Hertz tumbles as cooling used-car market hurts profit

Hertz Global Holdings shares fell after the car rental company’s latest earnings showed that falling used-car prices are starting to hurt profits.

Hertz posted third-quarter adjusted earnings of $1.08 a share, slightly above a consensus estimate of analysts for $1.05 a share, but still down from $1.20 in the same period a year ago.

One of the chief culprits was rising depreciation costs for the cars in its fleet.

Rental-car companies have enjoyed a sustained period of record used-car prices that reduce costs by minimizing depreciation and also brought in fat profits at auction.

That started changing earlier this year and the bonanza may well be over.

“Depreciation is going to go up because of the net effect of used-car prices coming down,” Hertz Chief Executive Officer Stephen Scherr said in an interview. “But utilization is remaining high across the industry and Hertz. We’re seeing undeniable strength.”

The rental business has been strong as travel has bounced back in both domestic and international markets, he said.

The company is renting out 80% of its cars, which is on par with the industry’s utilization before the Covid-19 pandemic.

Shares of the Estero, Florida-based company fell 7% to $17.55 at 9:33 a.m. in New York. The stock fell about 24% this year through Wednesday’s close.

Rental rates remain high. Hertz said it brought in an average of $68.57 a day per car globally, which is $22 a day more than the company brought in during 2018 before the pandemic and its 2020 bankruptcy.

Even with used-car prices falling in the quarter, Hertz’s margins of 28% more than doubled pre-pandemic levels.

In the third quarter, Hertz’s monthly depreciation costs per vehicle in the US climbed to $198– up from just $21 in the third quarter of 2021.

That’s headed closer to historic rates that have usually run between $250 and $300 monthly per car.

Scherr said used-car prices fell 8% nationwide in the quarter.

Hertz was able to sell most of the cars it needed to dispose of early in the quarter and before the price decline accelerated.

Going forward, Scherr said he expects travel to remain strong and used-car prices will fall, but not rapidly.

Automakers haven’t been able to return to full production rates due to the ongoing semiconductor shortage. That means there will be sustained demand for used cars.

“I think it trends flat to slightly down from here,” he said. “Our expectation is that new-car production is not going to come back that quickly.”