Hertz Downsizes Rental Fleet, but Upsizes Rideshare

Hertz Global Holdings Inc. reduced its total average fleet by 1% year over year, but increased the number of vehicles dedicated to its ride-hailing fleet in the second quarter, the company reported in its earnings call last week.

Specifically, core rental vehicles declined by 3%, but this was partially offset by an increase in the vehicles dedicated to the ride-hailing fleet.

Last year, Hertz expanded a car rental program to drivers working for Uber Technologies Inc. and Lyft Inc. in order to increase its presence in the ride-hailing business and leverage its network of 8,500 Hertz locations across the U.S. The partnership involves Hertz offering daily, weekly, and monthly car rentals to ride-hailing drivers. In addition to this, Apple is leasing six cars from a Hertz subsidiary for autonomous software testing.

“We’ve recently partnered with new agencies to refresh our brand strategy and redefine the value proposition while we rebuild our market position in the U.S., leverage our mobility initiative globally, and prepare for our 100-year anniversary next year,” Kathryn V. Marinello, chief executive, said during the call.

Additionally, the company is “assessing and developing” its business by leveraging its advanced technology initiative, rental car scale, and Donlen Corp.’s corporate fleet management and telematics, which will ensure the company is ahead of the mobility evolution, Marinello said.

The size of Hertz’s fleet was not disclosed, but the fleet was “far smaller” last year, Chief Financial Officer Thomas C. Kennedy said on the call. “From a year-over-year standpoint, [the fleet] is fairly significant, and it’s been growing,” he said, adding that for the third quarter — so far — it hasn’t been growing as much because the company wants to focus on the core business during peak earnings season. “We expect it to then start to grow again after we get past the peak earnings season,” Kennedy said.

Despite the decrease in industry residual values, Hertz stayed on course with its fleet optimization plan, selling 35% more vehicles year over year and onboarding a “richer” mix of model-year 2017 vehicles, according to the earnings report. This trimming of the overall fleet is part of the company’s plan to increase residuals by offering more in-demand vehicles that customers are interested in renting and buying.

“That will drive higher residual values and lower fleet costs,” Marinello said, adding that while a higher-quality fleet is more expensive on the frontend, less desirable compact cars are more expensive on the backend.

“Accelerating dispositions to reduce the fleet size is also costly because it means we’re selling in the steepest part of the depreciation curve,” Marinello said. “All of this — on top of cyclically weaker car residuals on our existing fleet — caused a significant downward pressure on earnings, but there’s definitely an upside. Now that the fleet is fixed, the outsized residual pressure should abate somewhat. Lower new car prices are being negotiated to address the residual weakness.”

 

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