Bidding adieu to a rent-a-car stalwart (Part II of II)

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Another threat to Hertz (that Enterprise and Avis were able to thwart, so far) was the looming ascension of ride sharing. Lyft and Uber have successfully poached the Hertz market, and Enterprise and Avis moved much quicker in refreshing their fleets and upgrading technology to combat this. To give you an idea of how fast this fall from grace has happened, in 2014, Hertz was valued at roughly $14 billion. Some analysts have that number as high as $17 billion. This was twice Avis’s valuation. Last year, Hertz plummeted to a $2 billion valuation, and COVID-19 has literally been a foot on their neck, leaving Hertz gasping for air.

The company has understandably cycled through several CEOs over the last decade – four to be exact. One of the more prominent was Kathryn Marinello, a savvy businesswoman who had a nice run of 3 years but famously clashed with the Board over her corporate strategy. Clashes with Boards typically don’t end well, and Marinello was shown the door. In 2010 the US economy was recovering from the financial crisis, and another Hertz CEO at the time – Mark Frissora – made the call to expand operations to attract leisure travelers, as mentioned earlier. What sounded like a well-thought-out idea, however, turned disastrous.

Frissora led Hertz to borrow heavily in the bond markets. The company increased its corporate debt by a questionable 50%. The bet went south, the Hertz fleet could not attract the numbers they were projecting in this leisure segment. Due to their highly leveraged situation, Hertz couldn’t keep borrowing. A final move was to turn to a very obscure corner of Wall Street New York – asset-backed securitizations (ABS). Investment banks set up financial trusts for Hertz, and this allowed the rent-a-car firm to issue additional bonds. In layman’s terms – they were adding to their debt.

Fast forward to 2014, and Frissora was eventually forced out. By the time the formally mentioned Ms. Marinello took over (2017), Hertz was swimming in $13.5 billion of debt, and their technological advances were crawling at a snail’s pace. Ironically enough, the first couple of months of 2020 had begun to rebound for Hertz. They experienced 6% revenue increases, but by mid-March, everything came crashing down with 10,000 plus employees laid off in the US alone.

There are many equity holders in Hertz, and one, in particular, holds nearly 40% of the company. In cases like this, equity holders don’t tend to survive. Yet, there is always the post-bankruptcy phase, and these same heavy-weight investors tend to bounce back with a fervor. Tough times, but hopefully, they’ll be a second rising for Hertz down the line. Patriot Warranty provides Car Rental Assistance.

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