The herd instinct among leaders of organizations, business and otherwise, tends to expand exponentially with the size of the entities being managed. It is a huge problem as it stifles the innovation that springs from being a non-conformist. We see it in so many places and so many ways. It's at the root of political correctness (PC) that distorts everything. It's especially evident in Congress where members routinely ignore constituents’ views to favor those of their own herd, which is why there is only a uni-party and but a precious few dissidents.
We also see a great example of it in what's happened to Hertz, the car rental folks. It was, at the time it made its fateful decision to go whole hog on EVs, led by a CEO who just knew from palling around with others among his CEO class that EVs were the wave of the future. He abandoned the interests of his customers and his company to join the herd and the results speak for themselves as I noted here a few weeks ago.
It has now gone from bad to worse, as we find in this tidbit from a news release issued by the company (emphasis added):
Fleet and direct operating costs weighed on this quarter's performance," said Gil West, Hertz chief executive officer. "We're tackling both issues - getting to the right supply of vehicles at an acceptable capital cost while at the same time driving productivity up and operating costs down…
This was followed by an overview in bullets:
Revenue of $2.1 billion
GAAP net loss of $186 million, a negative 9% margin, or $0.61 loss per diluted share
Adjusted net loss of $392 million, or $1.28 loss per diluted share
Adjusted Corporate EBITDA of negative $567 million, a negative 27% margin, driven by a $588 million increase in vehicle depreciation, of which $195 million related to EVs held for sale
GAAP operating cash flow of $370 million; Adjusted operating cash outflow of $697 million and adjusted free cash outflow of $729 million
Corporate liquidity of $1.3 billion at March 31, 2024
Yikes! Is there a better example of "go woke, go broke” out there? There may well be, given the CEO herd instinct, but this is truly bad and here's more:
In the first quarter, the Company upsized its EV disposition plan by 10,000 vehicles, for a total of 30,000 EVs intended for sale in 2024. The Company incurred a $195 million charge to vehicle depreciation to write down the EVs held for sale which were remaining in inventory at quarter-end to fair value and recognize the disposition losses on EVs sold in the period…
The Company commenced a broad fleet refresh during the quarter and has revenue and cost initiatives in place to enhance the Company's future profitability…
Important factors that could affect the Company's actual results and cause them to differ materially from those expressed in forward-looking statements include, among other things:
• Mix of program and non-program vehicles in the Company's fleet, which can lead to increased exposure to residual value risk upon disposition…
• The Company's ability to effectively dispose of vehicles, at the times and through the channels, that maximize the Company's returns
• The age of the Company's fleet, and its impact on vehicle carrying costs, customer service scores, as well as on the Company's ability to sell vehicles at acceptable prices and times
• Whether a manufacturer of the Company's program vehicle fulfills its repurchase obligations…
• The Company's ability to implement its business strategy or strategic transactions, including the Company's ability to implement plans to support a large-scale EV fleet and to play a central role in the modern mobility ecosystem…
• The Company's ability to comply, and the cost and burden of complying, with ESG regulations or expectations of stakeholders, and otherwise achieve the Company's corporate responsibility goals
You don't have to read between the lines to understand what's happened to Hertz. It's all there in the above. The company isn't increasing its EV disposal plans by half for nothing. A combination of government-imposed ESG mayhem with the CEO herd instinct has led to disaster. It's not only the fact no one wants the EVs, but the severe depreciation in value, which is a corollary. And, the batteries go bad over time and cost a fortune to replace, which is still another related factor.
Leaders of almost every big institution have attempted to push EVs on a market that doesn't want them and the result is obvious to all, yet the push continues, which is equally obvious if one listend to the voices of the politically correct herd. Indeed, Hertz is still talking of a "large-scale EV fleet” even as it drowns in a sea of EV mistakes.
Why? It's the herd, baby, it's the herd. And, of course, the herd ultimately wants all of us who aren't elites out of cars altogether, which will be death of Hertz as we know it, but it won't matter to whoever leads the company at the time, because they'll be applauded by the other members of the herd for their self-sacrifice.
#Herd #Hertz #EVs #Depreciation #ClimateCrisis #ESG
Tesla already has their $25,000 car…. the current price of a model Y!
The Herd is rarely heard from again, unless the Herd was so wrong historians remember their blunders. Another great piece, young man. You have been a great ally for many years, Tom.