The Hertz Corporation - Company Profile, Information, Business Description, History, Background Information on The Hertz Corporation

225 Brae Boulevard
Park Ridge, New Jersey 07656

Company Perspectives:

Hertz has built a global brand on five basic beliefs: Treat the customer honestly and ethically; treat employees with the dignity and respect with which we expect them to treat the customer; provide the highest level of customer service and quality of vehicles; differentiate ourselves through innovation; use profits and market share to measure how efficiently we achieve these goals.

History of The Hertz Corporation

The Hertz Corporation is the world's largest car rental company, handling more than 30 million rentals worldwide with approximately 6,500 locations in more than 140 countries and a fleet of 550,000 vehicles, including 300,000 vehicles in the United States. Through its subsidiary Hertz Equipment Rental Corporation, the company also rents construction and industrial equipment to contractors and industrial and government markets. Hertz's Claim Management Corporation subsidiary is a leading third-party administrator, while Hertz Technologies, Inc. provides telecommunications services to corporations. Hertz Local Edition specializes in providing vehicles to the insurance community and auto dealers. In addition to its diverse offerings, the company has focused on international expansion, and in the late 1990s Hertz rental cars were available in Russia and all Eastern European countries, as well as in Australia, Canada, Africa, Asia, the Middle East, and Latin America. The oldest company in the car rental industry, Hertz has experienced many changes in ownership since its founding, and was taken public in 1997.

Independent Venture to Corporation: 1918-53

The origins of the company date back to 1918, when Walter L. Jacobs, a 22-year-old car salesman with a fleet of a dozen Ford Model Ts, started a small car rental business in Chicago. Within five years, Jacobs had expanded his operations such that the business was generating annual revenues of about $1 million through a fleet of 600 cars. In 1923, Jacobs sold the company to John Hertz, the head of Yellow Cab and Yellow Truck, although Jacobs remained with the company, serving as its chief operating officer. Hertz held the DriveUrSelf System, to which he would add his name, for three years before including it as part of his deal to sell Yellow Truck to General Motors Corp.

General Motors kept the thriving business until 1953 when it was sold to the Omnibus Corporation. The following year Omnibus changed its name to The Hertz Corporation, and went public on the New York Stock Exchange, where the company's shares would remain until 1967. During this time, in 1954, the newly public Hertz acquired Metropolitan Distributors, a pioneer in New York truck leasing and the largest truck rental business at the time, with a fleet of 4,000 trucks. The purchase was made for $6.75 million in cash. Walter Jacobs, who was president of Hertz until his retirement in 1960, commented at the time that the acquisition 'rounds out Hertz operations by providing in New York City the largest single truck rental operation in existence.' Leon C. Greenbaum, the president of Metropolitan, became vice-chairman of the Hertz board of directors. The acquisition brought the total Hertz fleet to 15,500 trucks and 12,900 passenger cars.

By 1960, the market for rental cars was rapidly expanding, reflecting the expansion of air travel among the general consumer market and the rapid growth of the travel industry as a whole. Despite the influx of new firms into the industry, Hertz retained the number one position throughout the 1960s. Much of its success was attributed to the expertise and guidance of rental car veteran Walter Jacobs, who was recognized as being 'the maven of the car rental business,' knowing how to buy and sell cars expertly in order to build and maintain a profitable rental car fleet.

The RCA and UAL Years: 1967-87

In 1967, ownership of Hertz was again altered, this time in a merger/stock swap deal. The new association was with Radio Corporation of America (RCA); while Hertz became a wholly owned subsidiary (though the company operated as a separate entity with its own management and board of directors), Hertz stockholders received RCA stock in return. Leon Greenbaum, who was chairman of Hertz by this time, became a director of RCA.

The relationship with RCA continued until 1985, when RCA decided to focus on its more traditional product lines and sold Hertz to UAL, Inc., owner of United Airlines, the largest airline in the country. UAL ostensibly planned to combine Hertz with its airline and its Westin Hotel Co. subsidiary in order to position itself as the most formidable travel corporation in the world. The deal was expected to face resistance from federal government antitrust scrutiny, but it did not, and once closed, Hertz joined the three leaders in their respective competitive industries. Since United Airlines also invested in travel agencies, UAL clearly meant to overlap nearly all travel services 'from reservation to check-in to baggage handling,' according to Richard J. Ferris, chairman of UAL. One unique aspect of the deal, according to some analysts, was that during a time of great leveraged buyouts, the acquisition of Hertz did not involve any investment bankers. In the meantime, UAL was concerned that it might find itself the target of a takeover.

In 1987, UAL changed its name to Allegis, Inc. Later that year, as suspected, Allegis was involved in hostile takeover attempts, as several investor groups believed that the conglomerate would be worth more if it were to be dissembled. Frank A. Olson, the chairman and CEO of Hertz, was named to those positions at Allegis. As part of a restructuring plan in which UAL (the Allegis name was dropped) divested itself of its non-airline holdings, Hertz was sold yet again. In a $1.3 billion deal that was completed in December 1987, Allegis sold Hertz to the Park Ridge Corporation, an investor group, made up of Ford Motor Co. executives as well as some from Hertz, formed expressly to acquire Hertz. In the buyout, Ford obtained 80 percent of the equity, and Hertz management received the remainder. Of the $1.3 billion in necessary capital, $520 million was provided by Ford while the balance was borrowed. Ford later sold 31 percent of its investment to Commerzbank of Germany and Volvo of Sweden. After UAL's transition, Frank Olson gave up the chairman and CEO positions of that company, although he remained a member of the board of directors.

Ownership Changes in the Late 1980s

After the sale, there was some speculation that Ford eventually might want to take Park Ridge public, a move that had proved profitable in other leveraged buyouts at the time. Buyout groups would make an acquisition and hold it for a short time then sell shares to the public at a sizable profit. More importantly for Ford, the buyout was undoubtedly good strategy. Hertz had been buying 65,000 vehicles a year from Ford domestically and 15,000 overseas. In fact, Ford's share of Hertz's vehicle orders, about 50 percent, would increase and thereby help Ford maintain its market share even though Hertz would still buy cars from other makers. Although auto sales to rental car companies were not particularly profitable (since rental cars generally had a low profit margin), Ford thought the move would allow it to keep rivals out and preserve its strong relationship with the rental companies. Put more pointedly by David Healy, an auto industry analyst at Drexel, Burnham, Lambert, 'They bought it to keep Hertz out of the hands of Chrysler.'

At the same time it was completing its takeover of Hertz via Park Ridge, Ford was also trying to keep a distance from some serious legal problems being faced by the car rental company. In August 1988, Hertz was involved in a dispute involving charges for repairs that resulted from collisions with Hertz vehicles. It was charged that Hertz, in some instances, had claimed for damages when repairs were not made and, in other instances, paid discounted wholesale rates for car repairs, while charging the retail rates to the parties involved. Although it was noted that such rental car companies as Avis, Budget, and Alamo also followed the practice of charging retail repair costs, according to Business Week,Hertz failed to disclose to those concerned that they would be billed for repairs at 'prevailing retail rates.' Hertz agreed to pay $13.7 million in restitution and $6.35 million in fines, 'the largest fine ever imposed upon a corporation in a criminal consumer fraud case,' according to Andrew J. Maloney, U.S. attorney for the Eastern District of New York.

In addition to this history-making legal settlement, Hertz's parent company, Park Ridge Corporation, faced change in 1988 as well. The Volvo North America Corporation, a subsidiary of AB Volvo of Sweden based in Rockleigh, New Jersey, became an investor in Park Ridge, paying $100 million in cash to Ford in exchange for a 20 percent interest in the joint venture. Park Ridge Corporation was then merged into The Hertz Corporation so that the investors, who retained their equity positions, owned the company directly.

Increased Competition in a Commodity-Based Market

Meanwhile, the competitive battle between the major car rental companies continued to rage. In January 1992, Hertz and Avis, Inc. reached a settlement after Hertz brought suit against its competitor, accusing them of false advertising. Avis had received the Alfred Award given to the 'best car rental company' by Gralla Publications' Corporate Travel. Hertz's suit questioned the validity of the magazine's readers poll. In the settlement, Avis was enjoined from further advertising its receipt of the Alfred Award.

In another legal battle, a federal judge in New York City upheld a newly enacted city ordinance that prohibited all rental companies from imposing 'resident-based' rates, but at the same time barred the city from putting the law into effect. Specifically, Hertz and others were charging residents of the boroughs of Manhattan, the Bronx, Brooklyn, and Queens higher rates when cars were rented locally. The U.S. Court of Appeals later reversed the U.S. District Court ruling and remanded the case for trial. Later, in 1994, the state of New York sued Hertz and other rental car companies for refusing to rent vehicles to licensed drivers between the ages of 18 and 25. The judgment in this case eventually went against Hertz in 1997, the same year that Hertz agreed to pay somewhere between $4 million and $6 million in refunds to customers who had purchased their unregulated rental car insurance in Texas.

Competition remained fierce among the top five car rental companies in the early 1990s, and many analysts likened the ensuing price wars to those of the airline and hotel industries, whose markets complemented the rental car business. The car rental business was becoming increasingly a commodity market, meaning that there were more rental cars available than customers. In addition to price cutting, Hertz offered various promotional strategies to expand its product base. One strategy, for example, allowed customers to earn mileage in the frequent flyer programs of such airlines as American, Northwest, United, and U.S. Air, as well as to gain points in Mariott's Honored Guest program. Another involved removing mileage limits in the United States in 1995 and expanding its 'Rent It Here/Leave it There' program in Europe. In 1994, in the aftermath of the O.J. Simpson murder trial, Hertz abruptly cancelled Simpson's sponsorship, begun in 1975, in favor of its new 'Not Exactly' campaign.

Improvements to the actual Hertz rental fleet were also focused on in the mid- and late 1990s. In 1995, Hertz introduced Rockwell-built vehicle navigation system units, a technology it named NeverLost, to many of its mid- and full-size cars. In 1996, it increased safety features&ndashding anti-lock brakes and airbags in most of its cars--and teamed with Shared Technologies Cellular to offer cell phone rental.

Hertz also began to diversify; in 1991, for example, the company established Hertz Technologies, a wholly owned subsidiary involved in the telecommunications services business. Four years later, it launched Hertz Insurance Replacement Entity (HIRE), later renamed Hertz Local Edition, a subsidiary specializing in providing vehicles to insurance community and auto dealers. In 1996, the company expanded its used-car sales business, adding lots in almost 40 U.S. cities of 50 to 60 cars. The year also marked Hertz's foray onto the Internet, with the introduction of its informational Website located at www.hertz .com. By 1997, the site would become interactive, offering rate quotes and the possibility of checking on availability, and booking, confirming, and canceling reservations on-line.

Adding to the competition among rental car companies, the big three automakers raised their acquisition costs for cars, no longer subsidizing fleet purchases beginning in 1992. At the time, Hertz was purchasing approximately 70 percent of its domestic fleet and one-third of its European fleet from Ford. For three successive years, Hertz's holding costs rose about 30 percent per year, for a compounded impact in excess of 100 percent. The higher cost of cars meant that rental companies had to keep their vehicles longer (from three to six or nine months). Despite this hardship on revenue, the environment for rentals in the United States continued to improve steadily, a by-product of an American boom in travel; throughout most of the 1990s, the rental car industry averaged an 11 percent increase per year on rentals.

Eroding profits became a problem for Hertz and its competitors. Squeezed between spiraling car costs and competitive pricing, the industry as a whole showed losses of $150 million in 1995. Car rental companies, including Hertz, responded by raising rates several times beginning in 1993, and by cost-cutting, weeding out unprofitable locations, and limiting excess inventory. Yet Hertz managed to remain profitable throughout the early and mid-1990s. Its revenues for 1994 were $2.1 billion; in 1995, that figure rose to $2.27 billion.

Consolidation Trend in the Mid- to Late 1990s

By the mid- to late 1990s, the $14 billion-a-year car rental industry was undergoing a transition toward consolidation and public ownership. In 1994, Ford bought Commerzbank A.G.'s five percent stake in Hertz, thereby raising its own stake to 54 percent and acquiring control of Hertz. It then purchased the 46 percent of the company owned by Volvo and the company's management. In 1997, with Hertz enjoying 29 percent of the car rental market, Ford floated about one-fifth of its shares.

Although Hertz was eclipsed in 1995 by Enterprise as the rental car company enjoying the largest number of U.S.-based rentals, Hertz held its own through the remainder throughout the 1990s in terms of profit and kept its position as the largest car rental company worldwide. In fact, beginning in 1993, Hertz enjoyed a six-year string of record earnings. In 1999, it recorded revenues of $4.7 billion, an increase of more than 11 percent over the $4.2 billion garnered in 1998. Craig Koch, who became company president in 2000, attributed the 1999 record performance to strong demand, improved car rental pricing, and continuing cost efficiency.

Principal Subsidiaries: Hertz Claim Management Corporation; Hertz Equipment Rental Corporation (HERC); Hertz Local Edition; Hertz Technologies, Inc.

Principal Competitors: Alamo Rent A Car, Inc; Avis Rent A Car, Inc.; Budget Rent-A-Car Corporation; Enterprise Rent A Car, Inc.; National Car Rental System, Inc; Dollar Thrifty Automotive Group, Inc.


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Further Reference

Buder, Leonard, 'Hertz Admits Use of Fraud in Bills for Auto Repairs,' New York Times, August 5, 1988.Cano, Debra, and James F. Peltz, 'The Siege of Alamo,' Los Angeles Times, April 20, 1996, p. D1.Cole, Robert J., 'United Airlines Set to Buy Hertz from RCA in $587 Million Deal,' New York Times, June 18, 1985.Dickson, Martin, 'Ford to Take Full Ownership of Hertz and Raise Payout,' Financial Times (London), April 15, 1994, p. 23.Flynn, George, 'Jury Clears Hertz in Lawsuit Over Insurance Dispute,' Houston Chronicle, February 19, 1998, p. A21.'Ford to Raise Hertz Stake to Total 54 Percent,' New York Times, February 15, 1994, p. D3.Halper, Mark, 'Hertz Mulls Outsourcing Rescue,' Computerworld, June 22, 1992.Harler, Curt, 'How Hertz Makes Its Call Center #1,' Communications News, November, 1992.'The Hertz Corporation,' Park Ridge, N.J.: Hertz Corporation, January 1993.'Hertz Corp. Plans Acquisition Here,' New York Times, December 4, 1954.'Hertz Is Doing Some Body Work--On Itself,' Business Week, February 15, 1988.'Hertz Warns that Car Rental Fees Could Rise,' New York Times, November 11, 1992.'IBM Reaches Pact With Hertz,' Wall Street Journal, March 31, 1993.'Judge in New York Upholds Law Barring Surcharge by Hertz,' Wall Street Journal, April 1, 1992.Magenheim, Henry, 'Car Rental Firms Expect a Boost from Air Fare Restructuring,' Travel Weekly, May 11, 1992.McDowell, Edwin, 'Pricing Plans Shift at Hertz and Alamo,' Wall Street Journal, May 5, 1992.Miller, Lisa, 'Rental Car Industry Merger Trend Could Hurt Consumers,' Kansas City Star, January 19, 1997, p. F4.Moskowitz, Milton, et. al., eds., Everybody's Business: A Field Guide to the 400 Leading Companies in America, New York: Doubleday, 1990.Ross, Philip E., 'Volvo to Get 20% of Hertz Parent,' New York Times, June 23, 1988.Ruggless, Ron, 'Operators Woo Foreign Tourists With Hertz's Help,' Nation's Restaurant News, April 12, 1993.Salpukas, Agis, 'Ford Leads Group Deal for Hertz,' New York Times, October 3, 1987.Sherefkin, Robert, 'Hertz Rental Cars Getting Rockwell Navigational System,' Crain's Detroit Business, August 28, 1995, p. 25.Thomas, Charles M., 'Hertz Pays Record Fine: Pleads Guilty to Defrauding Consumers,' Automotive News, August 8, 1988.Yung, Katherine, 'Big Three Exiting Car Rental Business,' Detroit News, January 15, 1997, p. B1.

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