that 13 points, if we can get, let's say next year by the end the year, we get about eight to 10 points of that, that'd be great. I don't think you get full recovery until everything, all markets, all SIC codes are performing up year-over-year. And you’ve got all competitors starting to grow at a rate of 20% or more. And I think that should certainly occur by 2013.

And then just final question, just looking out to the summer, I wanted to get your thoughts, Mark, on the impact of what gas prices could do to the business. I know back in late '07 and '08, it caused renters to maybe change their behavior and caused some little bit of hiccup in terms of how some cars are fared at auction. And I wanted to get your thoughts on how you think that could play out for this year?

In general, I mean, people don't cancel their vacations because the price of gas goes up a buck a gallon, and that's just been our history. That's been our experience. It only represents, for rental car anyways, 10% to 15% of the total vacation budget. And so because it's such a low percent, they're not going to say, "Oh dear, I've got to cancel my vacation because I'm going to rent a car and it's going to cost me an extra $50 a tank." So it just doesn't happen. I mean, I'm not saying it's positive, but it isn't a negative to the extent that people may think it is, and we see very small numbers impact usually when there are gas issues. So we don't expect, we think that right now, the market is -- the press is overtrumping and overplaying this entire thing. I don't think that there is really a worldwide shortage of oil right now. And just because there's one [indiscernible] (01:08:18) doesn't mean you can't get the oil out of the country, and it's 17th out of the top 20 countries. So again, I think that there's a little bit of alarmist tendency going on right now in the market, and we feel pretty good about being able to weather the storm so far.

Next we'll go to the line of Rich Kwas with Wells Fargo Securities.

This is David Lim, in place of Rich. Just quickly on maintenance costs, how much did higher maintenance costs affect Q4 HERC corporate EBITDA margins?

About $2.6 million.

$2.6 million. And then can we get an idea on how much you'll be spending for 2011 on maintenance costs?

No. We’ve not calculated that, so, I mean, no. I don't have it. So I mean, so much of maintenance cost is based on what you're bringing up from your deadline to your ready line. So you don't even know what the cost is going to be oftentimes until you take apart the machine and replace the parts. So in general, we told investors that by July time period, we feel like most of our deadline to ready line kind of equipment will be brought back. And we think the impact of increased maintenance costs begins to dwindle then.

At that time it will start dwindling. I was wondering if you could also give us some idea on your assumptions for corporate volume for RAC in 2011. And then to follow-up, how are Advanced reservations looking?

Well, advanced reservations look actually very good in March, in both Europe, as well as in the U.S. You heard Michel talk about the advanced reservations in Europe, picking up significantly, and that's true in commercial, as well as Leisure. I guess, and just to go to Europe for a minute, big countries like Germany, we're seeing double-digit improvement in growth and good pricing. If we look at U.S. commercial, again, expect kind of high single-digit increases. And on Leisure, Scott, you want to talk about Leisure in U.S.?

Leisure on Airport, will see about 3% growth, maybe a little bit higher over the summer period and probably about 6% or 7% growth Off-Airport in the year, if not higher for the rest of the year.

And what do you think in Off-Airport, where we're planning this year, kind of growth track?

We're going to have -- overall Off-Airport is going to be strong double-digit growth year-over-year, I'm confident on that.

And then, is there any way that we can get an idea on what is your forecast for depreciation per unit per month, in general, what you guys are expecting? I think you guys gave a percentage decline. But I mean, is that going to be -- obviously that's not straight line from quarter to quarter but. . .

On Slide 49, we talked about Worldwide RAC being down minus 3% to minus 4% on net depreciation per unit.

And finally, my last question is what kind of impact do you think weather may have had in Q1?

Well again, weather is an interesting phenomena. Because the airlines, as you know, because of the high penalties lobbied by the FAA are driving cancellation of flights earlier and booking later. So probably for us, at least two points of growth were impacted. The good news is that consumers now are rebooking flights and trips that they kind of canceled in January, February into March. So we saw a very significant pop in reservations in March, compared to what our activity was in January and February. And we think some of that incremental, let's say boost, was driven by rebooking the flights or the vacations or the business trips in March, and so we are getting some of it back. But we did lose probably up to two points of revenue in January and February due to these flight cancellations, especially those emanating from the East Coast.

But most of that you'll probably get back in March, the months in Q2, I presume?

We're hopeful.

Next we'll go to the line of Neal Portus with Goldman Sachs.

For the first quarter, I think you said that HERC margins were expected to be in the mid-30s, which I think would be fairly flat year-over-year, yet you're expecting double-digit revenue growth? Just wanted to make sure that's correct, and if so, to better understand why margins would not be up more year-over-year? Is that solely due to fleet maintenance?

Yes. The margins themselves should be up about 2.5 points, year-over-year. And, yes, the issue is maintenance. And, yes, double-digit volume growth. So you're right about that. So it's really just the maintenance costs associated with getting the equipment up and that's what drives -- plus, we don't have volume levels in the first quarter, especially that help drive that incremental margin, right? So first quarter's a very low volume quarter, which puts a lot of pressure on the EBITDA margin in general. Second quarter becomes a little stronger, but we get fully towards the end of the second quarter is when we start driving a lot of incremental margin and then back in the back half of the year. So we feel very comfortable with a 42% EBITDA margin. But the quarterly splits are fairly typical and we are going to see improvement in the first quarter. Pricing is soft early in the Q1, too, and that's the other issue that you’ve got to deal with is pricing, right? So if we're not up year-over-year right now, that's obviously putting pressure on our margins, right? If we were flat to up, that would be -- you could expand that by a couple of points. So does that give you some color?

Yes, that's good. And then just to clarify the revenue guidance for HERC this year, is it still 10% to 12% or, per Slide 47, it is just 10% revenue growth for this year?

I think it's fair to say I don't know for sure, but 10% to 12% is reasonable to assume, and there could be some upside depending upon pricing and the demand that we're seeing right now going into March looks very strong right now, so I'm hopeful. I feel better today than I did a month ago, in terms of the volume. So we're hopeful that there could be some upside, but I don't want to, until we get into the season, you don't want to predict it yet.

Next, we'll go to the line of Fred Lowrance with Avondale Partners.

Mark, just a brief question for you on maybe how you would characterize your relationships with online travel agencies and GDSs [global distribution systems]. I'm not entirely sure what the -- how much of your bookings come through those channels. But it seems like, maybe you guys have less leverage with those OTAs than say, airlines or hotels would have. So aside from trying to drive more bookings through your own corporate booking channels, online, et cetera, is there really much you can do to reduce your distribution costs as it relates to these OTAs? And do you have any contracts that are coming up anytime soon where you'd be renegotiating with them?

So in general, we've got a really good relationships with all OTAs and we have great relationships with the airline partners that we have as well, where we book revenues through them as well. And we've been using technology with them, for example, to try to get right into their reservation system, so you book immediately. JetBlue is a great example of that and I think we're working on that also with Delta as well. We're always looking obviously to book more revenues through hertz.com, and we've been successful in doing that, right? So we had a nice increase last year. Year-over-year, we'll continue to get an increase this year but that's just by making our website more functional and making it easier to use, and we worked really hard on that and continue to work on it. So by doing that and making sure that we're adding a lot of value to the website, that helps us offset some of that. But if you ask me if there's anything I can do, I mean, as long as we perceive getting the value that we pay, we continue to use those intermediaries to get reservations. So we obviously are always working with them in an intimate way on our relationship and feel good about all of them right now.

Next we'll go to the line of Jordon Hymowitz with Philadelphia Financial.

Two quick things: One, the depreciation per vehicle, is that 3% to 4% over the average for the year? So it would be about $294 for next year?

That's correct.

Second is, most of the revenue guidance from when the Dollar Thrifty proposal was announced, pretty much in line or better but the EPS was worse, is that just because there's more shares outstanding this time?

Yes. For the most part.

Were there any negative trends because everything you mentioned was positive.

I mean, negative from what?

On the revenue side, as far as the original guidance, you mentioned both U.S. RAC, European and HERC was all slightly in line to better. So on the revenue side, was there anything less optimistic now than it was a year ago?

No. Not really, no.

And final question is with the pricing guidance of negative one to zero, can you break that down into Leisure and corporate?

I already did a little bit. What I told you was that we would think the commercial, which is corporate, would be down 1% to 2% this year. And so if you look at that and we look at Leisure in the U.S., I don't know, Scott, do you have a range that you think Leisure in the U.S. could be this year?

I think Leisure in the U.S. would probably be about flat for the year.

Flat. So flat, flattish for the full year and Michel, who's in Europe, pricing there on Leisure versus commercial, Michel?

Commercial is a bit stronger. Yes. I'd say pricing is about flat, too. Slightly positive, right now, 1%. I hope it continues.

Flat to positive right now.

Next, we'll go to line of Yoma Abibi [ph] with JPMorgan.

You said your stated goal is to achieve investment-grade ratings. Can you talk about why an investment grade capital structure is optimal for the company as it relates to both your car rental and your Car Rental business?

Yes, sure. I mean, obviously, we would enjoy a lower cost of capital overall. We essentially finance our fleet purchases and being able to finance those at lower prices at lower interest expense, makes a lot of sense. Plus, there are certain markets that are adjacent to the ones we serve that we think would be more easily to get into, right? So if you look at leasing, for example, that's something we do a monthly leased product and then kind of we go to a year leasing product. But in general, we don't participate in some leasing markets that we think we have a core competency, and in terms of being able to maintain the cars, service the cars, buy the cars, sell the cars, yet we're not in some leasing markets, but a stronger balance sheet would allow us to access those markets more easily and more profitably. So in general, it's just the fact that a better balance sheet gives us a better cost of financing.

Next, we'll go to the line of Himanshu Patel with JPMorgan.

This is [indiscernible] (01:21:02) for Himanshu Patel. I had one question on your pretax margin guidance that you put out for 2013. I guess you guided toward 11%, 12% pretax margin in 2013, which compares to a 5% margin that you posted in 2010. How should I think about margin expansion guidance going forward? Should I be looking for gradual recovery margins or some front end loaded recovery because HERC business improves more in the first two years than in later years?

Yes. Well, I mean, in terms of how this goes, if you're asking if it's ratable or if we're going to change it in the front end or not. I mean, pretax, obviously the margin, you know what the improvement's going to be this year based on the revenue and profit guidance. And so, it will improve this year. And then I would just take the next two years and probably, equal, I mean it's pretty equal, I would say it's pretty even in '12 and '13. So you just take this year as the first year of that and then take the rest of the improvement that would be required, and I think you'd have almost an even distribution each year. HERC is probably going to improve in volume, we think in 2012 at around 20% and probably even north of that in 2013, maybe 25%.

And then lastly, can you please update us on your plans to source vehicles from offshore in used vehicle market? Would you plan to do it to lower the cost of a fleet and increase the portfolio?

So what are our plans?

Yes, what are your plans?

Our sourcing plans, again, would be to buy this year. There's like three or four things we're doing. Number one is, we're going to buy a few more used cars this year instead of buying 2,000 a year like we normally do. We'll probably buy 20,000, 25,000 vehicles this year that will be used. Those cars then would be going into our market channels like more like Off-Airport and especially in Advantage as it grows. That lowers our net depreciation per vehicle. Secondly, we're looking to shift, if you will, the number of risk cars we buy up to 80% at least. And like last year, we did about 65%. Every time we buy a risk car, it gives us an opportunity to sell a car. So instead of selling the car at auction, we're looking to sell them dealer direct and we're looking to sell them also in direct to the consumer through Rent2Buy. We're going to shift that from let's say, I don't know 50% -- you want to go ahead, Scott?

Yes. I think the offshore channels will go from 2010 about 42% of our sales to this year probably about 65% of our sales will be alternate channels like Rent2Buy and retail and direct to dealerships.

Next, we'll go to the line of Michael Millman with Millman Research Associates.

Regarding the, I guess, the pricing you gave on car rental, commercial and leisure, are those assuming the same mix?

Yes. I mean, the same mix as 2010 in terms of like mix of business, commercial and Leisure?

I meant within commercial and within Leisure as well.

Yes. Same mix.

Yes. Same mix.

Is that a reasonable expectation?

Yes. Yes, we feel comfortable that that's reasonable.

Regarding the insurance business, is it a matter of grinding it out once you're approved or is there some way to get, for want of a better term, super approval where you jump from zero to $300 million?

I'm not sure what the question is. I mean, we are approved by almost every insurance company for a direct bill and we do business with almost every insurance company today. And it's over a third of our business Off-Airport today, the insurance replacement. So it's quite large.

Maybe restating that, it's large in total per insurance company to get, some of these insurance companies apparently do $250 million to $500 million. Do you get to that level by grinding it out basically over time once you're approved?

I think once you're approved and you earn their business and you show that you can service the customers adequately, we do see exponential growth.

So let's say you're in with one of the big insurance companies and you've proven them in several different regions of your network and you've proven that you can service them well, productively, efficiently, with high customer satisfaction, the answer is yes. Sometimes there are opportunities then, the following year or the following two years to expand that business by getting promotions and having them, from a customer service standpoint, recommend you more frequently. So yes, it happens. Sometimes you can get a leap frog, sometimes it just morphs over time, over two or three years. But our growth, our double-digit growth the last couple of years, has been fighting out in the trenches, getting a little bigger piece of it and growing faster than we think the Off-Airport industry is growing.

So I guess more the grinded out.

Yes, it's grinded out in expanding our network.

And our network keeps getting bigger and bigger. So as our network grows, so does our Off-Airport business model.

Regarding the sensitivity to 1% improvement, what would that be for LOR, 1% improvement, the impact?

Length of rental, is that what you mean?

Yes.

It's the same as a volume increase length, probably about 30% retention on length. It's not as much as pricing, but it's a little bit better than rental, so about 30%.

And finally, on HERC management, do you expect to see a change or where do you expect to see the change between past management and future management?

Well, it's the same management, I haven't -- I mean, Gerry Plescia stepped down, so the management team is the same. We're not looking to change anything as a result of Gerry deciding to retire. So I think more of the same. I mean we're continuing with our strategies there and continuing to use the existing management team to drive those. So I don't think you're going to see a big switch in strategy from us or anything like that.

The last question will come from the line of Brian Johnson with Barclays Capital.

This is Emmanuel Rosner for Brian. My first question is regarding your guidance and assumption regarding volume days in rental car. You're talking about, up 6% to 7% in 2011. Would it be possible for you to break it out in terms of how much comes in your mind from the markets growing and people traveling more and how much actually comes from your growth initiatives and developing into other market?

I'm sorry, just repeat the first part of the question, I didn't hear it.

I guess in your assumption for rental days growing 6% to 7% this year, how much is that, I guess, legacy markets growing and people traveling more? And how much of it is due to you growing into the Off-Airport business and the Advantage brand?

So I mean I'll rough this out for you, but maybe 55% to 60% of it's driven just by base business, what I call just normal organic growth and the rest will be driven by growth initiatives.

And then, one issue you guys mentioned at the Detroit auto show and I may have missed it, but I didn't hear it today, was the idea of you moving some of the business towards a franchising model? And I know at the Detroit auto show, you guys were talking about impacting rental car revenue growth maybe by a couple of percent. Is that still the idea here?

Yes. I think that when we look at franchising, we certainly look at where we have low market share and low profitability as an intersection where we can franchise. And then other key markets where we just have low market share. So we continue to look at that. The question is going to be how many of those revenues that we have today would be franchise revenues. And until we really get more intelligence around that and continue to experiment with that concept, it's hard to predict. But it certainly has an impact to this year's revenue. I think -- what have we told analysts?

$100 million of revenue.

$100 million of revenue this year would be impacted in the rental car space that we would reprogram as franchise revenue. So it means that we're actually depressing our own revenues by about $100 million.

And how should we think about that in terms of the bottom line impact? Is it sort of neutral over time?

It's definitely an increase over time but this year, we're telling people just to put it neutral.

There are no more questions in queue. Please continue.

Operator, if you can, wrap it up for us. Thank you.

Ladies and gentlemen, this does conclude your conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.