Blum planning major repairs on Rent-A-Wreck Ailing firm needs financial tuneup

November 22, 1993|By Ted Shelsby | Ted Shelsby,Staff Writer

He drives a Rolls-Royce, although he has any number of good used cars at his disposal.

He has a fancy for expensive suits, monogrammed shirts and gold cuff links the size of quarters.

Kenneth L. Blum has come a long way -- a very long way -- since the days he sold lollipops to beachcombers at Coney Island and shined shoes to help put food on the family dinner table during the Great Depression.

Despite these tough beginnings, the energetic 67-year-old Baltimore business executive who was recently elected chairman and chief executive of Rent-A-Wreck of America Inc., the used car rental company, insists: "It's been a great life, it really has."

Over the years he has made a fortune in the health care industry, been honored with the state's "Salute to Excellence" award and has received an honorary doctorate of humane letters in 1991 from his alma mater, Loyola College.

He tells stories of being nearly killed by a charging elephant in Kenya and of serving as a "bomb chucker" with the Israeli Air Force during the 1948 Israeli war for independence.

At the age of 50, while he was head of his own company, United HealthCare Inc. -- a health care coverage provider -- he went back to Loyola College to get his MBA, just to keep learning. "Each time you expand in a new direction, you expand your life," he says.

It was during this period that he suffered the embarrassment of having United HealthCare named in a federal fraud indictment in although he was not accused of any wrongdoing. An officer of the company later pleaded guilty to conspiracy in arranging kickbacks to an undercover FBI agent for bid rigging.

Patrick Martinelli, professor of marketing at Loyola College, recalled Mr. Blum's ability to withstand the trauma.

"He stood there and held the company together. He kept morale up. And more importantly, he kept customers from leaving. That was quite a management feat," Dr. Martinelli said. "I was so impressed at the time that I asked Ken to come back and give a lecture on crisis management: 'What do you do when the sky falls down.' "

Mr. Blum sold his 47 percent interest in United HealthCare in May for $40 million.

Kenny Blum, as business associates refer to him, is known as a financial whiz and marketing strategist with a down-to-Earth personality. These are skills he will likely need in his latest challenge: giving longtime money loser Rent-A-Wreck a financial tuneup.

Mr. Blum said his involvement with the auto rental company started this summer when he was contacted by William L. Richter, a New York investment banker who serves as vice chairman and holds a controlling interest.

"He asked if me and my staff -- my son and two sons-in-law -- could take over a stagnant business and increase its growth and business volume. I took a look at the company, decided I could turn it around and started in July," he said.

One of his first moves was to redefine Rent-A-Wreck's business and relocate its corporate headquarters from a high-priced area across the road from the Los Angeles airport to Owings Mills.

There were other cost-cutting moves in rapid succession.

"We fired the CEO and his planning staff," Mr. Blum said. "We cut the advertising staff. We cut their legal fees, the international marketing guy and a couple of secretaries. We reduced the overhead by about $300,000. That may not sound like much for General Motors," he continued, "but that was a lot for a small company like Rent-A-Wreck."

Rent-A-Wreck, which posted sales of $4.5 million last year, has more than 350 neighborhood franchises located largely in small towns in 46 states and nine countries. While the franchises seem be doing well, the parent has struggled.

The primary reason, Mr. Blum said, was the fee-splitting structure.

Franchisees, he said, were getting 94 cents from every dollar on a car going off the lot while the franchiser got 6 cents. He was not certain that the franchiser was getting all it was due.

"It was an honor system, and it was a very sloppy operation. We're in the process of putting in a computer system that will give us better control and accountability. Every time a car goes out now, we know it."

Mr. Blum said one of the first questions he asked its board was what kind of business the company was in. "When they said 'The car rental business' I said, 'You're wrong.' "

He explained it this way: "If you rent used cars and don't buy the cars right, you can't make money. And if you don't sell them right, you can't make money. If that's true, then aren't you really in the used car business?

"Once that's said, everything changes," he added. Instead of individual franchises buying their cars, Mr. Blum grouped the franchises together to buy in bulk through a wholesaler, a move he says saved between 20 percent and 30 percent.

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