It only Hertz a little

June 14, 2005
Ford has announced plans for an IPO for its long-time daily rent-a-car subsidiary, Hertz. The long-expected decision has some potential ups and some possible downs for the giant automaker. If it gets the sort of money it anticipates, that will help shore up Ford's financial picture at a time when things are looking bleaker than ever for the Big Three. On the other hand, it creates a chasm between Ford and a major outlet for its products. Over the years, the carmaker claimed rental fleets helped expose potential customers to new products. That proved out with the likes of the breakthrough 1986 Taurus -- but in recent years, Hertz has really been a dumping ground for unsold Fords, a way to keep factories running, even when retail demand was down. Unfortunately, when those relatively low-mileage vehicles come out of the rental lots, they provide buyers with a cheap alternative to new cars and trucks.

Of course, Ford hasn't been alone. Each of the Big Three has owned a rental company at one point or another, sometimes several. So have import makers. But unless memory fails, they've all been sold off by now (though I expect one of you readers to remind me of an exception I've overlooked). Indeed, the rental company chapter is part of the bigger story of how automakers periodically attempt to expand beyond their core business -- and how, with rare exception, they always pare back when times get tough.

Henry Ford actually helped set the trend going in the early years of the 20th Century. He took his company into just about any attractive business, from land development to aircraft manufacturing. Detroit's best-known involvement in aerospace came during the Second World War, when it also provided tanks and machine guns. But Chrysler played a critical role in the nation's space program, and then, after paying off the last bill for its 1981 federal bail-out, the automaker went so far as to acquire corporate jet maker Gulfstream.

General Motors produced the electric buggies that let astronauts like Gene Cernan, the last man on the moon, to roam far from their Lunar Lander. GM began ranging into a host of alternate businesses under the (mis?) guidance of former CEO Roger B. Smith. It acquired the Texas-based EDS, and with it, the electronic service company's gadfly founder, H.Ross Perot. Smith's well-touted "lulu" deal, though was the purchase of old Howard Hughes' aerospace empire. Whether they succeeded is going to be a matter of endless debate. There's little question these ventures diverted management's focus, among other things, though EDS, in particular, provided GM a much-needed, if unplanned boost. Facing serious problems meeting unfunded pension liabilities, a few years back, the automaker effectively gave the Texas firm to its pension fund in lieu of cash.

Modeling himself after GE's flamboyant Chairman, "Neutron" Jack Welch, the equally driven Ford CEO Jac Nasser went off on a buying spree in the late 1990s. He acquired all manner of things, ranging from a Scandinavian battery car maker to a European auto service chain. After firing Nasser, Bill Ford declared he would go "back to basics," focusing exclusively on the production and sale of automobiles. And now, with the planned divestiture of Hertz, he's effectively completed his mission. Whether he might change his mind in the future remains to be seen. Detroit has periodically been tempted to look for other, higher-profit options outside the auto industry. It's hard to believe they can permanently ignore that siren's call.

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