This partnership is part of Hertz’s companywide initiative aimed at increasing its presence in the off-airport car rental market and is part of Hertz’s strategy to transition select corporate markets to franchisee operations, the announcement states.
“By partnering with Penske, Hertz will be able to accelerate our growth in key U.S. markets and further strengthen our franchising network,” said Mark P. Frissora, chairman and CEO for Hertz. “Over time, we expect to see our franchising relationship grow into other selected markets throughout the country.”
Upon completion of the closing conditions, Penske Automotive Group will purchase assets of Hertz’s existing Memphis market, in which Penske will operate more than 15 airport and off-airport locations. Hertz said that it will supply Penske the resources it needs to expand its market presence, while ensuring that the services and products provided to customers meet Hertz’s standards.
“We are confident that the commercial and operating synergies between Hertz’s car rental and Penske’s car dealership businesses will benefit our dealership network and Hertz’s rental operations,” said Roger Penske, chairman and CEO for Penske Automotive Group.
Analysts also expect more franchisee announcements from Hertz. “This Penske agreement, in and of itself, is not a needle-mover,” writes Fred Lowrance, senior analyst with Avondale Partners. “However, it is the first significant indicator that we are aware of that suggests HTZ (Hertz’s) franchising initiative may be picking up speed. We expect more announcements heading into year-end.”
Lowrance states that franchise opportunities will help with Hertz’s targeted margin improvements. “Evidence of progress on this front is particularly important because we view the franchising opportunity — and the reduced asset-intensity of the business model that comes with it — as one of the key drivers of continued margin improvement required for HTZ [Hertz] to achieve its impressive 2014 standalone growth and earnings targets.”