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Hertz doubled down on sedans when Americans demanded SUVs, and a new report reveals how that helped bankrupt the 102-year-old giant

May 26, 2020, 23:55 IST
Business Insider
Americans wanted big cars. Hertz gave them itty bitty ones anyways.Cindy Ord/Getty Images
  • Tenuous debt-repayment structures, the rise of Uber and Lyft, and, of course, the coronavirus brought Hertz to its knees, as an extensive postmortem from The Wall Street Journal reported.
  • The May 25 report also showed how Hertz's choice to buy more sedans, rather than costly SUVs, slammed Hertz.
  • However, Americans have flocked pickup trucks and SUVs in the 2010s. Hertz didn't accommodate for that preference.
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It's no secret that Americans have demanded pickup trucks and SUVs over the past decade.

That shift started in the early 2010s, when the economy began to recover from a historic recession and gas prices began to plummet. In April, Americans bought more pickup trucks than passenger cars for the first time ever. By 2022, market analyst LMC Automotive says 97% of Fiat Chrysler's auto sales will be trucks and SUVs. For General Motors, that ratio is slated to be 84% and 90% for Ford.

The trend toward SUVs and pickup trucks was clear. But car rental giant Hertz went the opposite way — and it helped spur their demise.

According to a Wall Street Journal report on Hertz's bankruptcy, which came down the line on May 22, Hertz made a variety of "strategic missteps" in managing its fleet and finances. Losing cash, Hertz struggled to challenge traditional rivals like Enterprise, and emerging ones like Uber.

The coronavirus pandemic was ultimately the final straw for the 102-year-old car rental giant. Three years before that, Hertz's leadership team quietly erred in replacing an aging fleet with vehicles that no longer appealed to customers.

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In the early to mid-2010s, then-CEO Mark Frissora decided to keep a fleet of rental cars that were nearing their end. These cars were placed in Hertz's low-cost fleets, but analysts told The Journal that Hertz customers jumped ship for Avis to avoid the long-in-the-tooth cars.

By 2017, incoming CEO Kathryn Marinello, who left the company earlier this month, deemed it was necessary to get rid of the detested cars. As The Journal reported, Hertz had already racked up $13.5 billion in debt. (As of this month, when Hertz filed for bankruptcy, that debt totaled $19 billion.)

Sedans were cheap and available, so Hertz scooped them up to replace the old fleet. But customers wanted — and still want — SUVs and trucks. That's what competitors Avis and Enterprise, which was free of the massive debt burden, offered in larger quantities to Americans, analysts and former Hertz executives told the Journal.

"The fleet had aged to the point that we had customer mutiny," former Hertz CEO John Tague told the Journal. "We were solving the biggest problem, but not solving all the problems."

Read The Wall Street Journal's full postmortem on Hertz here.

Read the original article on Business Insider
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