Monday, November 20, 2006

Hertz: Can This Brand be Saved?

"I am afraid you will have to talk to our new owners about that. It's one of a number of changes they have made. We're not happy either."

This was the response I got at the Hertz rental counter at a New Hampshire airport about six months ago when I returned my rental car only to find I was subjected to a whopping fee that I had never been charged before. I was shocked not only by the fee but by the response of the desk staff.

Peter Lynch, the legendary investor who ran the hugely profitable Fidelity Magellan Fund, believed that you can tell a lot about a company's prospects just by walking in the door and using their products and services. In his book One Up on Wall Street: How to Use What You Already Know to Make Money in the Markets , Lynch argues that you should invest in companies that: (a) you understand, and (b) produce things you like using. Warren Buffett has a similar philosophy.

So, I was shocked when the staff at the rental counter told me to "Talk to the new owners." Hertz has been a shining beacon of superb service at reasonable prices for years, and they really seemed to understand the concept of a customer "experience." If you were a member of their frequent renter program, your name was up on a board when you arrived, and you didn't even have to check in - you just got in your car and drove away. And when you returned to the airport, they had mobile checkout people who often arrived at your car even before you came to a full stop. The average time to checkout was about one minute.

In short, air travel was a real drag, but you could count on Hertz to make the car rental experience efficient and pleasant.

No longer, apparently. Since that rude encounter in New Hampshire six months ago, things have continued a slow slide downhill. Prices have edged up, counter staff are getting more surly and a lot more demanding, and service is slower. My car has not always been there when I arrive either.

This experience all came on the heels of the purchase of Hertz from Ford by a private equity group. Those investors announced plans this month to take Hertz public - at a very hefty profit.

Last week when I was returning my car to the airport in San Francisco, there was not even a mobile check-in person to great me. A bunch of us had to wait in a long line at a booth. After a confusing interval, a couple of check in people came slinking out of the shadows, went up to the cars, and started shouting "OK, WHO'S CAR IS THIS? WHO'S CAR IS THIS?" I went back to my car, and was rudely checked in, with nary a thank you.

A year ago, I would have followed Peter Lynch's advice and bought some stock in Hertz. After this, I am going to follow Peter Lynch's advice and not buy any Hertz stock. The investors taking Hertz public may make a short term profit, but unless the company turns its service around, the "Lynch Law" would predict a slow decline thereafter.