Carl Icahn, the Car Guy: Why He Bets on Hertz, Lyft and Pep Boys

Carl Icahn rarely takes his Mercedes out for a spin. And he figures many people in the U.S. will eventually treat their vehicles as dismissively he does, if they bother owning any at all.

That’s part of why the billionaire expects he’ll make a bundle on the offbeat collection of investments he has assembled, including a raft of auto repair and supply outfits, a small stake in Lyft Inc. and a controlling position in Hertz Global Holdings Inc.\

“If you look at these businesses as single things, I don’t think they’re that great,” he said in a recent interview. But they’re positioned as a group to cash in on the new car culture. “There’s a secular change happening, which we see as a great opportunity, and it will be good for Icahn Enterprises.”

Icahn imagines the next two decades or so of transportation the way a lot of experts do: Americans will ditch personal cars, opting instead for communal rideshares or short-term rentals, some of them self-driving and fueled by electricity. Icahn sees the migration playing Into his hands. He’s sure enough that he has invested more than $3 billion so far, not counting what he has put into Hertz.

Lyft would benefit, of course, as it competes with leader Uber Technologies Inc. And since those companies have zero interest in taking care of fleets, the 1,900 service centers Icahn Automotive Group LLC owns would stay busy. (They include American Driveline Systems, Pep Boys and Auto Plus.) Meanwhile, Hertz is restructuring its main business and trying to set itself up as a manager of ride-hailing fleets and, eventually, of so-called robotaxis. (Hertz’s shares zoomed in June on news that Apple Inc. was leasing cars from the rental giant to test self-driving technology.)

“If Icahn is talking about managing a fleet of autonomous vehicles, then he has a business,” said auto consultant Maryann Keller, who used to be on the board of Dollar/Thrifty Automotive Group Inc., which was acquired by Hertz. “If Uber has fleets of autonomous cars, they will pay someone to manage them.”

Mom-And-Pop Shops

Bolstering Icahn’s plan is Federal Mogul Holdings Corp., a maker of after-market parts -- including Champion spark plugs and Wagner brakes -- that he took private in January. He said he’s not done acquiring, with the next up being mom-and-pop repair shops and collision-service outfits. “We’re buying them,” he said. “I pay a little more because I want to build this.”

He’s already linking his businesses. He arranged a partnership between Pep Boys and Hertz to locate 50 rental counters at the repair chain’s locations. Lyft drivers can lease a Hertz vehicle, and Pep Boys will inspect it and certify that it meets Lyft’s specifications. If the car needs repairs, the driver can take it to Pep Boys, said Dan Ninivaggi, CEO of Icahn Automotive.

It’s win-win-win, according to Ninivaggi. Lyft, the theory goes, will attract more drivers if people who don’t own cars can easily lease them. Hertz will make more money off its short-term rental fleet; at the moment, a model that’s put in 18 to 20 months of work for tourists and business travelers is sent off to a used-car auction, where it doesn’t pull in a lot of cash in a depressed market. And because the Lyft-lease vehicles will have already depreciated, they’ll be a lot cheaper for drivers than a brand new set of wheels.

Depreciation is a bugbear, Ninivaggi said. “Car rental companies have to operate other channels beyond an 18 to 20 month holding period.”

Another plank in Icahn’s strategy is consolidating his parts and service businesses and having those buy from Federal Mogul, the second-largest after-market parts seller in the U.S. Ninivaggi said Federal Mogul offers them better prices than the likes of O’Reilly Automotive Inc. or AutoZone Inc.

These days, repair shops might be better off under one umbrella: As carmakers stuff more technology under the hood, it’s tougher for small outlets to afford fancy diagnostic equipment and hire trained technicians, Icahn said. So as Icahn Automotive expands its service network, it has greater capability for purchasing and education.

“Carl spends a lot of time on this,” Ninivaggi said. The billionaire may have missed his calling. “I joke with him that he could have worked in one of shops in Queens, working on the cars and moving tires around.”