Hertz-Dollar Thrifty Deal One More Spin of Car-Rental Roulette Wheel

Car-rental agencies have long been playthings for dealmakers--and apparently still are.

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Analysts and investors are hailing Hertz's purchase of the Dollar Thrifty car-rental chain as a logical bit of consolidation in an overcrowded industry.

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But the car-rental business always seems to be undergoing consolidation, disaggregation, rationalization, and various forms of upheaval. There are seven or eight major rental brands these days, and most of them have been swapped and traded over the last few decades as if they're trading cards falling in and out of favor with adolescents.

The history of the car-rental industry, in fact, tracks many of the prominent trends that have defined the business world over the last 40 years, for better or worse. Rental agencies were snapped up by conglomerates when bigger was better, then sold off as companies decided to focus on their core competencies and outsource the rest. Car-rental firms served as playthings for buyout kings in the 1980s, automakers seeking vertical integration in the 1990s, and private-equity barons in the early 2000s.

To convey a sense of the never-ending turmoil in the car-rental business, here's a very brief history of nine major brands:

Hertz. Founded in 1918, owned over the years by General Motors, RCA, United Airlines, and Ford, which sold it to a group of private investors in 2005. The company went public a year later and since then has been acquiring other firms. Its plan to buy the Dollar Thrifty Group would give it control of three major brands and make it the nation's second-biggest car-rental firm, controlling about 25 percent of the market.

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Avis. Founded in 1946, bought and sold by a number of big firms over the years, including ITT, Beatrice, and Kohlberg, Kravis, Roberts. Became employee-owned in 1987. Bought by a hospitality conglomerate in 1996. Spun into a public company in 1997. Bought by Cendant in 2001. Spun off into the Avis Budget Group, which went public in 2006. A year later, columnist Michael Kinsley calculated that Avis had been sold or reorganized at least 16 times in its history. "Each time Avis changed hands or structure," he wrote in the New York Times, "there have been fees for bankers, fees for lawyers and bonuses for the top executives."

Budget. Founded in 1958, bought by a group of franchisees in 1997 and spun into a public company. Went bankrupt in 2002. Bought by Cendant, the same company that owned Avis, then spun into the Avis Budget Group in 2006.

National. Founded in 1947, then bought and sold a few times by the 1980s, when General Motors purchased it. In 1995, GM sold National to an investment group, which sold it to Republic Industries, which became AutoNation, which grouped National into a new a car-rental subsidiary called ANC Rental—which went bankrupt in 2001. Private-equity firm Cerberus bought ANC Rental out of Chapter 11 in 2003 and renamed it Vanguard Car Rental Group. Enterprise Holdings bought Vanguard in 2007.

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Alamo. Founded in 1974 and bought by Republic Industries in 1996. Merged with National into ANC Rental, which went bankrupt and ultimately became part of Enterprise.

Dollar. Founded in 1965, bought by Chrysler in 1990, merged into something called the Pentastar Transportation Group, which Chrysler spun into a new public company called the Dollar Thrifty Group in 1997. The new company also included Thrifty, founded in 1965 and bought by Chrysler in 1989. Dollar Thrifty has been a viable company ever since, though a relatively weak market position has made it a takeover target since at least 2007.

Advantage. Founded in 1963, went bankrupt in 2008, acquired out of Chapter 11 by Hertz in 2009. As part of its Dollar Thrifty acquisition, Hertz will sell Advantage to a group of investors, in order to ease concerns about Hertz establishing a monopoly.

Enterprise. Founded in 1957 and still a privately owned company. For a while, Enterprise became a conglomerate with a variety of unrelated businesses, but it is now focused mainly on building a rental-car empire. Enterprise bought Alamo and National in 2007 and is now the nation's biggest car-rental company.

It's hard to think of an industry that has had more ups and downs than the car-rental business. The airline industry is notoriously turbulent, with mergers, startups, bankruptcies, and the occasional liquidation being defining characteristics since deregulation in 1978. But even airlines haven't been bought and sold as frequently as the car-rental agencies they share airport space with, probably because airlines are bigger, more complex, and a bit more of a concern to antitrust regulators.

Mergers and buyouts aren't necessarily a bad thing, since they reflect dealmakers willing to commit capital and they do, occasionally, generate more efficient operations and save jobs. But some car-rental buyouts have had all the hallmarks of deals that benefit investors but hardly anybody else, such as a huge amount of new debt taken on by the purchased firm, mainly to finance fees paid to the dealmakers.

The Hertz–Dollar Thrifty deal appears to make business sense, since it will supposedly allow Hertz to cut costs by scaling its operations among more retail outlets. And the deal does reflect a logical realignment of the industry into three big players—Hertz, Avis Budget, and Enterprise—that all have the reach to compete globally and the resources to ride out downturns.

But different types of deals will probably seem to make sense a few years from now, just as they did in the past. There could even be compelling new reasons to undo the Hertz deal. In this business, just about everything gets treated like a short-term rental.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.