Trouble and turmoil continue at rental car company Hertz.
The company, which announced in January it was selling 20,000 of the electric vehicles in its fleet, or about a third of the EVs it owned, is now replacing the CEO who helped build up that fleet, giving it the company’s fifth boss in just four years.
The company announced that Stephen Scherr, who came to the company two years ago after nearly 30 years at Goldman Sachs, is stepping down at the end of this month. He’ll be replaced by Gil West, former chief operating officer of Delta Air Lines and General Motors’ Cruise unit.
In the most recent quarter, Hertz took a $245 million hit to its earnings due to a drop in value of the EVs it was selling.
While the number of EVs bought by American customers surged last year to top just under 1 million, for the first time, there was less demand than some of the traditional automakers had expected as they moved to offer EVs. Tesla, the leader in US EV sales, started a price war for EVs just over a year ago, driving down the value of both new and used EVs, such as those in Hertz’ fleet. And the drop in prices hit Hertz bottom line since it reduced the money it could expect to get from reselling the vehicles.
But the problem for Hertz wasn’t necessarily that the cars were electric, and customers simply do not want to drive electric cars. The problem was how Hertz handled the fleet in general, according to industry analysts.
“The execution and marketing of EV’s [by Hertz] was a horror show across the board,” said Daniel Ives, an analyst with Wedbush Securities who follows the EV market. “It’s a black eye they couldn’t recover from.”
Part of the problem for Hertz was that even people who might want to buy an EV wouldn’t necessarily want to rent one while on the road, when they don’t necessarily have the ability to plug them in to charge them as they would at a private home. There might not be a charging station, or enough time, for a rental car customer to charge an EV, Ives said.
By hewing to charging rules the way Hertz has enforced refuelling rules, it may have dissuaded customers from wanting to rent an electric car. Without building any charging infrastructure at its rental locations, Hertz may have hurt its own business.
“They don’t want to go 20 minutes out of their way at five in the morning to find a charging station,” Ives said.
In October 2021 Hertz announced it would buy 1000,000 EV’s from Tesla, just before it had its initial public offering following its emergence from bankruptcy. The hope was the promise of being on the cutting edge of growing demand for EVs would attract investors and lift its stock price.
It subsequently announced plans to buy up to 175,000 EV’s from General Motors and 65,000 EVs from Polestar, the EV company co-owned by Volvo and its Chinese parent company Geely. But Hertz’s total EV fleet only reached 60,000 before it decided to pull back. Still, that was enough to amount to 11% of its fleet.
Even without the drop in value of the cars it bought, Hertz struggled with collision and damage repairs on an EV running about twice that associated with a comparable combustion engine vehicle, Scherr told investors on a 2023 call.
Other problems beyond EVs.
But even without the $245 million hit to its bottom line from the problems with its EVs, Hertz would have lost money in the fourth quarter and the full year. That compares to profits at rival Avis Budget Group, which reported record revenue and the second-best adjusted operating profit in its history.
And the EVs were not the only black eye for Hertz. In December 2022, the company agreed to pay $168 million to settle 364 claims related to the company falsely reporting rental cars as stolen. These cases sometimes resulted in Hertz customers being arrested and even imprisoned. While Hertz said a “meaningful portion” of that expense would be covered by insurance, it was another blow to its reputation.
Scherr wasn’t the one who decided to make the big bet on EV demand by rental car customers. That was his predecessor, Mark Fields, a former CEO of Ford who was named interim CEO in October 2021, just weeks before Hertz announced plans to buy 100,000 Teslas, the largest order ever for Tesla from a single buyer.
Fields’ predecessor as CEO, Paul Stone, stayed on as president and chief operating officer of Hertz, posts he held until resigning this past September. Stone had taken over just days before Hertz filed for bankruptcy in May of 2020. While the entire rental car industry was battered by the pandemic and the plunge in demand for travel and rental cars, rivals Avis Budget and privately-held Enterprise were able to ride out the storm without filing for bankruptcy.
Where Hertz, which has been renting cars since the days of the Model T, was once the world’s largest rental car company, in 2023 its revenue was 22% less than its publicly held rival Avis Budget.
