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The Story of Hertz Going Bust
- wolco 6y agoIn the end Kathryn Marinello failed. She was at the helm for years where she could have positioned the company better. Blaming it on a 2014 misfilling and the wasted years cleaning it up only gives false cover. She didn't pay back debit when times were better because it would have affected her compension.
- LaundroMat 6y agoThen maybe the people who have decided the compensation structures are more to blame?
- 082349872349872 6y agoUS companies aren't supposed to pay back debt (in Hertz's case, how did 2005 affect the balance sheet?) because that would be an inefficient use of capital. US consumers are supposed to spend, not save, to stimulate the economy. US government is supposed to run a deficit, not a surplus. And yet the aggregate US net worth is positive: about 5x its GDP. What sector have I missed?
- eru 6y agoDespite the snark, you are partially right. Having debt in your capital structure indefinitely is a perfectly fine decision to make. If there's a political will to favour equity over debt, the lawmakers should first remove the tax benefits of debt over equity. See https://en.wikipedia.org/wiki/Tax_benefits_of_debt https://en.wikipedia.org/wiki/Tax_benefits_of_debt
- 082349872349872 6y agoThat wasn't snark. As an undergrad, I was taught that households should be positive, corporations negative, and public sector balanced on average, which would balance out. Either I'm missing a sector in the original analysis above (please tell me what it is), or the "common wisdoms" expressed there are false (and I should be more cynical), or...?
- ninkendo 6y agoYour tone is snarky despite your words being more or less correct. Correcting someone by saying you’re not using snark is just digging yourself a bit deeper I’m afraid.
- 082349872349872 6y agoThank you.
- eru 6y agoMostly agreed.
- teambayleaf 6y ago> Having debt in your capital structure indefinitely is a perfectly fine decision to make. We're hearing this argument a lot recently, but aren't we past that already in 1980s? As I recall, it was somewhat popular among companies to pile up leverages by buying a large potion of their own stocks. The reasoning was the same as today: it was supposed to benefit shareholders because a levereged BS has tax benefits. ... which subsequently resulted in those highly-levereged ("recap'ed") companies filing for bunkruptcy. So that hack was shunned by the time of 1990s. What does make this time different?
- eru 6y agoIf you have shares in enough companies, you don't particularly care if a few of them go bankrupt every once in a while, _if_ that trade-off makes you enough money on average. Mostly things haven't changed that much since the 1980s. The biggest difference is probably that individual investors are les likely to own specific shares, and more likely to own via an (index) fund. (That doesn't mean that any particular balance between equity and debt is the right one. Just that the occasional bankruptcy is not a nail in the coffin.)
- im3w1l-alt 6y agoDebt is how much (negative) money you have. Net worth also takes non-monetary assets into account. If you take out a loan to buy a house your debt increases but your net worth is constant.
- eru 6y agoAnd, of course, every debt is also an asset on someone else's balance sheet.
- 082349872349872 6y agoSo combined US assets are worth a great deal, enough so the declining equity position of (consumers+businesses+government) in those assets has not been significant. That makes sense. Thank you.
- itsoktocry 6y ago>So combined US assets are worth a great deal Aggregate US household net worth is now upwards of $100 trillion. That puts the $25 trillion in US National debt in perspective.
- mft_ 6y agoShe took over in Jan 2017 - three years isn’t much to pay back $20Bn of debt. Probably fairer to say that a decade of CEOs all failed.
- eru 6y agoWhy do you say Kathryn Marinello failed? Compensation incentives are there for a reason. Acting according to them just means fulfilling the shareholders wishes. (Unless the shareholders are idiots or impotent and the board set the wrong incentives.) Running a riskier strategy that fails under a pandemic is a perfectly cromulent business decision to make. Shareholders and creditors knew what they were in for. Not all gambles pay off. That doesn't mean taking on any risk whatsoever is wrong.
- Koolaboola 6y agoKathy Marinello, yet another Hertz ceo who surrounded herself with Yes people mainly her friends and former colleagues. She failed on so many levels. The main failure was her inability to bring in system updates and the low I.Q of her I.T staff who did not deliver the most basic upgrades and integration of Hertz systems unlike Hertz competitors like Enterprise and Avis, who will ride out the covid downturn. The company was overloaded with clueless management and usless team leaders, in some cases in accounts, there was two managers for one employee. Also her use of H.R as bully boys and girls meant there was a huge turn over of employees. her disdain for older men ( those with knowledge of the industry) Michelle Tarride was made clear in his unceremoniously dismissal, getting rid of old dogs was the term used by his replacement. The covid downturn was not the reason for Hertz downfall the reason was A one Kathy Marinello, who just like Stalin killed off the older generation of those with knowledge in the company.
- ramraj07 6y agoSo by that logic the shareholders and board members _were_ idiots then.
- xapata 6y agoMaking a bet and losing doesn't imply idiocy. What were the odds? What was the potential payoff?
- eru 6y agoYes, exactly. Though it's not just odds and payoff, but also risk appetite. There's something like risk-aversion, and a corresponding risk-return-tradeoff. But unless we have evidence to the contrary, we can assume that the shareholders are broadly risk-neutral. Especially since lots of shareholding these days is via widely diversified index funds, who don't need to care whether a any single company they hold goes bankrupt as long as the expected value of gambles they take are positive.
- LatteLazy 6y agoI don’t know if that’s fair. Hertz floundered for over a decade with leveraged buyouts, failed mergers, market missteps and accounting falsehoods. She got 9 quarters to turn that around, she was headed in the right direction, but it was too little too late.
- blargmaster33 6y agoWamen CEOs can do no wrong! Must be a man's fault!
- tonetheman 6y agoYeah nope. Did you read the article at all? The string of bad choices before that is what did it...
- rb808 6y ago> The company also found that Dollar Thrifty had let the tires on its cars get thinner than Hertz allowed, and many had to be replaced at a cost of $30 million I always wonder if its worth going cheaper or more expensive when renting cars. Stuff like this is interesting, I wonder how many other corners are cut at the cheaper places.
- juskrey 6y agoI was able to get very cheap deals at renown companies with high quality service and also had to use expensive deals at very shitty ones. With massive rental cars franchising you never know. Rental car is always a potential problem and should be treated as such. Hence, the main property you should be looking for is how does the rental company manage problems. Starting from the rental garage (when you point to some issue like worn out tires) and throughout the road. Also it means you should make some trial and errors.
- hylaride 6y agoI've always rented from Hertz because they've historically been the least hassle, if more expensive than Enterprise. I live in downtown Toronto and don't own a car. I use car sharing for local needs, but the traditional car rental companies for when I need to leave the city. Enterprise has been consistently terrible. On multiple occasions I've had to wait hours past my scheduled pick-up time due to either understaffing, overbooking, and/or due to other events. Enterprise apparently has a deal with insurance companies where they loan cars after accidents. I once had to wait 12 hours for a car as they were over-booked due to accidents after a snow storm. One time I was rear-ended in an enterprise-rented car. The other person's insurance dealt with the damages, but 18 months later they called me up, demanding payment for the time the car was in the shop. I used to rent from national/alamo as they would rent to me w/o mandatory extra insurance when I was under 25. They were bought out by enterprise and almost immediately went downhill. Hertz has always had a car available when promised. I can also take the rentals across the border to the US w/o extra fees. Twice they had to upsize my car for whatever reasons and they gave me a discount to deal with the greater fuel consumption. As somebody who is a loyal Hertz customer, I worry what the company will look like after the bankruptcy.
- elliekelly 6y agoWhat is the ten-year survival rate for companies after a leveraged buyout? It has to be near zero right?
- atyppo 6y agoFull disclosure: I've worked in PE before, though I do not currently. Did not directly do anything involving LBOs. Companies seeking LBOs are not generally in a great financial position. As a result, they tend to go bankrupt at a much higher rate than would otherwise be experienced. Hertz LBO happened before Icahn (a HF manager) got involved. People like Icahn don't invest in a company to lose money — clearly he believed that the company still had value even after PE got involved.
- namdnay 6y agoYou only hear about LBOs that fail. There are dozens that work every year
- sceadu 6y agoThere are dozens of us! DOZENS!
- bigtechdataeng 6y agoHow many LBOs happen each year in the US? I would guess somewhere around a hundred. So dozens of success stories per year might be really good, compared to similarly distressed companies that did not get the LBO.
- ipnon 6y agoDo you know of any data referring to the success to failure ratio of leveraged buyouts?
- namdnay 6y agoThe easiest way to do this is to look at the performance of LBO funds. It's up and down, returns are pretty poor compared to the stock market, but still positive, so that means they're getting back more cash than they are putting in - which means more success than failure, especially as success means +20 to +40% whereas fail means -80 or -90%
- stevetursi 6y agoI am Hertz Alumni, 2011-2016. We had a great group of engineers and product people, many of us far too talented to be in company like what hertz turned into. We were under the leadership of an incredible division head and most of the folks in our group felt a deep sense of loyalty to her. Nearly all of us, including that division head, are gone now, mostly laid off. If you poll any random Hertz alumnus, the story you're likely to hear is "we had a great team and incompetent senior management." To us, there is a quote in a different bloomberg article from last week [1] which strikes us as accurate. Attributed to Maryanne Keller, who is referred to in this article, it says: > 'It’s a saga about gross mismanagement,” said Maryann Keller, a longtime auto- > industry consultant who was on the board of Dollar Thrifty when Hertz acquired > the company. “It could have been salvaged had he picked the right management,” > she said, referring to Icahn.' Icahn lost $1.6b. Thousands of us lost our jobs. But these C-suiters sailed the company to bankruptcy over five years, each of them extracting 7 or 8 figure bonuses. The CIO who laid us all off, for example, received $6.5 million compensation that year [2]. (Sidenote, the work we were doing was replaced with Accenture consultants, who couldn't handle it, screwing up so bad they ended up in court [3].) One former colleague of mine wrote a post on LinkedIn suggesting Icahn was the unwitting victim of untenable debt situation, and while he may be correct that the debt made it difficult, Icahn can read a balance sheet and he understood the situation. I can't speak about Marinello's performance, but I agree that the problem dates back to 2014 or even earlier. People have a widespread belief that Frissora was flying too close to the sun, driven by his aggressive personality. Despite his flaws, he had a great team of people who kept the business running, and it wasn't Frissora who fired them all. Nobody, it turns out, was a fan of him. But everyone agrees he was far better than the gang of unusually wealthy miscreants that Icahn replaced him with. [1] https://www.bloomberg.com/news/articles/2020-05-27/icahn-files-13d-a-on-hertz https://www.bloomberg.com/news/articles/2020-05-27/icahn-fil... [2] https://www.cio.com/article/3404205/how-much-do-cios-really-make-pay-packages-of-25-fortune-500-execs-revealed.html https://www.cio.com/article/3404205/how-much-do-cios-really-... [3] https://news.ycombinator.com/item?id=19737070 https://news.ycombinator.com/item?id=19737070
- rb808 6y ago2014 - its interesting this is when headquarters moved from NJ to Florida. Its a bit like SV - are California/North East expensive because its worth it? I'm not sure if Hertz went downhill because of the move or you just can't run a smart company from Florida.
- ashtonkem 6y agoI think the most “duhhh” moment was moving the headquarters. Of course they lost a ton of experienced and qualified staff when they moved the headquarters to Florida. Why wasn’t this seen coming?
- michaelcampbell 6y ago$$$
- brenden2 6y agoIt's nearly always about the money.
- S_A_P 6y agoThe headquarters are in Estero/Ft Meyers florida. I would know little to nothing about this place except I have a friend living there. He was in golf course management, which should give you a hint about the type of town this is. It is largely a place for wealthy northern folks to spend the winter. To me it seems that the move was so that the CEO could live in a resort town.
- ashtonkem 6y agoWhich I get why the CEO would want that, but I don’t get why the board would tolerate such a clear waste of their resources, plus the strategic risk that losing employees represents.
- robohoe 6y agoI don't want to reply with a blanket statement, but a lot of the times senior management just doesn't understand how much work it takes to build complex IT systems and how a great team can make it happen. They see IT as disposable and expect anybody with some computer skills to be able to do complex work.
- ashtonkem 6y agoThat makes sense for IT networks, annoying as it may be. But the article makes it clear they lost quality leaders as well, and the CEO should have fully understood and appreciated the impact that would have.
- rb808 6y agoHonestly this is a good thing. There are too many big companies, not enough small, we need more to fail - esp the type that have gone through lots of mergers to reduce competition.
- devmunchies 6y agoi could get on board with this. Its shortsighted when companies are bailed out for being "too big too fail" so then we don't get a bunch of small companies filling the vacuum.
- puranjay 6y agoWhile I agree with the sentiment, operating at scale does mean that consumers often get lower costs. Smaller players would also be far less likely to enter less lucrative markets.
- tgsovlerkhgsel 6y agoOften, but not always - sometimes the benefits of scale are eaten up by an oligopoly gouging customers. In New Zealand, the big rental companies were much much more expensive than small local companies that were hard to find because they didn't show up on the international aggregators. And unlike the big companies, there were no hidden costs, no upsells, no attempts to scam, no attempts to extort huge fees when trying to change the rental, ... didn't even charge us for forwarding a traffic ticket which would have totally been their right. After my experience with Hertz (US) as a customer, the only reason why I'm not 100% happy with them going under is that I don't expect their large competitors to be much better, and less competition means the others can become even worse.
- PacketPaul 6y agoHave you ever rented a car from a small company? The entire process sucks. Yea it is ok if it is a once a year vacation. But for a business trip it is such a waste of time.
- ipnon 6y agoTuro[0] immediately crossed my mind upon finishing the article. I have never used a traditional car rental service and plan to avoid them. [0] https://turo.com/ https://turo.com/
- smachiz 6y agoI'm not sure how that's your takeaway here. Hertz's troubles seem pretty unrelated to the experience as a consumer. While Turo is great for your weekend trip or whatever, it is not at all good for a business traveler.
- autokad 6y agothe business traveler began using other things. its this same mentality ('it doesn't relate, business <insert here> are our customers and they wont go away') that gave a false sense of security to blackberry.
- ipnon 6y agoI agree this is a weak comment. My takeaway is that Hertz seems irredeemable as a consumer and that alternatives exist.
- nick_kline 6y agoThe article uses the term 'bitfd' which apparently means "burn it the fuck down".
- dzonga 6y agowhy is Carl Icahn, always involved in dirty takeovers n putting the wrong managers.
- autokad 6y agohertz had a 'hackathon' (more like datathon?) at my university in 2013. They gave us data (no PII but demographics such as age) along with other store sales, etc. goal, take the data and draw some insights. I showed them a chart on how the average age of their customer was going up and they were failing to get newer and younger customers. I also showed search trends on car rentals going down, and search trends on ride sharing going up. They didn't like my presentation at all =|
- save_ferris 6y agoWhat an incredible way for a company to signal that they only want sycophants. Good on you for pointing out what probably should have been obvious to them.