Hertz just fired its CEO for one single, awful business decision. He is taking the fall for Hertz’s decision — on his watch — to buy 100,000 electric vehicles from Tesla, all for the American fleet. To say the decision was a flop is putting it mildly.
Hertz has about 3,000 domestic locations, and a fleet of about 430,000 cars, SUVs, and minivans. Each location obviously ranges widely from high volume to low, so this estimate won’t be exact, but that works out to about 35 E.V.s per location.
When announced a few years ago, this decision that almost a quarter of their cars would be E.V.s looked either “bold” or “reckless,” depending on your point of view.
With the advantage of hindsight, we now know “reckless” was the right call.
We should stipulate two points at the start:
Some people absolutely love E.V.s, usually either because they love their handling and their technology, or because, having bought the climate hoax, they “believe” in them. Be that as it may, the popularity of E.V.s among some fraction of the population is genuine.
Also, it’s worth noting that Tesla is generally agreed to be the best of the E.V.s, across the board. They are well-made vehicles. If Hertz were going to buy some EVs, they chose the right one.
That being said… we must ask ourselves:
One hundred thousand?
The cheapest entry level Tesla — base model — is currently about $40,000. Rental companies buy vehicles at various trim levels above the base, but in the interest of avoiding exaggeration and being conservative, we can agree that this meant the Hertz board of directors decided to commit somewhere over four billion dollars (maybe a lot over) on this gamble. That’s quite a decision.
Hertz (like all the other rental car companies) has a certain mix of clients — singles and families on vacation, businessmen on business trips, non-car-owners who need a car for a fixed period of time, car owners who need a replacement while their own cars are in the shop — the proportions vary by location, but this is the big picture.
Some of these renters pay the bills themselves, out of their own funds. Some have their rentals paid for them by their employers, with specific limitations on luxury level and coverage. Some have their rentals partially paid for by their insurance companies. Again, it varies.
A car rental company’s job is to meet those customers’ needs, in a profitable way. So they stock mostly midsize and economy cars, because that’s what most of their customers will choose. They also stock a few odd vehicles, like high capacity vans for large families, and luxury cars for big spenders. Many locations will have a couple of convertibles and exotic cars, for the few who will pay for them.
Besides having to be mindful of a budget, what do the majority of renters have in common? They are often strangers to the locale, and they need to rush to an airport at the end of their rental, so convenience and speed in keeping the car gassed up, and especially, the final refill process, are critical elements of the rental. The first thing a business traveler does when renting a car is to take note of where he can quickly fill up the tank when the trip is over and he has a plane to catch.
None of this would be news to anyone running any car rental company. These are the basics.
Now, what do we all know about E.V.s?
E.V.s – even the best ones – have higher maintenance and insurance costs than regular gasoline-powered vehicles, for a number of reasons: more expensive parts, more accidents, fewer qualified mechanics.
E.V.s – even the best ones – take much longer to recharge than regular gasoline-powered vehicles. A fill-up takes two to five minutes; a charge takes fifteen minutes (if all the stars align), but can take much longer, even hours, and that’s if you can find a working charging station when you need one.
E.V.s — even the best ones — pose a higher risk of being totaled by insurance companies, either after accidents, or after all the odd circumstances that cause spontaneous combustion. E.V. fires have destroyed homes, garages, even cargo ships. The battery is usually irreparable. As a result, insurance companies are increasingly determining that the damage threshold between “repair it” and “scrap it” is a lot lower for E.V.s than for other vehicles.
All this isn’t to say that E.V.s shouldn’t be a part of the mix, but they clearly ought to be viewed as another niche segment, at just a few percent, like luxury cars and convertibles, not as a quarter of the fleet.
But corporations make failed business decisions all the time. Every business decision is a gamble, and some don’t pay off. So why does this particular one merit discussion in a public policy publication?
Because of the reasoning behind the decision.
Hertz could have done proper research before deciding to switch a quarter of the fleet to E.V.s. A day or two of meetings with their sales force would have presented everything stated above. The recharging challenge alone is an obvious deal-breaker for most travelers returning to an airport. Hertz either didn’t do this basic research — or they did, and disregarded the inevitably negative feedback.
Hertz clearly made this choice — whether they admit it or not — for political reasons. Either the leadership has bought the baseless claim that America will be fully switched over to E.V.s in a few years, or they believe that they “should” be part of the effort. There’s no business reason for it. The government is pushing E.V.s on the public, and Hertz decided to hitch its wagon to the government’s horse, in spite of their customers’ needs and preferences.
Hertz is a publicly traded corporation, largely owned by mutual funds such as Knighthead Capital Management. As a result, most Americans, both private sector and public, have an ownership stake in Hertz, through our 401K plans, IRAs, pensions, and other investments. When Hertz irresponsibly chose to spend all these billions on E.V.s that their customers wouldn’t rent, it hurt all of us.
When a sole proprietor makes a bad business decision, he hurts his own pocketbook and those of his employees. But when a publicly traded corporation makes a bad business decision, millions suffer the consequences. Publicly traded companies are expected to be far more cautious than privately held ones, but they haven’t been, lately, have they?
For decades now, corporate boards have become less and less bound to the best interests of their stockholders, and more and more driven by pop culture and political philosophies.
Corporations have embraced DEI over merit in hiring, at the expense of quality. They have accepted ridiculously long lead-times by abandoning proven domestic vendors for overseas vendors in third world “low cost countries,” decimating American manufacturing (or worse). They have sacrificed their own patents and trade secrets, by literally teaching Chinese vendors to become their replacements, in the interest of claiming a short-term “cost savings” to satisfy today’s mutual fund managers and drive up the value of their stock options at today’s close; sacrificing tomorrow’s reality and profitability as a result.
And the whole motivation is prompted by a lie pushed by our own government. The federal bureaucracy is illegally applying all the power of the regulatory state and the tax code, to force a change that it has no constitutional right to promulgate at all.
This Hertz experience represents the problem with America’s big businesses today — and our government as well — in a microcosm.
Pray that we learn from it, and apply the brakes quickly, before our economy itself has to be totaled.
John F. Di Leo is a Chicagoland-based international transportation manager, trade compliance trainer and speaker. A one-time Milwaukee County Republican Party chairman, he has been writing a regular column for Illinois Review since 2009. Read his book on vote fraud (The Tales of Little Pavel) and his political satires on the current administration (Evening Soup with Basement Joe, Volumes I and II), and the recently released Volume Three.
Image: Free image, Pixabay license, no attribution required.
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