11 ms·

The Hertz Story Isn’t What You Think

252 points by erentz 6y ago

sytelus 6y ago
Classic story of how “activists investor” like Carl Icahn are sucking out blood out of perfectly functional companies. You find vulnerable companies, load them up with debt, transfer their assets out and then have them declare bankruptcy. These “activist investors” have singular goal of short term profits while killing perfectly good companies. There needs to be laws to put these people in jail.
- icelancer 6y ago
  Yeah Carl Icahn really got Hertz's ass by losing over a billion dollars of his own money.
  - iscrewyou 6y ago
    His formula didn’t account for the pandemic variable. Otherwise, everything was going to plan like it has before with his investments. Yeah, he lost money. But that doesn’t mean he was not doing his usual schtick when it comes to loading up the companies with debt.
- hogFeast 6y ago
  There is a law against this (it is called fraudulent conveyance). And most activist investors don't plan to lose all their money. I don't know where this meme comes from but investor's interests are totally aligned with the company (Ichan lost nearly $2bn here...how much did the CEO lose? The article says they bought a few shares that didn't go up...oh, won't someone think of the poor CEO). You can't "transfer their assets out" if you are an investor or "load them up with debt"...that just isn't how corporations work (most activists have non-controlling stakes). The issue, and the reason activist investors exist, is because the interests of management are usually not aligned with the company. Most of these companies are vulnerable because they are poorly run. If you want to criticise them, you have to start by saying that you think managers are never wrong and shouldn't be accountable to do the people that pay their wages...go ahead (bear in mind, former managers at Hertz committed accounting fraud and the reason Icahn came on board was massive market share loss).
  - btilly 6y ago
    The interests of investors are actually not aligned with the company. They are just misaligned in a different way from management. To give a classic and well-known example, consider the type of investor known as "venture capital". Their interests are to make sure that the founders don't run off with their money, and to have the company "swing for the fences" to have a shot at outsized returns. If all of their companies do this, the ones that succeed pay for the majority that failed. But it is typically in the company's interests to be more conservative. To take guaranteed growth over a lottery ticket for stellar growth. Now consider this case. Ichan has an incentive to fix management fraud (this aligns with the company), to increase volatility to increase the odds of a good payout (loading the company with debt does this), and to have the company do business with his other businesses. About 1.5 of these incentives align with the company's interests. (The first and half of the third.) The others do not. And the second in particular is close to the misalignment that venture capital has with startups.
    - hogFeast 6y ago
      Wow. That is a really complicated way of thinking about it. Icahn had nothing to do with "loading the company with debt"...again, he didn't have a controlling stake, he didn't have a majority on the Board (iirc)...the reason they used a lot of debt is because they own a lot of vehicles (the majority of their debt is secured). The reason he came to the company wasn't financial structure (that does occur but very rarely...again, most investors don't want to lose all their money...this isn't a hard point requiring maths) but chronic mismanagement and huge market share loss. He didn't increase volatility (every other company in the sector uses the same kind of debt). No activist investor acquires a company so that they can do related-party transactions. Again, they often don't have a controlling stake. Icahn owns about $50bn worth of businesses, it would not surprise me if one of his companies does business with Hertz...but there is no way that he can control this. Btw, if you are an activist and you acquire a reputation for doing things that hurt other shareholders (related-party transactions would be an example) then you will lose your ability to run these campaigns overnight. Activist investing is based on appealing to other shareholders and being able to make changes that produce results. Again, all of these errors seem to arise out of not really understanding how companies work (unsurprising given your confused take). I don't understand your point about: it is in the company's interest to go for "guaranteed growth"...no growth is guaranteed, you aren't buying a washing machine...and if a VC goes for growth that isn't profitable, they lose everything. Again, this isn't confusing. The point that you appear to be referring to, but didn't quite get, is that VCs often aren't aligned with companies because they often don't care whether they succeed or fail. Investors have everything at stake. VCs just have an option on that stake. That doesn't really apply here. Icahn has all of his own money invested.
- bobcostas55 6y ago
  If this were true you could make a killing betting against activist investors. I doubt you would succeed.
  - 082349872349872 6y ago
    Only if you have the same pocketbook. See the Herbalife short squeeze for how many zeros it takes and how many years it can last. There's a reason they call market manipulation "billionaire's poker".
  - notJim 6y ago
    Not everything that's good for society is profitable, especially in the short term.
    - anm89 6y ago
      I don't think you are understanding that comment correctly. Its not making a moral argument at all. It's making an argument regarding the business outcomes of PE. He's not saying it's good or bad either way. He's saying a simple piece of deductive logic proves it isn't fully correct.
- at-fates-hands 6y ago
  The modern day "corporate raider".
  - lordnacho 6y ago
    He's actually the original corporate raider. He got lots of press in the 1980s.
- cortesoft 6y ago
  What I don't understand is why lenders keep funding debt for the companies when they are just going to declare bankruptcy. You would think creditors would get wise to the scam.
  - adventured 6y ago
    The loss Hertz was producing wasn't outrageous compared to their sales and operating income (2019: $9.8b sales, $759m operating income, $805m in debt interest expenses). If you're Hertz you can make a very good case that that is a situation that can be managed, as they had been producing some growth over the prior years as well. Operating income had gone from $167m to $442m to $759m. It looked like they had a solid shot at climbing above the killer debt interest costs in 2020. They were clearly in trouble, however the pandemic is what buried them. Lenders didn't see that coming.
  - lordnacho 6y ago
    It's not inevitable at the time when the debt is raised that it will be unserviceable. The creditors will have a view on whether the firm can service the debt, but typically that doesn't incorporate a complete cessation of business due to a global pandemic. Whether in the larger picture the creditors are getting paid enough to take on the risk is an interesting question. My guess is that they don't take enough account of a scenario where many bankruptcies happen at once.
  - empath75 6y ago
    in a lot of cases, the people in charge of those loans are self-dealing and don't give a shit if the company they work for loses money on it. That's what the savings and loan crises was about.
  - ww520 6y ago
    The debt probably has seniority over other obligation and can be recovered from the remaining assets.
- itsoktocry 6y ago
  >These “activist investors” have singular goal of short term profits while killing perfectly good companies. Despite the 3rd party transactions being ethically dubious, Icahn lost a bundle on his equity, so I'm not sure there was much "short term profit" earned here.
- beervirus 6y ago
  How much did Icahn lose on his equity position in Hertz? If he owned 39%, that loss would have been on the order of a billion dollars. So there's probably more to the story than your comment suggests.
  - danesparza 6y ago
    Oh, there's a hell of a lot more to the Icahn story than just this one idiot move. https://en.wikipedia.org/wiki/Carl_Icahn https://en.wikipedia.org/wiki/Carl_Icahn Yes - he did lose a lot of money, but please understand he was in the process of sucking the company dry when the pandemic hit: https://www.cnbc.com/2020/05/26/carl-icahns-bet-on-hertz-goes-bust-as-rental-car-company-files-for-bankruptcy.html https://www.cnbc.com/2020/05/26/carl-icahns-bet-on-hertz-goe...
  - toomuchtodo 6y ago
    Icahn lost roughly $1.6 billion on his equity stake.
elliekelly 6y ago
Is there a word for when a headline and maybe even the first few paragraphs of an article makes you roll yours eyes but by the end you think the author has made a pretty good point? I think that genre is my favorite.
- ccostes 6y ago
  Agreed, the "if anything management is getting screwed here" got me good. Still not convinced management, who walked away with millions in cash, got screwed, but it was a well-crafted article. Edit: I should clarify that by "walking away with millions" I was referring to their normal cash comp. 2019 CEO cash comp was $3.6MM, and she got $700k as a retention bonus.
  - kube-system 6y ago
    Do companies really have any other choice but to hand out a bunch of cash to senior management? Nobody really wants to hang around and go down with the ship, but someone has to stick around to manage the reorganization. These weren't bonuses to "walk away" with cash, these were bonuses for them to stick around.
    - mdorazio 6y ago
      Where else were they going to go right now? The entire auto industry, and especially the rental side, are effectively stalled and not hiring new people. In a normally functioning market I would agree with you, but in this case it really comes across as a ridiculous and needless handout.
      - kube-system 6y ago
        Maybe the market downturn can account for why these bonuses are less than we normally see. But these are senior execs we're talking about; it is not uncommon for them to switch industries. Their job specialty is managing a company, not renting cars. The current Hertz CEO has only been in the car rental industry for two years.
ralph84 6y ago
A lot of the Hertz articles, including this one, fail to call out that the vast majority of Hertz’s debt is vehicle debt. They finance new cars, rent them out for a while, then dispose of them. That all works fine and vehicle debt is not a problem when rental income covers the interest+depreciation on the vehicles. Obviously it becomes a problem when rental income disappears at the same time depreciation increases because of a depressed used car market. Hertz clearly didn’t plan for that. But breathlessly calling out the headline debt number without acknowledging that vehicle debt is a reasonable strategy for a rental car company is misleading at best.
- osrec 6y ago
  Do you know what proportion is vehicle debt? If it's 90%, then you have a point. If it's significantly lower, then it's certainly questionable. Also, why redeem strategic debt due for 2021 so early?
  - Dwolb 6y ago
    Looks like from their first quarter 10-Q 14B of their 18B in debt is specifically vehicle debt, so 77% [1]. [1] http://ir.hertz.com/sec-filings http://ir.hertz.com/sec-filings
    - airstrike 6y ago
      Better link: https://www.bamsec.com/filing/165785320000049/1?cik=1657853&hl=89202:89208&hl_id=e1fnwvri_ https://www.bamsec.com/filing/165785320000049/1?cik=1657853&...
- fpoling 6y ago
  If most of the debt is in the cars and the used car marked is dry, why Hertz failed to re-negotiate the loans? Or has they entered bankruptcy to put extra pressure on banks?
  - bobthepanda 6y ago
    Bankruptcy is a legally standard way of doing that. Chapter 11 can result in creditors being forced to take losses.
smachiz 6y ago
This doesn't compare debt to similar companies. Avis has around $15B in debt. Agreed the management bonuses aren't that extravagant, but I'm not sure the debt is either.
ChuckMcM 6y ago
My understanding of Hertz was that they could model the revenue a new car / equipment could generate vs the cost of debt to buy that car/equipment and the tax benefit of expensing that car/equipment. As long as the net money out the bottom is positive, the more cars and things you have to rent the more money you get per unit. It both justifies infinite borrowing (each incremental unit is cash flow positive) but creates extreme risk if your rental market dries up or pauses. Pre-pandemic that was pretty much not on anyone's radar given Hertz's position in the market. But now you turn off the rental income and boom, those debt payments are still due and suddenly you are bleeding cash faster than you can liquidate other assets.
- texasbigdata 6y ago
  Working capital management is a pretty common operational stream line technique private equity firms use post acquisition to improve returns. This is a bit esoteric but next here's the funny part. The definition of working capital is commonly (and I would argue incorrectly) current assets minus current liabilities. In the alternate definition, it goes non-cash current assets less non-debt current liabilities. Because with the alternate definition you're not incentivized to push down your cash balance artificially. This probably isn't a huge reason Hertz struggled, but having more cash on hand always helps.
  - ChuckMcM 6y ago
    There is speculation about whether or not Hertz will flood the market with used cars as they dump assets to manage cash flow.
tomatotomato37 6y ago
The corporate raider strikes again it seems. Whenever you have a Carl Icahn type on the board you can be rest assured that both the top executives & rank-and-file are being massively screwed over in some way
- nerdponx 6y ago
  Let's not get confused. The top execs are getting screwed in an "I didn't get my free ice cream" kind of way. The rank and file are getting screwed in an "I lost my job/pension and now I can't afford my home or food" kind of way.
batoure 6y ago
You know something I am surprised isn't being brought up is the failed Accenture infrastructure rebuild https://www.theregister.com/2019/04/23/hertz_accenture_lawsuit/ https://www.theregister.com/2019/04/23/hertz_accenture_lawsu... not so much the money aspect of this, but instead worth knowing that Hertz had massively eol ready digital infrastructure in need of being replaced. One has to wonder if this failure created a disruption to business cadence that put them in a particularly weakened state facing these times.
- eigenvalue 6y ago
  One wonders why any of these big companies hire consultants like Accenture. It's basically giving them a license to steal. They would probably be better off finding a scrappy startup trying to compete with them with technology and copying their modern systems, spending their efforts in write code to migrate data from the legacy systems to the modern ones.
dangus 6y ago
Coming from a complete position of ignorance on how public companies work: I wonder if there could be a legal framework added to allow public companies to create a blocklist for large investors that are considered to be damaging or abusive. Anecdotal, but it seems like every company that has ever received the anti-Midas Touch of Carl Icahn has had some kind of negative consequence.
- gruturo 6y ago
  > Anecdotal, but it seems like every company that has ever received the anti-Midas Touch of Carl Icahn has had some kind of negative consequence. That's no surprise - it's literally what he does for a living. He damages companies, gets a quick payout and moves on. It may not be illegal but it's revoltingly malevolent and sociopathic. The world would be a better place without him and his likes.
rident 6y ago
This story makes me recall Hertz $32M Accenture website services bill. https://www.henricodolfing.com/2019/10/case-study-hertz-accenture-website.html https://www.henricodolfing.com/2019/10/case-study-hertz-acce...
rossdavidh 6y ago
So, looking at a car rental company like Hertz, aren't they basically a car equivalent of WeWork, minus the hype? With the same fundamental issue: their customers can (and eventually will) all go away at once, while they are left with a lot of long-term commitments to pay on what they were intending to rent out. Now, a properly set up rental company would have hedged this, so that in the case their market disappears on them, they have survival money coming in from some financial option or other. But, I'm guessing Hertz did not.
dang 6y ago
See also the concurrent but slightly older Hertz thread: https://news.ycombinator.com/item?id=23375733 https://news.ycombinator.com/item?id=23375733.
H8crilA 6y ago
Oh my, if people are so surprised and "demand to know the truth™ " about a single, shitty, over-leveraged company - let's wait for the rest of the year and then 2021 for all the other bankruptcies to unwind. The "middle class" will be ripping all of their hair from their heads. Just ~two months ago they couldn't sell even the treasuries! The best credit paper in the whole world! Corpses will be flying left right and center, you don't just pretend things like that never happened and continue happily ever after. It is always the same reason: too much money/credit. It was the same in 2008, it was the same in 2000, it was the same in 1987 (okay, maybe this one was more on the "quants" of the day with their insured portfolios), it was the same in 1968, it was the same in 1929, it was the same in 2012 in Europe, it was the same in Japan in the 80s, etc. It's literally that simple: too much money = problems down the line. The only variables are how much is too much (above all time highs in corporate debt is almost certainly too much) and how much more down the line (seems the treasury bond market cannot be much more clear on this issue; also look at the GDP prints and projections).
skolega 6y ago
The Hertz story reminded me of another article explaining corporate predatory behaviour from 2018. https://evonomics.com/hedge-fund-activists-prey-companies/ https://evonomics.com/hedge-fund-activists-prey-companies/

252 points by erentz 6y ago

Classic story of how “activists investor” like Carl Icahn are sucking out blood out of perfectly functional companies. You find vulnerable companies, load them up with debt, transfer their assets out and then have them declare bankruptcy. These “activist investors” have singular goal of short term profits while killing perfectly good companies. There needs to be laws to put these people in jail.

icelancer 6y ago
Yeah Carl Icahn really got Hertz's ass by losing over a billion dollars of his own money.
- iscrewyou 6y ago
  His formula didn’t account for the pandemic variable. Otherwise, everything was going to plan like it has before with his investments. Yeah, he lost money. But that doesn’t mean he was not doing his usual schtick when it comes to loading up the companies with debt.
hogFeast 6y ago
There is a law against this (it is called fraudulent conveyance). And most activist investors don't plan to lose all their money. I don't know where this meme comes from but investor's interests are totally aligned with the company (Ichan lost nearly $2bn here...how much did the CEO lose? The article says they bought a few shares that didn't go up...oh, won't someone think of the poor CEO). You can't "transfer their assets out" if you are an investor or "load them up with debt"...that just isn't how corporations work (most activists have non-controlling stakes). The issue, and the reason activist investors exist, is because the interests of management are usually not aligned with the company. Most of these companies are vulnerable because they are poorly run. If you want to criticise them, you have to start by saying that you think managers are never wrong and shouldn't be accountable to do the people that pay their wages...go ahead (bear in mind, former managers at Hertz committed accounting fraud and the reason Icahn came on board was massive market share loss).
- btilly 6y ago
  The interests of investors are actually not aligned with the company. They are just misaligned in a different way from management. To give a classic and well-known example, consider the type of investor known as "venture capital". Their interests are to make sure that the founders don't run off with their money, and to have the company "swing for the fences" to have a shot at outsized returns. If all of their companies do this, the ones that succeed pay for the majority that failed. But it is typically in the company's interests to be more conservative. To take guaranteed growth over a lottery ticket for stellar growth. Now consider this case. Ichan has an incentive to fix management fraud (this aligns with the company), to increase volatility to increase the odds of a good payout (loading the company with debt does this), and to have the company do business with his other businesses. About 1.5 of these incentives align with the company's interests. (The first and half of the third.) The others do not. And the second in particular is close to the misalignment that venture capital has with startups.
  - hogFeast 6y ago
    Wow. That is a really complicated way of thinking about it. Icahn had nothing to do with "loading the company with debt"...again, he didn't have a controlling stake, he didn't have a majority on the Board (iirc)...the reason they used a lot of debt is because they own a lot of vehicles (the majority of their debt is secured). The reason he came to the company wasn't financial structure (that does occur but very rarely...again, most investors don't want to lose all their money...this isn't a hard point requiring maths) but chronic mismanagement and huge market share loss. He didn't increase volatility (every other company in the sector uses the same kind of debt). No activist investor acquires a company so that they can do related-party transactions. Again, they often don't have a controlling stake. Icahn owns about $50bn worth of businesses, it would not surprise me if one of his companies does business with Hertz...but there is no way that he can control this. Btw, if you are an activist and you acquire a reputation for doing things that hurt other shareholders (related-party transactions would be an example) then you will lose your ability to run these campaigns overnight. Activist investing is based on appealing to other shareholders and being able to make changes that produce results. Again, all of these errors seem to arise out of not really understanding how companies work (unsurprising given your confused take). I don't understand your point about: it is in the company's interest to go for "guaranteed growth"...no growth is guaranteed, you aren't buying a washing machine...and if a VC goes for growth that isn't profitable, they lose everything. Again, this isn't confusing. The point that you appear to be referring to, but didn't quite get, is that VCs often aren't aligned with companies because they often don't care whether they succeed or fail. Investors have everything at stake. VCs just have an option on that stake. That doesn't really apply here. Icahn has all of his own money invested.
bobcostas55 6y ago
If this were true you could make a killing betting against activist investors. I doubt you would succeed.
- 082349872349872 6y ago
  Only if you have the same pocketbook. See the Herbalife short squeeze for how many zeros it takes and how many years it can last. There's a reason they call market manipulation "billionaire's poker".
- notJim 6y ago
  Not everything that's good for society is profitable, especially in the short term.
  - anm89 6y ago
    I don't think you are understanding that comment correctly. Its not making a moral argument at all. It's making an argument regarding the business outcomes of PE. He's not saying it's good or bad either way. He's saying a simple piece of deductive logic proves it isn't fully correct.
at-fates-hands 6y ago
The modern day "corporate raider".
- lordnacho 6y ago
  He's actually the original corporate raider. He got lots of press in the 1980s.
cortesoft 6y ago
What I don't understand is why lenders keep funding debt for the companies when they are just going to declare bankruptcy. You would think creditors would get wise to the scam.
- adventured 6y ago
  The loss Hertz was producing wasn't outrageous compared to their sales and operating income (2019: $9.8b sales, $759m operating income, $805m in debt interest expenses). If you're Hertz you can make a very good case that that is a situation that can be managed, as they had been producing some growth over the prior years as well. Operating income had gone from $167m to $442m to $759m. It looked like they had a solid shot at climbing above the killer debt interest costs in 2020. They were clearly in trouble, however the pandemic is what buried them. Lenders didn't see that coming.
- lordnacho 6y ago
  It's not inevitable at the time when the debt is raised that it will be unserviceable. The creditors will have a view on whether the firm can service the debt, but typically that doesn't incorporate a complete cessation of business due to a global pandemic. Whether in the larger picture the creditors are getting paid enough to take on the risk is an interesting question. My guess is that they don't take enough account of a scenario where many bankruptcies happen at once.
- empath75 6y ago
  in a lot of cases, the people in charge of those loans are self-dealing and don't give a shit if the company they work for loses money on it. That's what the savings and loan crises was about.
- ww520 6y ago
  The debt probably has seniority over other obligation and can be recovered from the remaining assets.
itsoktocry 6y ago
>These “activist investors” have singular goal of short term profits while killing perfectly good companies. Despite the 3rd party transactions being ethically dubious, Icahn lost a bundle on his equity, so I'm not sure there was much "short term profit" earned here.
beervirus 6y ago
How much did Icahn lose on his equity position in Hertz? If he owned 39%, that loss would have been on the order of a billion dollars. So there's probably more to the story than your comment suggests.
- danesparza 6y ago
  Oh, there's a hell of a lot more to the Icahn story than just this one idiot move. https://en.wikipedia.org/wiki/Carl_Icahn https://en.wikipedia.org/wiki/Carl_Icahn Yes - he did lose a lot of money, but please understand he was in the process of sucking the company dry when the pandemic hit: https://www.cnbc.com/2020/05/26/carl-icahns-bet-on-hertz-goes-bust-as-rental-car-company-files-for-bankruptcy.html https://www.cnbc.com/2020/05/26/carl-icahns-bet-on-hertz-goe...
- toomuchtodo 6y ago
  Icahn lost roughly $1.6 billion on his equity stake.

elliekelly 6y ago

Is there a word for when a headline and maybe even the first few paragraphs of an article makes you roll yours eyes but by the end you think the author has made a pretty good point? I think that genre is my favorite.

ccostes 6y ago
Agreed, the "if anything management is getting screwed here" got me good. Still not convinced management, who walked away with millions in cash, got screwed, but it was a well-crafted article. Edit: I should clarify that by "walking away with millions" I was referring to their normal cash comp. 2019 CEO cash comp was $3.6MM, and she got $700k as a retention bonus.
- kube-system 6y ago
  Do companies really have any other choice but to hand out a bunch of cash to senior management? Nobody really wants to hang around and go down with the ship, but someone has to stick around to manage the reorganization. These weren't bonuses to "walk away" with cash, these were bonuses for them to stick around.
  - mdorazio 6y ago
    Where else were they going to go right now? The entire auto industry, and especially the rental side, are effectively stalled and not hiring new people. In a normally functioning market I would agree with you, but in this case it really comes across as a ridiculous and needless handout.
    - kube-system 6y ago
      Maybe the market downturn can account for why these bonuses are less than we normally see. But these are senior execs we're talking about; it is not uncommon for them to switch industries. Their job specialty is managing a company, not renting cars. The current Hertz CEO has only been in the car rental industry for two years.

ralph84 6y ago

A lot of the Hertz articles, including this one, fail to call out that the vast majority of Hertz’s debt is vehicle debt. They finance new cars, rent them out for a while, then dispose of them. That all works fine and vehicle debt is not a problem when rental income covers the interest+depreciation on the vehicles. Obviously it becomes a problem when rental income disappears at the same time depreciation increases because of a depressed used car market. Hertz clearly didn’t plan for that. But breathlessly calling out the headline debt number without acknowledging that vehicle debt is a reasonable strategy for a rental car company is misleading at best.

osrec 6y ago
Do you know what proportion is vehicle debt? If it's 90%, then you have a point. If it's significantly lower, then it's certainly questionable. Also, why redeem strategic debt due for 2021 so early?
- Dwolb 6y ago
  Looks like from their first quarter 10-Q 14B of their 18B in debt is specifically vehicle debt, so 77% [1]. [1] http://ir.hertz.com/sec-filings http://ir.hertz.com/sec-filings
  - airstrike 6y ago
    Better link: https://www.bamsec.com/filing/165785320000049/1?cik=1657853&hl=89202:89208&hl_id=e1fnwvri_ https://www.bamsec.com/filing/165785320000049/1?cik=1657853&...
fpoling 6y ago
If most of the debt is in the cars and the used car marked is dry, why Hertz failed to re-negotiate the loans? Or has they entered bankruptcy to put extra pressure on banks?
- bobthepanda 6y ago
  Bankruptcy is a legally standard way of doing that. Chapter 11 can result in creditors being forced to take losses.

smachiz 6y ago

This doesn't compare debt to similar companies. Avis has around $15B in debt. Agreed the management bonuses aren't that extravagant, but I'm not sure the debt is either.

ChuckMcM 6y ago

My understanding of Hertz was that they could model the revenue a new car / equipment could generate vs the cost of debt to buy that car/equipment and the tax benefit of expensing that car/equipment. As long as the net money out the bottom is positive, the more cars and things you have to rent the more money you get per unit. It both justifies infinite borrowing (each incremental unit is cash flow positive) but creates extreme risk if your rental market dries up or pauses. Pre-pandemic that was pretty much not on anyone's radar given Hertz's position in the market. But now you turn off the rental income and boom, those debt payments are still due and suddenly you are bleeding cash faster than you can liquidate other assets.

texasbigdata 6y ago
Working capital management is a pretty common operational stream line technique private equity firms use post acquisition to improve returns. This is a bit esoteric but next here's the funny part. The definition of working capital is commonly (and I would argue incorrectly) current assets minus current liabilities. In the alternate definition, it goes non-cash current assets less non-debt current liabilities. Because with the alternate definition you're not incentivized to push down your cash balance artificially. This probably isn't a huge reason Hertz struggled, but having more cash on hand always helps.
- ChuckMcM 6y ago
  There is speculation about whether or not Hertz will flood the market with used cars as they dump assets to manage cash flow.

tomatotomato37 6y ago

The corporate raider strikes again it seems. Whenever you have a Carl Icahn type on the board you can be rest assured that both the top executives & rank-and-file are being massively screwed over in some way

nerdponx 6y ago
Let's not get confused. The top execs are getting screwed in an "I didn't get my free ice cream" kind of way. The rank and file are getting screwed in an "I lost my job/pension and now I can't afford my home or food" kind of way.

batoure 6y ago

You know something I am surprised isn't being brought up is the failed Accenture infrastructure rebuild https://www.theregister.com/2019/04/23/hertz_accenture_lawsuit/ https://www.theregister.com/2019/04/23/hertz_accenture_lawsu... not so much the money aspect of this, but instead worth knowing that Hertz had massively eol ready digital infrastructure in need of being replaced. One has to wonder if this failure created a disruption to business cadence that put them in a particularly weakened state facing these times.

eigenvalue 6y ago
One wonders why any of these big companies hire consultants like Accenture. It's basically giving them a license to steal. They would probably be better off finding a scrappy startup trying to compete with them with technology and copying their modern systems, spending their efforts in write code to migrate data from the legacy systems to the modern ones.

dangus 6y ago

Coming from a complete position of ignorance on how public companies work: I wonder if there could be a legal framework added to allow public companies to create a blocklist for large investors that are considered to be damaging or abusive. Anecdotal, but it seems like every company that has ever received the anti-Midas Touch of Carl Icahn has had some kind of negative consequence.

gruturo 6y ago
> Anecdotal, but it seems like every company that has ever received the anti-Midas Touch of Carl Icahn has had some kind of negative consequence. That's no surprise - it's literally what he does for a living. He damages companies, gets a quick payout and moves on. It may not be illegal but it's revoltingly malevolent and sociopathic. The world would be a better place without him and his likes.

rident 6y ago

This story makes me recall Hertz $32M Accenture website services bill. https://www.henricodolfing.com/2019/10/case-study-hertz-accenture-website.html https://www.henricodolfing.com/2019/10/case-study-hertz-acce...

rossdavidh 6y ago

So, looking at a car rental company like Hertz, aren't they basically a car equivalent of WeWork, minus the hype? With the same fundamental issue: their customers can (and eventually will) all go away at once, while they are left with a lot of long-term commitments to pay on what they were intending to rent out. Now, a properly set up rental company would have hedged this, so that in the case their market disappears on them, they have survival money coming in from some financial option or other. But, I'm guessing Hertz did not.

dang 6y ago

See also the concurrent but slightly older Hertz thread: https://news.ycombinator.com/item?id=23375733 https://news.ycombinator.com/item?id=23375733.

H8crilA 6y ago

Oh my, if people are so surprised and "demand to know the truth™ " about a single, shitty, over-leveraged company - let's wait for the rest of the year and then 2021 for all the other bankruptcies to unwind. The "middle class" will be ripping all of their hair from their heads. Just ~two months ago they couldn't sell even the treasuries! The best credit paper in the whole world! Corpses will be flying left right and center, you don't just pretend things like that never happened and continue happily ever after. It is always the same reason: too much money/credit. It was the same in 2008, it was the same in 2000, it was the same in 1987 (okay, maybe this one was more on the "quants" of the day with their insured portfolios), it was the same in 1968, it was the same in 1929, it was the same in 2012 in Europe, it was the same in Japan in the 80s, etc. It's literally that simple: too much money = problems down the line. The only variables are how much is too much (above all time highs in corporate debt is almost certainly too much) and how much more down the line (seems the treasury bond market cannot be much more clear on this issue; also look at the GDP prints and projections).

skolega 6y ago

The Hertz story reminded me of another article explaining corporate predatory behaviour from 2018. https://evonomics.com/hedge-fund-activists-prey-companies/ https://evonomics.com/hedge-fund-activists-prey-companies/