Ford Motor Co. to Acquire Rest of Budget Rent a Car
DETROIT (AP) _ Ford Motor Co. said Thursday that it will expand its rental-car empire by acquiring control of Budget Rent A Car Corp. for an undisclosed price.
Ford, which has sold cars and trucks to Budget for 25 years and has owned the company’s nonvoting preferred shares since 1989, will acquire Budget’s common stock from investor John Nevin.
Unlike Big Three competitors Chrysler Corp. and General Motors Corp., which have been reducing their rental car investments, Ford has embraced the highly competitive business. It already owns No. 1 Hertz Corp.
``The rental car business can continue to be a good one for Ford,″ said David N. McCammon, Ford vice president of finance. ``Hertz has posted record profits in each of the last three years and is clearly the industry leader. The steps we’re outlining today will allow Budget to realize its full potential.″
Ford bought part of Hertz in 1987 and took complete control in 1994. Last year, Hertz earned $105 million after taxes.
Budget, based in Lisle, Ill., has 3,200 locations in 120 countries. It is the third largest U.S. rental car company behind Hertz and Avis Inc.
During slow markets, automakers have used their rental units as ready customers for cars and trucks. But the tactic can create problems by glutting the market with nearly new used cars when the rental companies replace them. Profit margins on fleet sales are lower, as well.
As a result, GM, Ford and Chrysler have scaled back their sales to rental fleets in recent years.
The deal announced Thursday is subject to regulatory approval. Ford spokesman Christian Vinyard said no changes were planned at Budget.
``The current management’s in place, doing a great job,″ Vinyard said. ``We look for them to be profitable this year. We expect the investment in time to be as good as our investment in Hertz.″
Ford said it will take an after-tax charge of $437 million in the second quarter to write down the value of loans it has made to Budget and its earlier investment in the rental company.
Ford also plans to record a one-time, after-tax gain of $650 million in the second quarter from its recent public offering of a 19 percent stake in Associates First Capital Corp., its consumer finance unit.
The net result will be a second-quarter gain of $213 million, or 18 cents a share, Ford said.
Ford also said Thursday that it will increase its third-quarter dividend to 38.5 cents a share from 35 cents.
``This is the fifth increase in the dividend since the first quarter of 1994,″ Ford Chairman Alex Trotman said. ``This action reflects continuing improvement in our operations and the strength of our balance sheet.″
Ford’s stock was down 50 cents at $31 in early afternoon trading on the New York Stock Exchange.