DETROIT — Ford Motor Co., going against the tide in the auto industry, moved Thursday to expand its leading role in automobile rentals by acquiring Budget Rent a Car for an undisclosed sum.
The deal must be approved by federal antitrust regulators, who will decide whether Ford--already the world's biggest player in the rental car business through its ownership of Hertz Corp.--would be too powerful in the U.S. market with control of Budget.
Ford said it will argue that the acquisition would not be anti-competitive because Hertz focuses on business travelers and Budget on the more economy-minded.
Ford already has a nonvoting stake in Budget through a $300-million investment it made in 1989, and also wields considerable influence as the supplier of 70% of Budget's 133,000-vehicle fleet.
To complete the deal, Ford said it will forgive some loans to Budget and partly write down the 1989 investment. At the same time, to gain a controlling interest, it will acquire all of Budget's outstanding common shares from investor John Nevins, former chairman of Firestone Tire & Rubber Co.
Ford declined to provide further details of the transaction. It did say, though, that the loan forgiveness and write-down will result in a $437-million charge against second-quarter earnings, which will be reported Wednesday. It said that will be more than offset by a $650-million one-time gain related to the recent public stock offering of Ford's financial subsidiary, Associate First Capital Corp.
The Budget move comes as Ford's domestic auto-building rivals--General Motors Corp. and Chrysler Corp.--are getting out of the car-rental business. That business has been struggling to make profits as vehicle costs have risen while rental rates stagnated.
Hertz has made money the last three years, but Lisle, Ill.-based Budget has clearly been a disappointment to Ford. The private company reportedly lost $125 million on revenues of $2.4 billion for 1995.
Budget has since undergone a management shake-up and is in the midst of a restructuring that Ford executives said will make Budget profitable by the end of this year.
"The rental car business can continue to be a good one for Ford," said David McCammon, Ford's vice president of finance. "The steps we are outlining today will allow Budget to realize its full potential."
Industry analysts and Budget franchisees were upbeat about the announcement. They said Ford's considerable financial clout would be helpful in putting Budget on a steady course.
