Hertz Gets Stuck In The Depreciation Lane

Hertz’s latest update showed that the problem is not getting people into rental cars — it is what those cars are worth afterward. The company said second-quarter adjusted corporate EBITDA is expected to land in the $50 million to $80 million range, toward the low end of its earlier expectations, after unexpected weakness in the used-car market pushed depreciation higher. Shares plunged about 41% Wednesday, as investors looked past stable rental demand and zeroed in on the resale-value problem.

The strange part is that the rental business itself does not seem broken. Hertz said fleet size, revenue per day, and rental days are tracking in line with or slightly above prior expectations, helped by solid demand and better capacity utilization. That should have been enough to keep things moving in the right direction. Instead, losses on vehicle sales in May turned the car lot into the problem, lifting expected net depreciation per vehicle to about $300 a month.

Hertz’s earnings are still heavily tied to what its cars are worth when it eventually sells them. A strong used-car market can make fleet management look smart. A bad one can make the same strategy look expensive in a hurry. Hertz has been trying to get past the damage from earlier fleet mistakes, including its costly electric-vehicle retreat, but Wednesday’s update put the fleet-cost problem right back in the driver’s seat.

The stock offering gave investors one more reason to hit the brakes. Hertz also announced a $100 million stock offering tied to a separate $300 million exchangeable PIK notes deal, adding another layer of complexity just as shareholders were trying to figure out whether the business was finally stabilizing. The turnaround is not out of gas, but Wednesday’s update showed it is still leaking value. Until Hertz can prove its fleet is holding value after the rental ends, investors will keep treating depreciation as the lane the company still cannot escape.

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