Another post by Daniel Ruiz at Blinders Off LLC on the automotive market. He compares Hertz's (HTZ) position with regard to purchase volume, depreciation and fleet mix to the depths of the last recession.
Unlike 2009 when the US government intervened with Cash for Clunkers and the lowest interest rates in history, I don’t foresee a catalyst that will boost or even stabilize used vehicle values for the next 2-3 years.
Last year was a record setting year for new vehicle sales. We have not experienced a sufficient decline in new vehicle sales which will be necessary to balance the supply of used vehicles. Similar to the 2008 period, I expect that Hertz will have to keep their current fleet longer than expected due to further used vehicle value declines. However, a fleet can only be allowed to age for so long due to higher wear and tear costs like tire and brake replacement.
In conclusion, Hertz has surpassed the previous peak in per unit depreciation and now has to weather a 2 plus year declining used vehicle value storm with a more expensive mix of vehicles. The greatest challenge for Hertz is not behind, it lies ahead, and it’s one that they may not be able to survive this time.
Full post here: