Hertz announced a new fleet purchasing strategy to improve the U.S. rental car business’s competitive position and customer experience. Company officials believe that by executing on key priorities will strengthen Hertz’s market standing and spark customer engagement and, ultimately, brand loyalty.
“We believe the actions we are announcing today will strengthen the company’s competitive position, improve customer satisfaction and drive financial performance,” Linda Fayne Levinson, Independent Non-Executive Chair of the Hertz Board, said in a release. “The Hertz team is fully aligned to execute on these key priorities.”
Brian MacDonald, interim Chief Executive Officer of Hertz, added: “The Hertz Board and management team have determined that a comprehensive modification to Hertz’s U.S. fleet strategy is necessary to establish a more competitive product position, improve the customer experience, provide greater flexibility for demand fluctuations, and better protect against a fluctuating used-car sales cycle.”
According to its strategy, Hertz will purchase about 350,000 model year 2015 vehicles in the U.S., approximately 60% more than the model year 2014 vehicles. About 25% of the model year 2015 fleet buy is being delivered in the fourth quarter of 2014; approximately 70% of the U.S. operating fleet is expected to be risk vehicles in calendar year 2015 versus approximately 85% in 2014.
As Hertz strategically transforms the U.S. fleet, the average U.S. risk-car holding period for 2014 and 2015 model year vehicles is expected to be substantially lower than the 2013 model year holding periods.
Financing for the fleet purchase will be funded through the company’s revolving credit facilities, which were recently amended to extend maturities and provide incremental growth capital.
To accelerate its fleet transformation, Hertz increased its fourth quarter 2014 U.S. risk vehicle dispositions by 45% versus plan, targeting its highest mileage vehicles. As of the end of October, approximately 40% of the sales planned for fourth quarter 2014 have been completed.
What’s more, Hertz plans to reduce costs by approximately $100 million annually, mainly through reduced general and administrative expenses, reduced information technology and capital investments, a reduction in external strategic adviser expenses, and a previously announced freeze to its pension plans. The company expects to achieve the full run-rate of these savings by year-end 2015.
“We believe the lower revenue growth and higher direct operating expenses we are experiencing in 2014 are transitory, primarily associated with fleet and systems integration challenges related to the Dollar Thrifty acquisition as well as some execution issues,” MacDonald added. “We are addressing the operational issues by strategically repositioning the fleet, hiring incremental sales and maintenance staff and migrating the Dollar and Thrifty financial and counter systems onto Hertz systems. Accordingly, 2015 will represent a transitional year with a more normal base performance becoming evident in 2016.”