Lust for Tesla triggered the downfall of Hertz

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Lust for Tesla triggered the downfall of Hertz

After emerging from its Covid-driven bankruptcy in 2021, Hertz was on a roll. People were traveling again and thankfully, were renting cars.

With its collection of brands, Hertz commanded the top market share among rental care companies.

Part of the “new” Hertz involved going all-in on electric cars. I love electric cars, but not everybody does and, as Hertz found out, people renting Teslas from Hertz for their once-a-year beach trip didn’t have a clue on how to operate the vehicles. Countless Teslas were banged up before even exiting the Hertz parking garages. Renters routinely were stranded with dead batteries and other issues that novice Tesla users experience.

Hertz committed to buy 100,000 cars from Tesla for more than $4.0 billion and recently took a $1.0 billion reduction to earnings because of the plunge in the resale value of its Tesla fleet. (Rental care companies routinely sell off and refresh their fleets.) Somewhere in the universe of business school case studies, Hertz will show up as the company that inadequately tested a huge change in strategy and paid dearly for it.

Everybody knows about Hertz Gold, which let’s you bypass the airport counter and go straight to the Hertz lot. But few knew about Hertz Platinum. Many years ago, a friend of mine in the travel business gave me a Platinum membership. The idea was that Platinum was only for the top Hertz customers who were significant users of Hertz.

For example, while one Hertz employee met you in baggage claim, another was sitting in your car running the A/C at curbside. No bus rides, no desks, nothing — you just got in the car and took off. When you returned the car, you entered a special line in the Hertz lot and a Platinum driver would hop in and drive you to the terminal. For a frequent traveler or a traveler with small children, car seats, etc., it did not get any better.

One more story about how great Platinum was. I had just joined a new firm and it held an offsite client conference. After it was over, everybody headed to the airpot to catch flights home. Midway though the flight to New York, our plane was diverted to Allentown, PA. A few hundred of us exited the plane and rushed to the small rental-car area. In a matter of minutes all of the rental-care companies said, “Sorry, we are out of cars.” You could hear more than a hundred people groan and realize the four-hour drive to New York was not happening that night.

With a few of my new colleagues, I walked up to Hertz counter, told them I was Platinum, and needed a car — plus two more for my friends. No problem. Not sure where they got the cars, but as we walked to the cars there was a mob of angry people that wanted to kill me.

Post-Covid, a private equity firm acquired Hertz and then took it public and the simple analysis is that Hertz turned platinum into lead. Platinum went from invitation only to some kind of reward program for hitting a certain number of rentals per year.

Before the change in ownership, Platinum was not anywhere to be seen on the Hertz website, you needed to call a special number to book a Platinum rental. Somehow, the phone was always answered in less than one ring, they knew who I was, and I was off the phone in 30 seconds. I actually liked calling customer service at Platinum because it was incredible. These days, its the same mess as all the other customer-service departments that we dread calling.

So, when looking at these self-inflicted missteps from a large and sophisticated corporation, is it any wonder that the bottom fell out of its stock price?

The Hertz story is an example of Being Blinded by the Upside, which is one of the Seven Deadly Stupidities.  For more on corporate failures see:

Key Takeaways

• Do not: chase the shiny new object. Ever.

• Do: test new strategies as much as possible before going all-in.

• Do: know your customers well enough and rely on them for feedback on company-changing ideas.

Strategic Insights

• Hertz to buy 100,000 Teslas. What a great headline for both companies. But was it really a great headline for Hertz? Sure, the coolness factor was there for a company in a boring business and is now leading the way in the world of EVs. But overlooked was the fact that only 6% of the population used EVs, so for 94% of renters, the EV rental was a novelty purchase.

• What did Hertz do differently as it flooded its customers with EVs? Not much. In my personal experience, it seemed like there was one “Tesla” guy at every location and if he was at lunch, you just had to wait. Massive education and training needs to be done for such technological changes.

• New management at Hertz just threw too many changes at the business in too short a time. If I were running a business with $10 billion in annual revenues and the top market share in my industry, I would move deliberately, especially exposing my generally less tech-savvy customers to new technologies. And I would think twice about alienating my small, but important, top-tier customers (e.g., Platinum members).

This Month’s Top Book recommendations:

The Seven Deadly Stupidities: Using Other People’s Failures to Make Better Decisions
Learn from case studies of bad decision making and avoid the easy mistakes.

The Psychology of Money
Lessons on money and life. I have given this book to a dozen people.

Zero to One
Billionaire Peter Thiel on why the bulk of the value is created early in any venture

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