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where a car is salvaged, we must crystallize at once any difference between our carrying value and the market value of that car Hang on though, this part has n
by NickM 3y ago
where a car is salvaged, we must crystallize at once any difference between our carrying value and the market value of that car
Hang on though, this part has nothing to do with repair costs. This just sounds like an accounting issue, right? If anything I would expect this to benefit Hertz since they could write off the higher loss in their taxes immediately, instead of waiting until future years to write the value off via depreciation.
On the other hand, I can see how this would make their numbers look worse at a glance since it shows up as though they lost money, but in fact no actual assets have been lost; they have the same car, it was repaired, and the repair was paid for by insurance, but now it looks like they took a loss because an arbitrary accounting rule forces them to adjust their balance sheet in a different way than they would otherwise.
Not sure if I'm understanding this right but it sure sounds like Hertz is flat-out admitting that they're making sub-optimal business decisions to make their numbers look better. Wouldn't that be a blatant violation of their fiduciary duties?
- londons_explore 3y agoYou may have discovered one of many reasons Hertz has been skirting with bankruptcy...
- nicoburns 3y agoI would imagine the difference would manifest itself in higher insurance rates. You can't just "write off more value" for free.
- cyberax 3y agoHertz self-insures.
- throwaway_08932 3y agoAnd that's why it really Hertz them.
- paddy_m 3y agoOne of the reasons large rental companies self insure is so that they can do repairs in house without listing cars as salvaged. They make it back on resale I think I read this from car dealership guy.
- Scoundreller 3y agoThat's (yet) another reason why I don't buy the insurance that covers incidents of my own fault for my beater. A crushed bumper will deem it salvage and the insurer will take it away but I could still drive it (and from a relative's experience, at much lower cost than the insurer would pay). But on a newer vehicle, it takes a lot of damage to get branded salvage. Also makes sense for Hertz to do it in-house as they'll have a somewhat standardized fleet. Can "borrow" a rear bumper from a vehicle in for more serious heavier-duty front-end repair to get at least 1 back in the fleet.
- WarOnPrivacy 3y ago> That's (yet) another reason why I don't buy the insurance that covers incidents of my own fault for my beater. Insurance companies still make you pay for everyone else's coverage. ref: https://www.washingtonpost.com/business/2023/09/05/auto-insurance-claims-disasters/ https://www.washingtonpost.com/business/2023/09/05/auto-insu...
- Scoundreller 3y agoLess so when you opt out of portions of it and self-insure. Not recommending anyone opt out of personal liability when that's an option.
- nicoburns 3y agoOh, well in that case higher repair costs will hit them directly.
- NickM 3y agoRight but the part of the argument I quoted had nothing to do with repair costs: they were making the point that changes in FMV due to EV prices going down in general were forcing them to recognize bigger losses in salvage situations, since they have to re-value the car post-salvage based on current market prices. So in this case they are basically writing off more value “for free”, because the loss is coming from a genuine loss in value of the asset, but since the asset is a car that may still provide the same amount of value back to Hertz and still last the same amount of time, it’s sort of a weird corner case where you could argue they haven’t really lost anything. Of course that loss is offset by lower depreciation losses in the future, so it’s not like it’s coming out of nowhere.
- hrkfmud50k 3y agoeven if it were true, aren't they exacerbating the issue by "crystallizing" the loss on every single EV rather than just the ones that are salvaged? hardly seems like a reason to sell-all.
- NickM 3y agoYeah that’s also a great point, I hadn’t thought of that, but it does blow a pretty big hole in the argument.
- gamblor956 3y agoWhen a car is salvaged (i.e., declared a total loss), that means that the insurance company has taken possession of the vehicle, offering the insured the market value of the car for their loss (where market value is the value of the car in its salvaged state). The car that was worth $X on their books is now $Y in cash, and $Y is usually significantly less than $X, because salvaged cars are usually worth way less than a normal used car (though sometimes the car is worth more as spare parts, for uncommon vehicles or for models no longer in production).
- hehhehaha 3y agoThis obviously decreases their margins since the insurance premiums go up. And if they self insure as the other guy claims, then the repair costs come straight out of their wallet.
- sroussey 3y agoI can’t imagine the premium for a cybertruck.
- NickM 3y agoRight, that’s true on the “higher repair costs” side of the original post, but I’m talking about the “market prices have gone down so we have to recognize bigger losses on salvage” aspect later in the post, which is caused by changes in fair market value and doesn’t have to do with the cost of repairs.
- wayfinder 3y agoInsurance is not free money. Hypothetically say I was losing a car once per month… then my premiums would reflect that. The purpose of insurance in that hypothetical would be to insure against losing 2 cars per month but I would be paying for that first lost car in full because at that point, it’s not a risk… it’s a consistent monthly cost.
- theptip 3y agoThis stuff tends to be very complex. Writing off losses early doesn’t always help you. This is why depreciation rules are flexible and losses can be carried forwards. For a public company with steady growth I imagine you generally want to amortize losses over a fairly long window. Also if you already had losses this year, and think you’ll grow more in future years, you really don’t want to book more losses now! Hertz has been getting hammered recently. Especially problematic if these are lumpy losses which will make profits less predictable. You’d rather smooth those out and hit your earnings forecast. (At least, that’s the CFO’s mandate.) It gets even more complex when you consider the interplay with windfalls and rapid growth, but you can probably assume here that they are optimizing for short-to-medium term stock price (1-5 yr). Most CEOs don’t invest in 10yr bets. You might get fired for lackluster growth before that pays off! More generally, “fiduciary duties” is generally construed pretty loosely. Delaware corporate law defers quite strongly to the corporation; if they can make a coherent argument for why they are benefitting shareholders they tend to get the benefit of the doubt.
- demondemidi 3y agoGigapress mono frames don’t like damage. Even light damage. The whole car is totaled when a comparable ICE build process can be repaired for modest costs. More of a Tesla problem than an ev problem.
- deleted 3y ago[deleted]