Hertz Corporation

founded: 1924

Contact Information:

headquarters: 225 brae blvd.park ridge, nj 07656 phone: (201)307-2000 fax: (201)307-2644 url: http://www.hertz.com

OVERVIEW

Recognized as a worldwide leader in rental and leasing services and products, Hertz Corporation is an indirect wholly owned subsidiary of Ford Motor Company with approximately 7,000 businesses located throughout the United States and in more than 140 other countries. Hertz is comprised of two major business segments: rental and leasing of cars and light trucks, and rental of industrial and construction equipment. Profitable every year since it first became publicly owned in 1952, Hertz posted revenues of $4.9 billion in 2001.

Within its car rental sector, the company's 349 airport locations accounted for approximately 87 percent of profits in the United States in 2001. Suburban locations offer a variety of services, including customer pick up and delivery, insurance replacement, car dealer loaner programs, and local use rental services for commercial and leisure purposes. Referrals from automobile dealers and insurance companies for customers in need of temporary vehicle replacement due to an accident or repairs generate a significant portion of suburban location rentals.

Hertz's Equipment Rental Corporation, the company's subsidiary that operates in industrial and construction equipment, rents a wide variety of heavy equipment. The business is also one of the largest sellers of used heavy industrial and construction equipment in the United States. Branches are usually located in industrial or commercial zones and are built to emphasize efficiency, safety, and environmental compliance. Hertz's other minor business segments are claims management and insurance. Hertz Claim Management Corporation administers services such as investigating, evaluating, and handling a variety of claims, including bodily injury, property damage, and third-party claims. Hertz also maintains its own insurance operations to self-insure against general public liability and property damage.

COMPANY FINANCES

In 2001 Hertz generated $4.9 billion in revenues, down from $5.1 billion in 2000. In 2001 Hertz's car rental generated $3.8 million, industrial and construction equipment rental accounted for $1 billion, and $88 million came from other interests. Car rental revenues, although up from $3.3 billion in 1997, were down from $4.0 billion in 2000. Conversely, industrial rentals more than doubled since 1997, from $444 million to $1 billion in 2001, up from $970 million in 2000. Whereas total revenues decreased in 2001, total expenses increased from $4.5 billion to $4.9 billion, leaving the company with an income before taxes of $2.7 million, down from $581 million in 2000. After a tax credit for deferred taxes, total net income for 2001 was $23.3 million, a decline of 93.5 percent from the previous year's net income total of $328 million.

ANALYSTS' OPINIONS

As of December 31, 2001, the entirety of Hertz's common stock was owned by Ford FSG Inc., a wholly owned subsidiary of Ford Motor Company, making Hertz a private, indirect subsidiary of Ford Motor Company. Consequently, Hertz's stock is no longer traded on the open market.

HISTORY

In 1918 22-year-old car salesman, Walter L. Jacobs, founded a car rental agency in Chicago with a dozen Ford Model Ts. By 1923 Jacobs' fleet of cars had grown to 600, and his company, DriveUrSelf, was producing nearly $1 million in annual revenues. In the same year Jacobs sold his business to John Hertz, who headed Yellow Cab and Yellow Truck. Jacobs remained as chief operating officer. By 1925 the company was operating coast to coast. Two years later Hertz sold the company, by then renamed to Hertz DriveUrSelf, along with Yellow Truck, to General Motors Corporation. In 1932 the first Hertz airport location opened at Midway Airport in Chicago. General Motors held the company, which it renamed GM Hertz Drive-Ur-Self, until 1953 at which time Hertz again acquired the company through his car and truck rental company, Omnibus Corporation.

In 1954 Omnibus changed its name to The Hertz Corporation and completed an initial public offering of stock, trading on the New York Stock Exchange. In the same year Hertz purchased Metropolitan Distributors, a New York-based truck leasing operation, for $6.75 million in cash. Metropolitan's 4,000 trucks brought Hertz's total fleet to 12,900 cars and 15,500 trucks. In 1959 Hertz introduced an innovative centralized billing system, the first such system in the car rental industry. Jacobs, credited for much of the company's success, was named chief executive officer of the new organization.

During the 1960s the travel industry expanded quickly as did Hertz. Although increased business also resulted in increased competition, Hertz remained number-one in the industry. In 1962 the company rolled out the industry's first travel agent booking system, and in 1965 the subsidiary Hertz Equipment Rental was founded to provide construction equipment rentals and leasing. Two years later the company was sold to Radio Corporation of America (RCA), becoming a wholly owned subsidiary, but continued to operate as a separate entity with its own management and board of directors.

FAST FACTS: About Hertz Corporation

Ownership: Hertz Corporation is wholly owned indirect subsidiary of Ford Motor Company.

Officers: Frank A. Olson, 68, Chmn., 1999 salary $1,000,000, 1999 bonus $1,003,000; Craig R. Koch, 54, CEO and Pres., 1999 salary $600,000, 1999 bonus $496,000; Joseph Nothwang, EVP, 1999 salary $310,000, 1999 bonus $250,000; Paul J. Siracusa, EVP and CFO, 1999 salary $296,000, 1999 bonus $212,000; Brian J. Kennedy, EVP Marketing and Sales, 2000 salary $281,000, 1999 bonus $183,000

Employees: 31,300

Principal Subsidiary Companies: Hertz Corporation's principal subsidiaries are Hertz Equipment Rental Corporation, Hertz International Ltd., and Hertz Claim Management Corporation.

Chief Competitors: Enterprise Rent-A-Car is Hertz Corporation's toughest competitor. Other major competitors include Alamo Rent-A-Car, Budget Group, Dollar Thrifty Automotive Group, and United Rentals.

In 1970 Hertz opened the Hertz Worldwide Reservation and Data Center in Oklahoma City, Oklahoma, offering a centralized reservation system, and in 1978 began its nationwide road service assistance program, another first in the industry. In 1984 Hertz began offering customers optional computerized driving directions. The following year RCA sold the company to United Airlines, which hoped to combine the rental company with its interests in hotels and travel agencies to create a premiere one-stop travel service. However, United Airlines was restructured in 1987 after a hostile takeover of the company. As part of the reorganization, all non-airline investments, including Hertz, were sold. In December 1987 Park Ridge Corporation, an investor group comprised of Ford Motor Company and Hertz executives, created for the sole purpose of purchasing Hertz, bought the company for $1.3 billion. Ford maintained an 80 percent interest, and Hertz's executives held the remaining 20 percent.

Approximately 50 percent of Hertz's fleet of passenger cars and light trucks were purchased from Ford. As an owner of Hertz, Ford sought to guarantee its continued majority market share of Hertz's business. Although the profit margin on sales to rental companies is traditionally low, if nothing else Ford could stop other car companies such as Chrysler from taking the dominant position with Hertz. In 1988 Ford reduced its interest in the company to 49 percent by selling shares to Volvo North America. In the same year Hertz was scandalized after pleading guilty to overcharging more than 100,000 insurance companies and others for repairs to damaged Hertz cars. The suit claimed that Hertz had charged insurance companies for repairs never made and had also secured repairs at wholesale prices, but charged insurance companies the full retail amount. In voluntary compliance with the ruling, Hertz paid $13.7 million in restitution and $6.35 million in fines, the largest fine ever imposed at that time in a criminal consumer fraud case, and fired 20 employees.

Despite its legal troubles Hertz continued to lead the industry. By 1993 the company operated in more than 90 U.S. and European markets, with 4,800 rental locations and a fleet of approximately 420,000 cars and trucks. During 1993 and 1994 Ford conducted a series of transactions that repositioned Hertz as a wholly owned subsidiary of the company. Three years later, on April 30, 1997, Hertz went public, selling nearly 61 percent of its Class A Common Stock, representing a 19 percent economic interest in the company. Stocks traded on the New York Stock Exchange until March 9, 2001, at which time Ford FSG, a wholly owned subsidiary of Ford Motor Company, purchased the 19 percent of outstanding Class A stocks for $35.50 per share, totaling approximately $735 million. Thus, Hertz once again became a wholly owned subsidiary of Ford.

CHRONOLOGY: Key Dates for Hertz Corporation

1918:

Walter L. Jacobs opens an automobile rental business in Chicago with a fleet of 12 Model T Fords

1923:

Revenues reach $1 million and Jacobs sells company to John Hertz who renames the company Hertz DriveUrSelf System

1932:

The first rent-a-car location opens at Chicago's Midway Airport

1954:

Company is renamed the Hertz Corporation and is listed on the New York Stock Exchange for the first time

1967:

Hertz Corporation is sold to RCA Corporation and becomes a wholly owned subsidiary

1978:

Hertz offers nationwide roadside assistance for its customers, an innovative first in the industry

1985:

United Airlines, who had purchased Hertz in 1983, sells 80 percent of the company to Ford Motor Co. and 20 percent to a group of Hertz executives

1988:

Hertz is found guilty of overcharging thousands of customers for auto damage repairs and ordered to pay a fine of $6.85 million and $13.5 million in restitution fees

1993:

Operates more than 90 U.S. and European branches, with more than 4,800 around the world and a fleet of approximately 420,000 vehicles

1994:

Hertz drops O.J. Simpson, the company's spokesperson for the previous 19 years, after he is put on trial for murder

1997:

Hertz begins service in the Republic of Yemen, its ninth Middle Eastern market

2001:

Ford buys remaining shares to become sole owner of Hertz, which leads the industry with a dominant 30 percent of the airport car rental market

STRATEGY

Car rentals, which accounts for two-thirds of Hertz's revenues, are provided under a wide variety of plans. Cars can be rented on a daily, weekend, weekly, or monthly basis with the options of an unlimited or limited mileage rate, or on a time rate plus mileage charge. Rates vary according to competitive and cost factors associated with individual markets. Almost always, the customer is responsible for gasoline used during the rental period.

The Hertz strategy for success is based on its extensive worldwide ownership of its operations, which contributes significantly to a consistently high quality of service, strict cost control, fleet utilization and maintenance, competitive pricing, and the ability to offer oneway rentals. At the end of 2001, Hertz owned 95 percent of all cars used in its fleet. On occasion, Hertz enters franchise agreements to provide rental services; however, such situations are usually limited to international locations where Hertz works with local rental businesses.

INFLUENCES

The recent decrease in revenues can be attributed to two interrelated factors: a slowdown in the economy and the impact the terrorist attacks of September 11, 2001, had on the travel industry. Both factors led to a decrease in car rental volume and pricing, resulting in a 50 percent reduction in Hertz's business. Because the vast majority of Hertz's car rental business is generated by its airport locations, when air travel fell off sharply in the wake of September 11, Hertz was significantly impacted. Other factors that influenced Hertz were higher 2001 model vehicle costs and lower proceeds received from selling off used vehicles. Even before the terrorist attacks, Hertz was battling these economic factors. Revenues for the third quarter of 2001 were $25.5 million, compared to $54.2 million during the same period in 2000. During the fourth quarter, the company was hit hard, posting a loss of $57.5 million. In general, Hertz's business is continually influenced by a number of factors, including advertising costs, currency exchange rates, labor agreements, and new and used car pricing as well as fluctuating trends in the travel industry most often affected by changes in gasoline prices.

CURRENT TRENDS

Although revenues for 2002 were expected to top 2001 levels, Hertz expected results to remain significantly lower than historical levels. The most important seasons for Hertz's business are spring and summer when business and leisure travel increases, whereas winter months are usually marked by a decrease in travel. Available fleet and staff are increased during peak seasons and decreased during the off-season. However, numerous operating expenses remain fixed, such as rent, insurance, and administrative costs. Hertz is attempting to reduce the impact of seasonality by providing incentives for leisure and business travel during off-months.

In 2001 Hertz introduced the Prestige Collection, which offers luxury vehicle choices to its fleets in certain markets. Automobiles in the collection consist of makes and models from Premier Automotive Group, an enterprise of Ford, including Jaguar, Land Rover, Lincoln, and Volvo. The company planned to extend the program, both in the United States as well as Europe and Australia, through 2003. In an ongoing effort to cut costs, Hertz sold off Hertz Technologies due to trends in the telecommunications market that negated the economic benefits of operating the company. Instead Hertz invested in 2Roam Inc., which provides software services that allow customers to make, review, or update rental reservations from a variety of mobile devices.

ADVERTISING ANGUISH

For 19 years retired professional football player O.J. Simpson was the official spokesperson for Hertz. During a long-standing television advertising campaign, Simpson could be seen leaping over luggage and other obstacles on a fun, albeit harried, dash through an airport to catch a flight. Simpson also regularly played golf at Hertz-sponsored events. But the happy relationship between Hertz and its spokesperson came to a crashing halt in 1994 when Simpson was arrested for the murder of his ex-wife and another man. Caught on national television was the live footage of Simpson driving a Hertz-owned white Ford Bronco trying to make a slow escape with police in pursuit. Hertz, who immediately dropped the former athlete as the company's public relations representative, refrained from airing commercials during Simpson's national televised murder trial. Due to the embarrassing situation caused by Simpson, Hertz no longer uses professional athletes to endorse the company.

Hertz continually looks for new ways to add customer convenience and value to their products and services. For example, in 1987 the company introduced Hertz Instant Return. Upon returning the rental car, customers are met in the return lot by a Hertz agent who processes the return on site with a portable computer and printer. A receipt is often ready before the customer has unloaded the truck. In 1989 Hertz's premium, expedited car rental service #1 Club Gold was launched, and by the end of 1996 approximately 7,500 cars in Hertz's fleet were equipped with the NeverLost onboard navigation system. In 1996 Hertz launched its Web site, which offers rate quotes, reservations, confirmation, and cancellation services.

PRODUCTS

Hertz markets a wide variety of automobiles and services. Makes and models of cars for daily rental are current year or previous year models. More than 50 percent of the cars in Hertz's fleet are manufactured by Ford. In addition to car rentals, Hertz provides ancillary products and services, such as Hertz premium program packed as #1 Gold Club; the Rent It Here—Leave It There program; supplemental equipment including child car seats and ski racks; loss or collision damage waivers; liability and personal effects insurance, NeverLost navigational system, and gasoline payment options. Hertz Equipment Rental offers its customers a broad range of equipment in the categories of earthmoving, material handling, aerial and electrical, air compressors, pumps, compaction, and construction-related trucks.

CORPORATE CITIZENSHIP

Hertz is subject to a number of legal and regulatory requirements related to the environment. Particularly, Hertz owns approximately 400 underground tanks and 1,600 aboveground tanks that store petroleum products. In 2001 Hertz spent $1.4 million to register, upgrade, and replace tanks to comply with regulations. The company is also monitored for the disposal of waste materials such as used oil, vehicle wash, and waste water.

GLOBAL PRESENCE

At the end of 2001, Hertz International Ltd., a subsidiary of Hertz Corporation, operated in more than 140 foreign countries and jurisdictions. Although most of its international operations are company-owned, a higher percent of branches are conducted through licensees. International locations that produced the greatest revenues in 2001 were France, Germany, Italy, the United Kingdom, Canada, Australia, Spain, the Netherlands and Switzerland. Operations are also conducted in Brazil, Puerto Rico, St. Thomas, New Zealand, Belgium, and Luxembourg. Hertz has also moved into Japan and China through associations with local companies. Almost all services offered in the United States are also offered at its international locations.

EMPLOYMENT

Approximately 30,000 individuals are employed by Hertz around the world. Some 6,200 U.S. employees are covered by terms of employment as enacted under labor contracts with 152 different local unions, most commonly related to the International Brotherhood of Teamsters and the International Association of Machinists. Hertz offers its employees a wide range of benefits such as group life insurance, health insurance, pension plans, and an income savings plan.

SOURCES OF INFORMATION

Bibliography

barker, robert. "hijacking hertz shareholders." business week, 16 october 2000.

flowers, grant. "hertz debuts 'prestige collection.'" travel weekly, 18 june 2001.

"ford motor launches offer to buy hertz shrs at $35.50." futures world news, 17 may 2001.

halliday, jean. "surge in one-way car rentals prompts shift in ad message." advertising age, 24 september 2001.

"the hertz corporation." hoover's company profiles, 2002. available at http://www.hoovers.com.

hutzler, charles. "hertz and avis make inroads into china with joint ventures." the asian wall street journal weekly, 18 march 2002.

kepos, paula, ed. international directory of company histories. vol. 9. detroit: st. james press, 1994.

sawyers, arlena. "hertz courts upscale vehicle renters." automotive news, 20 august 2001.

stringer, kortney. "hertz, others quietly raise rates for cars; ford unit leads bid to lift rental revenue as drop in travel fails to let up." the wall street journal, 12 december 2001.

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. hertz corporation's primary sics are:

7514 passenger car rental

7359 equipment rental & leasing, not elsewhere classified

also investigate companies by their north american industry classification system codes, also known as naics codes. hertz corporation's primary naics codes are:

532111 passenger cars rental

532310 consumer electronics and appliances rental