Rent-A-Wreck Goes Public
All that publicity, and certainly our big grand opening in New York, inevitably attracted the attention of Wall Street. We received inquiries from several underwriters relative to our interest in taking Rent-A-Wreck public.
Having been associated with two publicly held companies, one of which, Optical Systems, involved a public underwriting, I was hesitant to bite that bullet again. It’s a challenging responsibility, certainly knowing that you are betting your name and reputation on the performance of your shareholders’ investments over which, in most cases, you have very limited control.
On the other hand, Rent-A-Wreck had become a media darling. We were an exciting investment novelty that had caught the interest of newspapers, magazines and television.
To that date Dave and I had drawn only modest remuneration from the company for our efforts. If we were ever to really enjoy the fruits of our energy, it could only come in the form of a buyout, or perhaps a public offering. Though we had received feelers from several small Wall Street companies, we were very hesitant to encourage their interest.
One New York underwriter, however, was particularly aggressive. Their principals flew out to L.A, outlined their proposal, assured us that we would retain management of the business and hold 80% (40% each) of the outstanding stock… In other words, we would still be in control of our company.
We liked the men. Their credentials seemed impressive, and we received no really negative feedback. I flew to New York, met some of their staff, and after checking them out further, called David and recommended that we accept their proposal. Over the next few months our underwriters dragged me around New York City for a series of whirlwind visits to other brokerage houses and money managers in what they referred to as a “dog and pony show.”
Wall Street meets Rent-A-Wreck. Click play below.
In October of 1985, under the listed name “Rent-A-Wreck of America Inc.” Dave Schwartz’s early 1970s tongue-in-cheek venture went public. A million shares were sold at three dollars a share.
It was not a big offering. Three dollars a share seemed to be a reasonable price, considering that the company had yet to show a profit and was indeed involved in a very competitive business. I was a bit embarrassed because the stock price virtually doubled overnight, trading as high as $6.00.
Of course, I received many calls from friends and relatives. Should they buy? I was very nervous. Some of my friends had been burned by the vagaries of the market when investing in another company in which I had been involved a few years back. Though I urged caution, some of them purchased Rent-A-Wreck stock shortly after its original issue date.
We opted not to fight for the Rent-A-Wreck trademark in Canada. Instead we registered the name ‘Cherry Rent-A-Car’ in that country. On the advice of our attorneys we also registered the name here in the United States.
Our intention was to offer the name at no initial franchise fee to our existing Rent-A-Wreck affiliates. Many of our new car dealers were already receiving inquiries from travel agents, requesting airport service for their business traveling clients.
We also believed that, once established, we could offer franchises under the name ‘Cherry-Rent-A-Car’ in territories not served by our Rent-A-Wreck network here in the United States.
Though we began the registration process, which included the design of a Cherry Rent-A-Car logo, the idea was shot down by our Wall Street underwriters who nixed the name with the lame excuse that the word “cherry” was a slang reference to a female’s anatomy.
Somehow our Wall Street people must have convinced Dave Schwartz, and the idea was dropped.
Needless to say, my staff and I were very disappointed, as were a group of our franchisees who were interested in competing directly with Hertz and Avis for their local airport business.
This was only the first of several obvious challenges to my authority and what I perceived as attempts to build a wedge between Dave and myself. I could sense uneasiness among the key executives on my staff. This was echoed in the feedback I was getting from a dozen or so Rent-A-Wreck franchisees with whom I had discussed our Cherry Rent-A-Car idea.
Right or wrong, I came to the conclusion that the Cherry Rent-A-Car disappointment was a harbinger of things to come. Let’s face it, as a CEO who had enjoyed complete control of the decision making process, I was not used to the authority of an independent board of directors.
I met with Dave to discuss the matter. Though we had no formal buy/sell agreement between us, it was apparent that such an option would be the only solution to my problem.
Dave made an offer to buy my interest in Rent-A-Wreck on a per-share basis at the then current market price. I accepted, and we worked out the terms, which included a non-compete. I quietly slipped out of the auto rental business in early 1987, and Elayne and I bought ourselves a ranch in Telluride, Colorado. (Food for another blog?) At the time I retired from the car rental game, the company had 350 offices throughout the United States.
The superstar of the automobile rental business is today, Enterprise Rent-A-Car. Serving much the same customer profile as Rent-A-Wreck, Enterprise caters primarily to the driver who needs a car because his own vehicle is in the shop, and to those families who need a second car from time to time.
With an excellent insurance program, they have relieved the new car dealer of the responsibility and the burden of carrying his own rental liability coverage.
The company was started by Jack Taylor, a Chevrolet dealer in St. Louis. Enterprise rents late model vehicles only. In recent years they have acquired National Car Rental and Alamo Rent-A-Car. Today Enterprise is the largest rent-a-car company in the world, with over 5,400 offices, of which some 400 are located at airports. All Enterprise offices are company-owned.
Rent-A-Wreck is no longer a publicly held company. It is controlled by Jack Fitzgerald, a prominent automobile professional who owns twenty new car dealerships and twelve auto malls throughout Maryland, Pennsylvania and Florida.
In addition to Rent-A-Wreck, Fitzgerald’s companies hold 20 Budget franchises and operate additional rent-a-car offices under such trade names as “Next Car” and “Priceless Rent-A-Car.” Two of the latter happen to be located here in Los Angeles.
Today a brand new four-story apartment building has replaced the old Rent-A-Wreck car lot on the corner of Pico and Centinela in West Los Angeles. Though there’s no designated sign, Rent-A-Wreck’s national directory lists an office about two blocks away at 2270 S. Centinela, the location of a storage facility owned, coincidentally, by David Schwartz. There is no sign, however stop in next time you need to rent a car. For an update on this story check out Rent-A-Wreck’s Yelp reviews on your computer. Obviously Dave hasn’t lost his touch. [Click here]
The rent-a-car business is also facing some serious challenges from the new “ride-hailing” services. Uber and Lyft and others are proving to be attractive alternatives to the traditional car rental companies. Many airports are beginning to permit passenger pick-ups as well as drop-offs.
In addition, the California Public Utilities Commissions recently voted to permit “car-pooling,” which will enable the Ubers and Lyfts to cut into that segment of the ride-sharing business provided by airport van service operators.
The Ubers and Lyfts are also beginning to offer their services to people whose cars are in the shop or perhaps the family that would normally rent a second car on an as-needed basis. One wonders if the Enterprises and the Rent-A-Wrecks are beginning to feel the pinch. Could be just a matter of time.