Hertz CEO Out Amid EV Strategy Woes
Hertz in Hot Water: CEO Departs After Electric Car Strategy Misfires
Hertz, the iconic car rental giant, is facing ongoing instability. The company recently offloaded a sizeable chunk of its electric vehicle (EV) fleet, and now the CEO who championed the bold EV strategy is leaving. This marks the fifth CEO change for Hertz in a mere four years.
Stephen Scherr, who joined Hertz two years ago after a lengthy tenure at Goldman Sachs, will step down at the end of the month. He will be succeeded by Gil West, who has previously held the position of chief operating officer at both Delta Air Lines and General Motors' autonomous vehicle division, Cruise.
Hertz's recent quarterly earnings showed a hefty $245 million loss, largely due to the depreciation of its EV fleet. Although EV sales for the US market soared 40% in 2023, surpassing one million units for the first time, demand hasn't quite met the expectations of traditional automakers as they aggressively shift to EV production. Tesla, the dominant player in the US EV market, initiated a price war just over a year ago, leading to a devaluation of both new and used EVs – including those owned by Hertz. This depreciation has eaten into Hertz's profit margins as they attempt to resell vehicles.
Company's overall approach
However, industry experts suggest that the problem for Hertz wasn't simply that the cars were electric. More likely, it was the company's overall approach to managing its EV fleet.
"The rollout and marketing of EVs by Hertz was an absolute disaster," says Daniel Ives, an EV market analyst at Wedbush Securities. "It's a reputational setback they may struggle to overcome."
One major issue for Hertz was that, while some may be open to purchasing an EV for everyday use, that interest doesn't necessarily translate to rental cars. Renters traveling away from home may not have the means or the time to reliably recharge an EV. Limited access to charging stations and concerns about adequate range could put off potential customers, according to Ives.
Hertz's insistence on strictly enforcing charging rules, in the same way they've historically managed refueling, may have further disincentivized customers from renting an EV. Without investing in charging infrastructure at their rental locations, Hertz might have inadvertently sabotaged their own initiative.
"Customers don't want to spend their valuable time driving twenty minutes out of their way at an inconvenient hour trying to locate a charging station," comments Ives.
The Tesla Gamble
Hertz's ambitious bet on electric cars kicked off in October 2021 when the company announced it would purchase 100,000 EVs from Tesla. This announcement came right before Hertz went public after emerging from bankruptcy, raising hopes that its forward-thinking EV strategy would attract investors and boost its stock price.
The company went further, planning to purchase up to 175,000 EVs from General Motors and 65,000 vehicles from Polestar, an EV company jointly owned by Volvo and its Chinese parent company, Geely. However, despite grand ambitions, Hertz's EV fleet only reached 60,000 vehicles before the company decided to scale back, still representing a significant 11% of its total fleet.
Even beyond the recent devaluation of their fleet, Hertz faced challenges with its EVs. In a 2023 investor call, Scherr revealed that collision and damage repair costs for an EV were approximately double those of a comparable traditional vehicle.
Hertz's Troubles Extend Beyond EVs
It's important to note that Hertz's losses can't be solely attributed to their EV woes. Even without the $245 million hit from depreciation, the company would still have lost money in both the fourth quarter and the full year. In stark contrast, competitor Avis Budget Group reported record revenue and near-record profits.
The EV fiasco isn't the only reputational setback for Hertz. In December 2022, they agreed to pay a $168 million settlement to resolve 364 claims stemming from false reports that rental cars were stolen. In some instances, these inaccurate reports unjustly led to Hertz customers facing arrest or even imprisonment. While a portion of this expense will likely be offset by insurance, this scandal further tarnished the company's image.
Image Credit: Economictimes
A History of Leadership Turnover
Scherr was not the mastermind behind Hertz's aggressive shift towards electric rentals. That distinction belongs to his predecessor, Mark Fields, the former CEO of Ford. Fields took the helm as interim CEO in October 2021, mere weeks before Hertz's headline-grabbing announcement of the 100,000 Tesla order.
Paul Stone, who preceded Fields as CEO, remained with Hertz as president and chief operating officer until stepping down in September 2022. Stone had taken over just prior to Hertz filing for bankruptcy protection in May 2020. Although the COVID-19 pandemic decimated the car rental industry, competitors like Avis Budget and Enterprise managed to weather the storm without resorting to bankruptcy.
Hertz, a company that traces its roots back to the Model T era, was once the world's undisputed leader in car rentals. However, in 2023 Hertz's revenues trailed 22% behind those of its publicly traded competitor, Avis Budget.
Challenges of The EV Rental Market
The Hertz case study raises questions about the unique challenges of the EV rental market. While the long-term shift towards electric vehicles seems inevitable, the current charging infrastructure may not be robust enough to seamlessly support large-scale rental operations.
Hertz's lack of investment in its own charging network
Hertz's lack of investment in its own charging network could be seen as a major misstep. To truly make EVs attractive to renters, companies might need to take ownership of the recharging process rather than relying on a patchwork of public charging providers. Furthermore, renters likely want to return vehicles with a reasonable charge level for the next customer, meaning an even tighter turnaround time than traditional refueling.
"Rental companies face a logistical puzzle with EVs. They cannot afford to have cars sitting idle for extended periods just to recharge," explains Daniel Ives.
Another obstacle Hertz may have encountered involves customer education. While familiarity with EVs is growing, many people still have questions and anxieties about range, charging procedures, and the driving experience itself. Rental companies might need to dedicate more resources to familiarizing customers with EVs before they hand over the keys, which could add costs and friction to the rental process.
Is There a Right Way to Rent EVs?
Hertz's experience doesn't necessarily mean that renting out EVs is a lost cause. Perhaps a different model could pave the way for success. Some experts believe that shorter-term rentals in urban areas could be a better fit, where the need for long-distance travel is reduced and public charging infrastructure is likely more accessible.
Alternatively, a subscription-based model could alleviate some concerns. With this approach, customers commit to an EV for a more extended period (weeks or months) and would likely charge the vehicle at home with more flexibility.
Hertz's struggles suggest that traditional rental car companies may need to rethink their strategies to fully capitalize on the growing electric vehicle market.
The Long Road Ahead for Hertz
Hertz faces a long and bumpy road back to profitability and stability. Incoming CEO Gil West, with prior leadership roles at Delta Air Lines and GM's Cruise, brings expertise from other complex, customer-focused industries. Whether his experience will translate into success for Hertz remains to be seen.
Analysts like Daniel Ives are skeptical, citing Hertz's long history of instability: "This company has had a revolving door at the top. West has his work cut out for him."
Hertz will need to not only manage a transition to EVs successfully, should they choose to persevere, but also regain the confidence of consumers tarnished by recent scandals. Additionally, the fiercely competitive car rental market, where Avis Budget has gained significant ground, poses a significant challenge.
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The EV Landscape: Opportunity and Risk
Despite Hertz's troubled experience, the overall outlook for the electric vehicle market remains positive. Global EV sales continue to surge, driven in part by government incentives and increasing consumer awareness of environmental issues. Many countries are also setting ambitious targets for phasing out traditional petrol and diesel vehicles in the coming decades.
However, navigating this rapidly changing landscape isn't without its risks, as the Hertz situation clearly demonstrates. Automakers are investing billions to shift their production heavily towards EVs, gambling that the market will mature quickly enough to meet their ambitious target dates. Should consumer adoption of EVs fail to keep pace, they could face significant oversupply and financial losses.
Battery technology
Another area of uncertainty is battery technology. While considerable strides have been made in improving the range and charging speeds of EVs, there's still room for further innovation. Breakthroughs in battery technology could revolutionize the market, making EVs more affordable, efficient, and easier to live with for the average consumer.
Beyond the cars themselves, the growth of the EV sector depends heavily on a robust charging infrastructure. Governments and private businesses globally are working to expand public charging networks, but progress varies widely. In areas with sparse charger availability, the appeal of EVs is significantly reduced for both everyday drivers and potential renters.
EVs: A Disruptive Force for the Rental Industry
Car rental companies will need to evolve to stay relevant in the age of electric vehicles. This might require significant investments in infrastructure, staff training, and potentially rethinking the rental model itself. Hertz's competitors are likely watching closely and learning from the company's missteps.
Companies that manage to successfully crack the code of EV rentals could reap significant benefits. EVs offer the opportunity to market to a more environmentally conscious and tech-savvy clientele. Furthermore, the lower maintenance and operating costs of electric vehicles over time could translate into improved profit margins for rental companies.
What Comes Next for Hertz?
The Hertz story is far from over. The company's new CEO, Gil West, faces the daunting task of reversing Hertz's downward spiral. Only time will tell whether he can regain customer trust and successfully navigate the company through these uncharted waters.
While there are lessons to be learned from Hertz's experiences, their woes don't spell doom for the EV market as a whole. EVs represent a major technological and environmental shift, and their long-term success seems inevitable. However, as the Hertz saga demonstrates, the road ahead won't be without its bumps and detours.
The Future of Car Rentals: Electric and Beyond
The Hertz case study raises broader questions about the future of the car rental industry. As technology continues to transform the way we travel, car rental companies must adapt or risk obsolescence.
One potential disruptor is the increasing popularity of ride-sharing platforms like Uber and Lyft. These services offer convenience and flexibility, particularly in urban areas where parking can be expensive or limited. Traditional car rental companies will need to find ways to differentiate themselves to retain customers. They could explore options like offering more specialized vehicles, premium rentals, or enhanced customer service.
Peer-to-peer car rental platforms
Another trend to watch is the rise of peer-to-peer car rental platforms, such as Turo. These services allow car owners to rent out their own vehicles when not in use, potentially undercutting traditional rental companies. For these legacy companies to stay ahead in the game, they may need to offer competitive pricing and unique customer experiences that these peer-to-peer platforms cannot match.
The rise of autonomous vehicles also looms on the horizon. While we're still years away from widespread deployment of fully driverless cars, this technology has the potential to completely redefine transportation. In an autonomous future, car rental companies may shift from renting vehicles to managing fleets of self-driving cars for on-demand transportation, a radical transformation of their business model.
Hertz as a Cautionary Tale
The story of Hertz and its electric car woes serves as a cautionary tale for businesses navigating emerging markets. Bold ambition and eagerness to be at the forefront are admirable, but a hasty or poorly planned execution can result in costly setbacks.
Companies entering the EV space would be wise to consider pilot programs or targeted deployments to carefully measure success and scale accordingly. Collaboration with charging infrastructure providers and governments could further ease the transition to a greater reliance on electric rental fleets.
The Hertz example also underscores the importance of corporate reputation. The company's recent scandals, compounded by the EV debacle, have undoubtedly damaged consumer trust. Rebuilding that trust will be an uphill battle.
Conclusion
Hertz's current predicament highlights the challenges of the electric vehicle market and the broader complexities facing the car rental industry. The company's missteps don't diminish the long-term potential of EVs themselves. However, it serves as a stark reminder that innovation must be paired with strategic execution and focus on the needs of the customer.
The companies that thrive in the rapidly evolving transportation landscape will likely be those that demonstrate agility, embrace new technologies, and most importantly, prioritize customer experience. Whether Hertz can reinvent itself and reclaim its leadership position remains an open question, but the company's journey will no doubt provide valuable lessons for the industry.
