#Hertz

We covered Hertz expanding its EV offerings yesterday. As I think it over, I have a couple of questions.

Automakers are going electric, which means that all the companies that rely on them will have to adapt. Car rental companies have long pledged to make the transition alongside their auto industry partners, and Hertz recently announced that it would be adding the Cadillac Lyriq and Chevy Silverado EV. 

Hertz has reportedly fallen short of its promise to buy 100,000 electric vehicles from Tesla last year. Though, taking a look at the role EVs are playing in the rental industry right now, the company might actually have made the correct decision.

Hertz has decided to pay $168 million to settle 364 individual claims that the company falsely reported its own rental cars as stolen. Criticisms date back to 2015 but the issue became national news right around the time the company was also filing for Chapter 11 bankruptcy in 2020. Hertz has since maintained that any erroneous claims made against customers were the result of a faulty inventory system that’s since been fixed. However, the people that were wrongfully accused of the crime – some of which were held at gunpoint by police and even temporarily imprisoned for a felony offense they didn’t commit – have been seeking restitution in class-action suits.

In 1966, Shelby American joined forces with Hertz for its Rent-a-Racer program. Legend has it that the entire thing started as a way for Carroll Shelby to sell 1,001 modified Ford Mustangs, effectively conning the rental agency into paying for the privileges of advertising his products. But the resulting Shelby GT350H has become a bit of a legend, with the surviving examples consistently going for six figures at auction.

In actuality, Hertz was already offering high-performance vehicles years before Shelby got involved and the pair had previously worked together to offer the Cobra in 1962. Their marriage solidified the company’s efforts to occasionally provide customers with the opportunity to drive something truly glorious to drive. While the Mustang (along with the Corvette) remained a staple for North America, Shelby models wouldn’t return until 2006 delivered a second incarnation of the GT350H, to be followed by the 2016 GT-H. Hertz and Shelby American have confirmed a new partnership — one that has resulted in the 900+ horsepower Mustang Shelby GT500-H.

Hertz customers have issued complaints that the company falsely accused them of stealing rental cars. Numerous renters have made claims that they were stopped by police to be informed that the vehicle they had paid to borrow was reported stolen. Complaints became so prevalent that CBS News launched an investigative report last November to uncover whether individuals were simply lying about their innocence to avoid prosecution or if Hertz was habitually screwing things up.

By December, 191 claims had been filed in federal bankruptcy court on behalf of the people who said they were falsely arrested. But it took another two months for a Delaware bankruptcy court judge to issue a ruling that will require Hertz to make the number of renters it accuses of stealing its cars every year publicly available.

Tesla shares took a dip on Tuesday after Tesla CEO Elon Musk tweeted that its deal to provide Hertz with 100,000 electric vehicles had not been ratified with the signing of a contract. While this normally means the deal had not been finalized, the language used by Musk almost makes it sound like whatever Hertz had been claiming previously didn’t even matter.

“You’re welcome! If any of this is based on Hertz, I’d like to emphasize that no contract has been signed yet,” the CEO said in reference to Tesla’s share price pitching upwards by over 8 percent. “Tesla has far more demand than production, therefore we will only sell cars to Hertz for the same margin as to consumers. Hertz deal has zero effect on our economics.”

After managing to avoid what appeared to be certain death, Hertz has decided to purchase 100,000 Tesla vehicles before the end of 2022. Considering the firm was filling out Chapter 11 bankruptcy forms this time last year, the estimated $4.2 billion expenditure designed to ensure that 20 percent of its global fleet is electric does feel slightly frivolous. But Hertz says it’s getting out ahead of the curve and is interested in becoming a “mobility company,” rather than a business that just rents people automobiles.

As you might have noticed, or heard from us, rental agencies have been hoovering up new and used vehicles to offset the 2020 selloff that stemmed from everyone mysteriously canceling their travel plans that year. Returning to normal, which is something anyone who didn’t assume the world was ending could have predicted, has resulted in increased pricing for vehicles — regardless of whether you’re renting or buying.

Rental companies typically try to play the vehicle market like the rest of use stocks or (if you’re hip) crypto. Buy low, sell high. But 2021 has created a perfect storm of increased demand coming after a long stretch of nothing and an auto industry that doesn’t seem to be capable of building cars thanks to all sorts of component shortages. But it’s no sweat for the big rental agencies because they’re now able to charge just about whatever they want. They’re keeping vehicles in their fleets longer, making more money off them, and selling them back at elevated prices.

With rental companies coming off a particularly lean 2020, fleet downsizing turned out to be a necessity for many agencies. Unfortunately, demand for rental vehicles has begun to return and some markets have found themselves operating with an insufficient number of cars. The upside to this is the ability to charge exorbitant fees for models nobody wanted to rent in the first place. But businesses can’t cash in on vehicles that didn’t get rented, leaving agencies desperate for new product that’s been backlogged by the auto industry’s semiconductor shortage.

The solution is a novel one, at least for rental companies. Rather than gamble the business on whether or not supply chains normalize before summer, they’ve been prowling auctions and hoovering up used cars in record numbers.

Rental car companies are their own worst enemies, having sold off much of their fleets during the pandemic’s height. With travel restrictions easing in many places they find themselves with no inventory.

Hertz will custom wrap a rental vehicle to mark an occasion or celebration, a program that appears to be available throughout their system in locations across the U.S.

Rental-car agencies, shunned by a population that didn’t know whether it was safe to go outside for most of the year, have reportedly started to turn things around. While the recovery didn’t come soon enough to save Hertz from having to declare bankruptcy, the summer months were much kinder to the industry as a whole. Despite the likelihood of 2020 remaining an unprofitable year, the final two quarters should help rental groups recoup some of the sustained losses.

A recent assessment conducted by the Wall Street Journal suggested that the industry is benefiting from a population that continues to shun air travel during the pandemic and elevated used vehicle pricing. While discount prices actually hampered Hertz right when it needed a miracle, secondhand auto rates surged through the latter half of the summer and helped stabilize the rest of the vehicle rental industry.

Colossal rental car provider Hertz is on the hunt for life-sustaining cash, but raising it itself now seems out of the question. Hertz Global Holdings, which filed for bankruptcy in May, recently moved ahead with a plan to raise a cool half-billion through a stock sale, only for the Securities and Exchange Commission to step in and say “hey, whoa, no more of that.”

Left with no other option, Hertz is now seeking a bankruptcy loan.

While negotiating the terms of its bankruptcy with creditors, Hertz has been informed that it can sell 200,000 would-be rental vehicles to help cover its debts.

According to a filing with the U.S. Securities and Exchange Commission (approved Friday in the U.S. Bankruptcy Court in Wilmington, DE), Hertz will be allowed to “dispose of at least 182,521 lease vehicles” between now and the end of 2020. Proceeds will then be used to pay off $650 million it owes lenders, with most funds going toward principal payments on financed vehicles.

With the pandemic knocking out manufacturing for months, this is likely welcome news for buyers eyeballing the secondhand market. Dealer lots are light on fresh product at present and times are getting tougher for consumers, making used vehicles all the more appetizing. Even though former rentals have a tenancy to be abused, they typically to go for a bit less than something living a more carefree existence — and Hertz will be desperate to offload them quickly.