Midway Car Rental President Gary Kolodziej has adopted a strategy since 2021 that has brought record growth to the Los Angeles-based rental car operation. The vehicle pictured is a 2024 Ferrari 296 GTS plug-in hybrid, a make/model featured in the Midway fleet with other leading high-performance luxury vehicles.
Photo: Kristin Fiduccia for Da Rocha Creative, Inc
When COVID lockdowns struck in March 2020, fleet operations couldn’t unload or shelve their vehicles fast enough as business and leisure travel tanked. Many fleet-driven businesses slowed down to levels just above a standstill.
Midway Car Rental took a more counterintuitive approach: It actively sought out and bought more rental fleet vehicles. Properly managed, the strategy has now paid off in the rental fleet sector’s post-pandemic, or new normal, and the many travel segments it intersects with.
The Los Angeles-based company is mostly known for its deep fleet of the highest-end luxury rental vehicles that serves a diverse clientele spanning movie studios and entertainment businesses, high net worth individuals, celebrities, VIPs, corporations, and anyone who loves the thrill of driving any six-figure premium vehicle that could be described as “the bomb.”
The company, which also serves tourists and local renters, has a fleet of about 4,000 vehicles consisting of 250 different makes and models, ranging from a Bentley to a Toyota Corolla. The brand is partnered with many high-end luxury hotel in Los Angeles to provide onsite auto rental services. The company now retains a client base split evenly between airport-related renters and non-airport ones.
Midway Car Rental is one of seven companies in the Los Angeles-based The Hankey Group, a $25 billion company owned by entrepreneur, businessman, and investor Don Hankey.
Midway President Gary Kolodziej has been leading the company since 2021 where he has deployed new strategies for cycling and managing its rental fleet. He has applied lessons learned from his 26 years at Enterprise Rent-A-Car.
Kolodziej joined Midway Car Rental in 2020 as vice president of sales after Enterprise where he expanded multiple markets and business segments. He served as fleet strategist in one of the company’s largest and most competitive regions, Southern California. Previously, he was the regional VP in Houston where he grew the region by 30%.
His Enterprise accomplishments include increasing net profits two-fold in four years and negotiating the company’s first multi-market agreement with Service King, becoming one of the larger multiple shop operators (MSO) in the country.
In a recent interview at Midway’s headquarters on Wilshire Boulevard in Los Angeles, Kolodziej detailed the company’s rental fleet purchasing, turnover, and remarketing approaches that proved successful in the last few years, yielding 5x revenue growth.
Q: What is the general overview of the company as of today?
A: We are currently 12 brick and mortar locations, and several additional satellite locations that serve the needs of some of our larger partners. We restructured during the pandemic and consolidated our VIP operations to optimize service and cover more territory. These operations handle our high-touch clients with delivery and white-glove service. The largest of these operations is near LAX.
Q: How has the company adjusted and diversified in the last few years?
A: We’re probably less of a boutique company today and more accessible to the general population, but we still primarily serve our niches: entertainment, studio production, inbound travel, luxury travel; and we’re still part of the Virtuoso Ultraluxe Travel network, which is unique for car rental companies. That business helps us balance rates with other rental segments like airport and replacement.
Q: How has the rental car market performed amid changes emerging from the pandemic era?
A: I think changes were a matter of survival. When the shutdown happened, everybody sold off as much fleet as they could to survive. We were already a smaller company becoming less profitable in the years leading up to the pandemic. So, the decision was whether we could successfully move the company forward or should consider other options like selling. Don and Bret (Hankey) decided to bring in a crew that they thought could re-think the business with a focus on diversification, which is what we’ve done. We will never be everything to everybody, but there are certain accounts in just about every segment out there that fit our objectives. Higher rates in return for high levels of service.
Q: How have you grown your client base?
A: We focused on service, technology, and marketing to get our name out there. We created new services at LAX, such as a true counter bypass program, prioritizing service and brand reputation via social media and internet reviews. We’re now a service leader in Southern California. If you draw a radius around any of our locations and compare our customer reviews us against our competitors’, we’ll be at the top across the board. We focused on creating meaningful partnerships with our accounts. A big focus of ours is to earn customer loyalty and retention. All of these efforts have contributed to 500% post-pandemic growth.
Customer service and customer loyalty are massive drivers for us. We are more nimble and flexible and able to do things for customers that other companies may not be set up as well to do. Our VIP operation allows us to offer special services for our customers which drive loyalty and attracts new business. Clients may want personal interaction, or no interaction with contactless rentals, or a car delivered or dropped off to a location we may not normally service. We’re focused on meeting the needs of those people, exposing them to our brand, and retaining them.
Q: How do you handle rental car customers coming through LAX, and what are they looking for?
A: We have grown to be the largest in both revenue and transactions of the off-airport providers. Our focus is to provide LAX customers the tools they need for an expedited experience. The Midway App allows for expedited “express” service, and we have created additional technological tools that enhance the experience including Digital Key which was piloted for one of the OEM’s. This technology sends the key digitally to the customer via our app and allows them to go directly to their car without any contact.
Q: What patterns have you seen with fleet resale values when remarketing your fleet?
A: It’s no secret, they’ve come steadily down over the last few years. Where rental car fleets are today started with behavior during the pandemic. When business opened again, the companies went from de-fleeting to needing cars, and availability was scarce. We looked for opportunities to increase orders before supply tightened. We ordered more cars than we needed as a hedge against future availability constraints. Our diversification into other lines of business helped keep these cars busy. During that time, prices had not yet climbed (before inflation arrived), and incentives were still available.
The following year (2022), cars weren’t available, and everyone was back in the market driving prices up. We had a lot of decisions to make about what to buy and sell.
The first thing we did was create relationships with more OEM’s. We purchased cars from companies we hadn’t purchased from before, and we were very strategic and disciplined regarding pricing.
Meanwhile, some of the major (rental car companies) were out buying cars directly from dealerships, or buying whatever they could at no incentives, and just loading up on cars. We knew it was a big game of musical chairs… Eventually things would normalize, and somebody was going to be left without a seat. We took preventative steps like accelerating depreciation where it made sense and committed to never over-paying or buying the wrong cars. We made sure to take any anticipated losses up front and not at the time of sale. When the market started falling, many saw their fleet equity go negative. Some of the majors now are in a tough spot. We knew when the comeback happened, rental companies were grossly under-fleeted. You weren’t going to be able to get cars, and it would be a challenge. We bought cars, but didn’t overpay for them.
Q: How do you keep track of the value of the Midway fleet against the wholesale and used vehicle markets of the last few years?
A: We track our fleet equity monthly. I’m very involved in that process. I want to know exactly where we stand. What’s the state of our fleet? How are we looking? We are always looking a year ahead to maximize fleet equity. If I buy this car today, what will it be worth six months or a year from now? What’s the pricing on that car today versus where we think it will be? That approach allows us to make buying decisions. We bottomed out from a fleet equity standpoint in October 2023. We bought cars in 2021 at great pricing. We sold them in 2022 at big numbers, and then we loaded up on 2022 models that were going to be sold during the first half of 2023. By October, the effects of the market decline on our equity flattened out thanks to our acquisition strategy, and it has stayed steady despite minor price increases.
The last three years have been some our most profitable, and not just because the used car market has been so high. We’ve been able to think forward from a fleet strategy standpoint, put ourselves in good position, and maximize our revenue across the board. We’re having a good year in 2024, and it will be what I would call the least profitable in the last three to four years, and still one of the most profitable in this company’s history.
Q: What is Midway’s standard turnover cycle in terms of mileage and years?
A: Our average mileage for the rental fleet is just over 12,000 miles, where other rental car providers go much higher. They do a lot more of home city retail. We don’t do a lot of that. We’re developing programs to create that now and to attract the right renters, but most of our current retail is airport related, and those aren’t heavy mileage cars. Certain categories of cars, like minivans, get more mileage and we’ve had to watch those as residuals are not great. Miles are important to us as our customers expect a late model car with low miles.
The buy has a significant impact on our fleet. We cycle based on cost-going-forward which usually has the larger units cycling sooner, and the smaller less costly units running longer.
Q: When looking at rate pressures during the last few years, what is your flexibility on rates in the current market and against the competition?
A: During the pandemic, the rates spiked because cars were in short supply. We were able to get great rate and still be a price leader. Now that the market is normalized, rates have come down. Our loyal customers are willing to pay more for our cars and service. We are now experimenting with how some of our enhanced offerings can leverage higher rate. Counter bypass, digital key, and delivery are all in beta testing.
We compete less on rate today because we don’t have to. Sean (Perez) is disciplined in growing market share. His team won’t take an account from another competitor based on rate alone. That might have happened during the pandemic when business was scarce. Today, it is more about creating partnerships. We have accounts that call us asking to do business because their provider is not giving them what they need. We learn what rate they are paying or willing to pay and determine whether they are a good fit for us. They don’t all work for us. We’ve had partners offer to pay us more money than they were paying the competitor in return for better service.
The ability to offer specific make, model, and even color when it’s possible, is a differentiator. You must be diverse enough to be able to have that car available when needed, provide enough of a choice at a low mileage point that makes sense. We’ve been able to grow because we can offer special services to people that others are less likely to offer, and we have a fleet that’s big enough and diverse enough to supply those specific requests. This all helps maximize rate.
Q: How do electric vehicles factor into your fleet in terms of customer request? Are they worth the overhead and does Midway still get the same margins on those as on gasoline vehicles?
A: We did what everybody else did. We bought the cars and invested in infrastructure including Level 3 chargers. We need a certain fleet of electric vehicles to meet expectations In 2023 we loaded up on EVs for 6% of our fleet and we found they rented well. We learned that certain makes and models were more in demand than others. For example, Tesla owners in L.A. demand Tesla’s.
But we discovered some inherent flaws with the way the $7,500 tax credits were offered. It doesn’t get capitalized into the cost of the car. If you pay $40,000 for an EV, the resale market automatically deducts that $7,500 credit from the price of the car. It didn’t help that the manufacturers raised the prices of EVs when that tax credit was passed because they wanted their share. Now that $40,000 EV today is worth $32,500. We saw a drop in EV residuals overnight. The tax credit goes to the stockholders but does not reduce your cost of ownership or depreciation. The bottom line is you will be facing a car that will be sold at a loss when it’s time to turn. We initially stopped buying EVs, and then started focusing on which EVs we absolutely must have. We’ve revised our EV pricing and look for ways reduce the cost of our EV’s and accelerate depreciation when necessary. We then lowered our fleet percentage of EVs, and when depreciation caught up to the market, we started selling them off. In 2024, we’ve bought maybe a handful of EVs.
EV demand really hasn’t changed. We manage our EV fleet a bit more aggressively in terms of making sure you have an EV available for somebody who must have an EV. We are careful not to be over-fleeted in EV’s at this point. We are watching closely to see where EV demand and the market takes us. On the other hand, we will take hybrids all day long.
Q: In what client scenarios does Midway lease out vehicles?
A: We do commercial and retail leasing. The average unit cost of our leasing portfolio is about $220,000 with mostly high-end exotic leases. We have approximately 1,000 such leases including Lamborghinis, Ferraris, Rolls Royces, Bentleys, and McLarens. While dealerships have tightened up their lending requirements, we have seen more come our way. Our cost of funds is low relative to the industry because of the Hankey Group’s financial strength. We also have the flexibility to hedge interest rate costs over time which helps keep our margins intact.
Q: What is the state of new vehicles supply for rental fleets in the current automotive market?
A: Certain manufacturers like Toyota remain constrained. Some automakers are cutting production, others are transitioning to more hybrids, a few automakers have a lot of inventory on the ground while adjusting prices and incentives, and still others are more disciplined with discounting and incentives. Overall, there’s more supply in the market. The real question will be what happens to supply and residuals in the used car market later depending on OEM supply and production controls today.
I think rental car companies must continue to buy to replace the volume of high mile, low equity, cars at the end of their life-cycle.
Q: What are the biggest challenges for Midway Car Rental now?
A: Balancing new car pricing with used car residuals, and that is an everyday challenge. Raul (Orozco) and our fleet team is the best at what they do. From an acquisition and a disposal standpoint, it’s ensuring that we buy the right cars at the right prices with the best residuals to keep margins intact. Interest rates have had an impact, and we are looking forward to some relief there. We are hopeful for a stronger resale market post-election and into 2025. We have seen some relief in new car pricing, but we are still well above where we think it should be. We expect our depreciation to decrease this year, which is long overdue and a welcome change.
Q: There’s so much talk in the fleet and remarketing worlds about normalization and returning to normal. Where is it along that scale for Midway, or is it a new world?
A: It’s a new world for us but a fun new world. We’re all having a blast here. We have a very tight team with a strong culture. It’s all the things that we loved about our prior experiences elsewhere without the noise. We are a new company with a 50 year history and we are just getting started.
Internally, we’re working on certain programs to see what AI can do for us, whether it be contacting customers, getting extension dates, and charging credit cards so we can remove those tasks from our rental car outlets. This all must be vetted out. I don’t know how it will look, but it’s fun to be involved in the evolution. Our future is limitless!