Hertz deal gives Penske stores a flow of used cars
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A deal that makes Penske Automotive Group the exclusive franchise operator of Hertz rental locations in the Memphis, Tenn., market will give the dealership group a steady flow of used vehicles for its stores.
Under the agreement with Hertz Corp., Penske Automotive Group will buy the assets of Hertz's 15 company-owned rental car locations in that market and will be licensed to operate them under the Hertz brand.
Penske, which will own the locations' rental fleet, intends to sell the end-of-service vehicles mostly to the company's 145 dealerships, and in some instances to other dealerships at wholesale, says Tony Pordon, a Penske spokesman.
"Historically, those cars are just sent to an auction somewhere," Pordon says of retiring rental-fleet vehicles. The new relationship with Hertz "creates an additional supply of used vehicles for our dealerships."
Small-market test
Pordon says Penske is testing the strategy in Memphis because it is a relatively small market. If the partnership benefits both companies, similar deals could be struck in other markets, he adds.
"We're trying to gain an understating of it, see how we can operate it, see how it benefits us and Hertz," he says.
"If it proves to be a fruitful and beneficial relationship, I think there are other opportunities that we could look at in other markets around the United States because it's no secret that Hertz wants to do more of these markets."
The deal, subject to federal antitrust approvals and other closing conditions, is part of Hertz's strategy to turn select corporate markets over to franchisees, Hertz says. The deal is expected to close in the fourth quarter.
Penske owns one dealership, a Toyota-Scion store, in Memphis. Pordon says moving the retired rental cars to other markets within the group is a possibility.
Hertz CEO Mark Frissora said in a statement that Penske is a premier brand that will enhance Hertz's local and neighborhood marketing efforts. He says he expects the franchise relationship with Penske to expand into other markets.
Pordon says Hertz's Memphis market has about 2,000 vehicles representing a variety of brands in its rental fleet at any given time but that the number of retired vehicles expected to be available to Penske dealerships annually is hard to calculate. He says it depends on how often the fleet turns over and that, in turn, depends on various market conditions.
When Penske dealership customers need a loaner or rental car, Penske typically calls on Hertz or other rental companies, Pordon says. With the new partnership, Penske dealerships may have Hertz signage and a rental desk "somewhere in the property," he says.
Publicly held Penske ranks No. 2 on the Automotive News list of the top 125 dealership groups in the United States with retail sales of 154,829 new vehicles in 2011. It also sold 129,652 used vehicles in 2011.
Rentals to used cars
Penske is not the first big dealership group to strike a deal with a rental car company.
Under an agreement unveiled in June, AutoNation Inc.'s online used-car operation said it would help Avis Budget Group sell retired rental vehicles directly to consumers. As part of that deal, AutoNation buys trade-ins directly from Avis Budget customers who buy vehicles from Avis Budget. AutoNation also handles vehicle appraisals and financing and warranty sales, all online.
You can reach Arlena Sawyers at asawyers@crain.com.
