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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Last fall, my boyfriend

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Speaker 1: and I wanted to take a little trip from Brooklyn

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Speaker 1: to upstate New York. Amtrak couldn't take us all the

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Speaker 1: way to our campsite, so we did with so many

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Speaker 1: transit dependent New Yorkers have reluctantly done before us, we

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Speaker 1: rented a car. We booked one online through Hurts, the

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Speaker 1: rental car service, but when I got to the garage

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Speaker 1: to pick it up several hours late, that's on me.

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Speaker 1: The agents told me that all they had available was

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Speaker 1: an electric car, a Chevrolet Bolt to be exact. I'd

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Speaker 1: never driven one before, I didn't know much about charging them,

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Speaker 1: but we agreed it'd be a fun new adventure. So

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Speaker 1: off we drove. But around six hours later, we were

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Speaker 1: in a grocery store parking lot upstate, in the middle

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Speaker 1: of a rainstorm, trying and failing to fill the car

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Speaker 1: up with power. My umbrella was flapping in the wind,

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Speaker 1: the car was low on jew, and the charging station

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Speaker 1: was broken. It was the last one for miles. It

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Speaker 1: felt like we had made a huge mistake. What I

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Speaker 1: didn't know at that time is that by renting an

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Speaker 1: electric vehicle from Hertz I was part of a larger

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Speaker 1: bet the company had made years ago, one that led

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Speaker 1: it on a journey to electrify its fleet, embrace the

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Speaker 1: future of transportation, and hopefully reap real profits in the process.

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Speaker 1: But much like my upstate road trip, things for Hertz

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Speaker 1: didn't exactly turn out as expected. Eves were hot when

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Speaker 1: Hurts started ordering a bunch of them in twenty twenty one,

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Speaker 1: but the company would soon discover making them work in

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Speaker 1: the rental market was another challenge. Entirely today on the show,

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Speaker 1: how two Wall Street investors brought Herts out of bankruptcy

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Speaker 1: with an ambitious bet to revolutionize rentals, and how a

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Speaker 1: series of wrong turns left a big part of Hertz's

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Speaker 1: business stranded on the side of the road with no juice.

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Speaker 1: This is the big take from Bloomberg News. I'm Sarah Holder.

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Speaker 1: My colleagues Eric Shatsker and David Welch just published a

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Speaker 1: deep dive on Hertz's turbulent last few years.

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Speaker 2: My name is Eric Shatsker. I am the editorial director

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Speaker 2: of Bloomberg New Economy, and I'm an editor at large

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Speaker 2: at Bloomberg BusinessWeek.

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Speaker 3: David Welch, Detroit Bureau chief cover all things auto, regional politics,

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Speaker 3: whatever I get pulled into, and have been on the

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Speaker 3: Hurts story for a number of years now.

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Speaker 1: Their story begins in the early days of the pandemic

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Speaker 1: when the company kreened into bankruptcy. By twenty twenty one,

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Speaker 1: Hertz went to auction and was acquired by investors who

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Speaker 1: had a plan to turn the business around. The two

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Speaker 1: men leading the takeover were Tom Wagner and Greg O'Hara.

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Speaker 2: They are professional investors, they're not car rental experts. That's

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Speaker 2: the most important thing to remember as we talk about

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Speaker 2: what happened to her Hurts. The two people who led

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Speaker 2: the takeover of this company run investment firms. Tom Wagner

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Speaker 2: has a distressed debt hedge fund called Nighthead and Greg

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Speaker 2: O'Hara has a private equity firm specializing in travel and

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Speaker 2: tourism called Sartaris.

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Speaker 3: And they're sort of their value investors. Basically, they look

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Speaker 3: for cheap assets that are out of favor and they

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Speaker 3: buy them. Then they figure they could whip them into.

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Speaker 1: Shape, and at some point Hurts caught their eye. Why

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Speaker 1: were they interested in Hurts, this rental car company that

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Speaker 1: was being battered by the pandemic.

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Speaker 2: Well, if you cast yourself back to those dark days

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Speaker 2: of the pandemic, the economy was shut down, but the

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Speaker 2: companies that were suffering the most were the companies that

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Speaker 2: depended on you and me and everybody else to travel.

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Speaker 2: There was no travel. We were all locked indoors. And

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Speaker 2: so they, like many people in the investment business, recognized

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Speaker 2: that the pandemic wasn't going to last forever, and that

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Speaker 2: would mean people getting on planes, that would mean people

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Speaker 2: taking cruises, that would be people renting cars. They were

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Speaker 2: interested in Hurts because it was the only car rental

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Speaker 2: company in North America to go bankrupt. There was no

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Speaker 2: opportunity with Avis, for example, like there was with Hurts

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Speaker 2: because Avis didn't go bankrupt, and the other giant in

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Speaker 2: the rental industry enterprise is privately owned.

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Speaker 3: Right, And look, you use bankruptcy not only to get

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Speaker 3: protection from creditors and clear debt, which they did. They

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Speaker 3: reduced the company's dead burden, which was always a disadvantage,

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Speaker 3: but you use that period to cut out of other cost,

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Speaker 3: cut workers, get rid of unprofitable locations, and bring in

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Speaker 3: new management, and generally just give the business a whole

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Speaker 3: new fresh start.

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Speaker 1: What was their vision for Hurts. What dream future were

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Speaker 1: they promising for this company.

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Speaker 2: They had a very ambitious plan for Hertz, perhaps more

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Speaker 2: ambitious than almost anything else they had undertaken. They wanted

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Speaker 2: to take a rental car company that had exclusively gas

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Speaker 2: powered vehicles and on a very rapid schedule, turn them

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Speaker 2: all into evs.

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Speaker 3: And at the time, EV growth generally was just rapid fire.

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Speaker 3: People were buying electric vehicles. Any company, any startup that

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Speaker 3: had an electrical vehicle story. They didn't even need an

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Speaker 3: electric vehicle that worked, they just needed a good story.

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Speaker 3: They were getting funded and getting funded with billions of dollars.

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Speaker 1: But Wagner and O'Hara not only wanted to electrify Hertz

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Speaker 1: his fleet. They wanted to revamp and modernize all of

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Speaker 1: the company systems in an industry that has often seen

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Speaker 1: as slow and clunky. They wanted to transform renting a

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Speaker 1: car from a necessary chore to a seamless customer experience.

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Speaker 3: There were some other things that were fundamentally smart that

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Speaker 3: they were trying to do, had lousy it lousy computer systems.

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Speaker 3: They wanted to modernize that. They wanted to get striped

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Speaker 3: to command so people could use Apple Play also very smart,

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Speaker 3: and they wanted to improve the Hurts apps so people

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Speaker 3: could do more from their phones and automate the business.

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Speaker 3: So it wasn't all just this electric vehicle pipe dream.

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Speaker 2: They actually wanted to transform the way a rental car

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Speaker 2: company does business.

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Speaker 1: And they were looking at partnering with Uber.

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Speaker 3: Right, they did yes, and they partnered with Carvana as well.

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Speaker 3: Car companies have often looked at rental car companies as

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Speaker 3: a big buyer of a big amount of volume of

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Speaker 3: their production. And what that does is when you have

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Speaker 3: cycles of consumer demand being sometimes really hot and sometimes

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Speaker 3: really cold, if you've got this steady business of rental

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Speaker 3: car companies buying cars from you, that smooths out your

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Speaker 3: production schedules and makes the business less exposed to these

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Speaker 3: economic cycles. Hurts looked at Uber and Lift drivers the

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Speaker 3: same way. If they had a certain number of them

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Speaker 3: renting their cars, then they would be less exposed to

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Speaker 3: cycles and travel for both business and leisure.

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Speaker 1: And part of their vision also included bringing in new leadership.

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Speaker 1: Right who did they hire to be the new CEO

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Speaker 1: of this reimagined Hurts?

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Speaker 2: With this the same kind of creative inspiration that they

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Speaker 2: brought to electrification. They reached out to a very unconventional candidate,

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Speaker 2: Stephen Sure, who had recently retired as the chief financial

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Speaker 2: Officer at Goldman Sachs. He was a career banker who

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Speaker 2: had risen through the ranks at Goldman, become a strategist

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Speaker 2: and subsequently become the CFO, and after twenty eight years

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Speaker 2: of the firm, he decided he was going to retire

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Speaker 2: and do something else. And before long a call came

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Speaker 2: in from one of his former colleagues at Goldman, a

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Speaker 2: guy named Jeff Nettleman who is now working with Greg

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Speaker 2: O'Hara at Sertaris, and Jeff Nettelman wanted to know, Stephen,

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Speaker 2: You're interested in becoming CEO of HURTS.

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Speaker 1: So this was the dream. They have their team set,

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Speaker 1: they have their vision, and in the beginning it seemed

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Speaker 1: like the plan might work. You open up your reporting

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Speaker 1: describing the celebratory night that Hurts executives were having in

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Speaker 1: November twenty twenty one. What had just happened? What were

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Speaker 1: they celebrating?

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Speaker 2: Twenty twenty one was a gangbuster year for car rentals,

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Speaker 2: coming out of the pandemic. Everybody wanted a car, couldn't

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Speaker 2: buy a car, was renting a car, and so the

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Speaker 2: industry had phenomenal tailwinds at its back, huge demand, limited supply,

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Speaker 2: tons of pricing. Power cars again were hard to get,

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Speaker 2: and so there was selling for high prices. So Hurtz

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Speaker 2: was just crushing it on all fronts.

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Speaker 1: So much so that executives had decided to go public

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Speaker 1: with an IPO and this party was the kickoff.

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Speaker 2: And so the company that they bought out a bankruptcy

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Speaker 2: for five point nine billion dollars. At the time of

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Speaker 2: the IPO had a value of fifteen point three billion dollars.

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Speaker 2: They had more than doubled their money in the space

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Speaker 2: of only four months.

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Speaker 3: They're having this big party. They've got, you know, some

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Speaker 3: great food there. They're blasting New Order, one of my

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Speaker 3: favorite bands music is playing and Tom Brady, the legendary quarterback,

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Speaker 3: he's on board as a pitch man. You know. Lots

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Speaker 3: of glitz, lots of glam, very very shiny ipo here.

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Speaker 3: Everything is looking hot and they are off to the.

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Speaker 1: Races here and at the heart of the shiny IPO

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Speaker 1: was a multimillion dollar deal that Wagner and O'Hara were

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Speaker 1: placing their bets on in order of one hundred thousand teslas.

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Speaker 2: You have to remember how hot everyone was for evs

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Speaker 2: at the time. There was this fascination with Elon. Musket

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Speaker 2: still exists, of course, but then Elon could do no wrong.

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Speaker 2: And when Hertz placed this order for one hundred thousand

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Speaker 2: teslas just days before it's IPO, Tesla shares rocketed up

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Speaker 2: thirteen percent and the value of that company shot above

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Speaker 2: one trillion dollars for the very first time. People looked

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Speaker 2: at that deal and thought, oh my god, the future

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Speaker 2: of evs is here, and so it's time to reprice

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Speaker 2: Tesla and it's time to think about this industry in

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Speaker 2: a totally different way. It really seemed like Wagner and

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Speaker 2: O'Hara had hit upon some kind of magic formula that

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Speaker 2: nobody else had ever dreamed of.

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Speaker 3: That's betting that people are going to want to rent them,

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Speaker 3: and that it's going to be cheaper to maintain these vehicles,

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Speaker 3: and you'll get better pricing at the counter, and they'll

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Speaker 3: be rented out more often. They really bet that just

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Speaker 3: that renting evs would be a much better business than

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Speaker 3: they would grow it as they could get more of them,

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Speaker 3: because hey, Tesla's sales are hot, consumers love evs and

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Speaker 3: how could this possibly go round?

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Speaker 1: But it did. Hurts would go from a fancy IPO

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Speaker 1: party and staggering growth projections to backtracking on its EV bet.

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Speaker 1: That's after the break, We're back. Hurts. Its executives and

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Speaker 1: investors placed a huge bet on electric vehicles as pandemic

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Speaker 1: restrictions lifted and people got back to renting cars, and

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Speaker 1: they ordered a fleet of one hundred thousand Teslas to

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Speaker 1: anticipate that demand. But in late twenty twenty two, about

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Speaker 1: a year after a big party Hurts through to celebrate

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Speaker 1: its IPO, it seemed like something wasn't clicking. People weren't

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Speaker 1: as interested in renting evs as they expected.

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Speaker 2: That's the first warning light. If you think about all

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Speaker 2: these things going on, it hurts like warning lights on

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Speaker 2: a dashboard. That was the first one to go off.

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Speaker 2: People didn't want to rent Tesla's and at the time,

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Speaker 2: most of the EV fleet they had was Tesla's.

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Speaker 3: Electric vehicle owners. Most of the time they have a

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Speaker 3: charger in their garage at home, so every morning they

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Speaker 3: wake up it's on full. They live with their car

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Speaker 3: the way you live with your cell phone, so they

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Speaker 3: don't really worry about charging unless they're on a road

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Speaker 3: trip someplace.

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Speaker 2: People stepping off a plane who were about to take

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Speaker 2: a two hundred and fifty mile drive didn't want to

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Speaker 2: get behind the wheel of an EV or a Tesla

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Speaker 2: for the first time. They had range anxiety. They didn't

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Speaker 2: want to, you know, deal with this problem. They'd heard

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Speaker 2: of having to find a charger in the middle of

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Speaker 2: the night somewhere, or find themselves with an empty battery

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Speaker 2: on the side of the road right right.

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Speaker 1: Tesla's are flashy and fun, but they they require some

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Speaker 1: getting used to.

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Speaker 2: Absolutely they are not your you know, your grandfather's gas guzzler.

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Speaker 1: On top of customers being wary of Tesla's hurtz, executives

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Speaker 1: started noticing another problem. Their repair costs were increasing significantly.

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Speaker 2: Initially, it was a little bewildering, Why all of a sudden,

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Speaker 2: are are cars out of service? And why are repair

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Speaker 2: costs soaring? Turned out that many of the drivers who

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Speaker 2: stepped behind the wheel of the Tesla, often for the

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Speaker 2: first time, couldn't manage A lot.

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Speaker 3: Of drivers aren't used to that rapid acceleration. They're not

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Speaker 3: used to the fact that when you take your foot

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Speaker 3: off the accelerator, but have not yet touched the brakes

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Speaker 3: that you will start to slow down. So people were

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Speaker 3: getting in small fender benders and accidents with these and

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Speaker 3: with Teslas. The repairs can be huge.

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Speaker 1: But the challenges didn't end there. Their ev charging infrastructure

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Speaker 1: just wasn't as robust as they needed it to be.

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Speaker 3: In order to keep all these cars charged, Hurtz needed

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Speaker 3: a lot of charging banks at their garage and in

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Speaker 3: some cities the grid wasn't really great for handling that

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Speaker 3: many chargers, and in other cases the grid was fine,

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Speaker 3: but the airport power source itself couldn't handle all of those,

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Speaker 3: so what they had to do often employees had to

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Speaker 3: drive the cars off airport and go and charge them

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Speaker 3: simplace else and drive them back. That's time consuming, that's

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Speaker 3: more labor. So they're being rented less often, they're getting

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Speaker 3: less at the counter than they thought in terms of

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Speaker 3: daily rental rates, and the repairs were much higher. And

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Speaker 3: that's when Stephen Scherr said, look, we have to start

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Speaker 3: winding this down.

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Speaker 1: And then Tesla announces they are cutting prices on every

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Speaker 1: car in the lineup, and at first it seems like

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Speaker 1: this is great news for Hertz who buys a bunch

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Speaker 1: of their cars. But that's not exactly the way that

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Speaker 1: played out.

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Speaker 2: What happened for sure at the beginning of twenty twenty three,

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Speaker 2: you may remember in January, in fact, Elon Musk decided,

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Speaker 2: as the EV market was getting more competitive, that he

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Speaker 2: wanted to compete for share over margin, which means I'm

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Speaker 2: willing to cut prices of my vehicles to make sure

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Speaker 2: that we're selling as many Tesla's or people are buying

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Speaker 2: Tesla's over the emerging number of options they had in

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Speaker 2: the electric vehicle industry. So he slashed prices on Tesla's

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Speaker 2: and he did that, you know, several times over the

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Speaker 2: course of twenty twenty three, so that by the end

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Speaker 2: of the year, many models were selling for thirty percent

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Speaker 2: less than they were only months earlier, and that was

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Speaker 2: a total nightmare. Initially, it seemed like good news because

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Speaker 2: Hertz was going to be buying more Tesla's and more

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Speaker 2: other evs like Pollstars and Chevy Bolts. But what quickly

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Speaker 2: became apparent to them is that as soon as these

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Speaker 2: cars start trading for lower prices, they have to revalue

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Speaker 2: their own fleet. That's a process called depreciation and depreciation

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Speaker 2: occurs on the balance sheet, but the change has to

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Speaker 2: be run through the income statement, and so all of

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Speaker 2: a sudden they had these massive costs for depreciation that

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Speaker 2: they hadn't anticipated.

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Speaker 1: Some Hertz managers had warned Wagner, O'Hara and sure of

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Speaker 1: making such a large deal with Tesla because betting wrong

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Speaker 1: on models is a profit killer for car rental companies.

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Speaker 1: Now their concerns seemed validated, and Hertz was gradually scaling

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Speaker 1: down its fleet of evs. Eric, what has Hurtz's response

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Speaker 1: been to all of this.

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Speaker 2: Tom Wagner was willing to speak to me on the

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Speaker 2: record up to a point. What he did say on

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Speaker 2: the record, and this you'll find in the story, is

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Speaker 2: that he is still an optimist and believes very strongly

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Speaker 2: that it won't be too long, as he put it,

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Speaker 2: and you know, before we figure all this stuff out.

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Speaker 1: Hertz also said that it's focused on better aligning the

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Speaker 1: size of its EV fleet with customer demand.

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Speaker 2: You know, Hurts at the moment is kind of backtracking

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Speaker 2: more than kind of it's reversing course on the EV strategy.

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Speaker 2: It's really unclear whether this company is going to be

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Speaker 2: anything other than the rental car business it used to

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Speaker 2: be coming out of this experiment. And the stock price

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Speaker 2: that was twenty nine dollars in the IPO is now

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Speaker 2: trading for less than eight.

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Speaker 1: So how much did they lose on this bet?

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Speaker 2: Well, people might think that it's a gargantuan amount of

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Speaker 2: money because we had that five point nine billion dollar

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Speaker 2: price tag when they bought it out of bankruptcy. Let's

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Speaker 2: not forget these guys are pretty clever investors. They put

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Speaker 2: two billion dollars of equity to back that five point

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Speaker 2: nine billion dollar enterprise value, and then in the IPO

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Speaker 2: they sold four hundred and twenty million dollars of stock.

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Speaker 2: Remember a twenty nine dollars IPO, So they recovered or

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Speaker 2: recouped almost a quarter of their investment in the IPO.

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Speaker 2: The people who have really suffered are the public shareholders

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Speaker 2: of Hurts who have ridden that stock down from twenty

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Speaker 2: nine bucks to under eight.

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Speaker 1: Yeah, that can't feel good. And I mean, did everything

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Speaker 1: that Wagner and O'Hara had set out to do with

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Speaker 1: Hurtz fail? Did any of their strategy actually work?

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Speaker 2: It's really important to talk about some of this because

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Speaker 2: it's easy to look at Hurts and say what a debacle.

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Speaker 2: Stories are rarely that black and white. In this case,

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Speaker 2: at least two of the ideas that they had have

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Speaker 2: worked out well for Hurtz. This ride hailing business that

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Speaker 2: they developed, renting cars on a weekly basis to Uber

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Speaker 2: drivers is in fact going exceedingly well. And the Carvana deal,

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Speaker 2: that one that was supposed to recover more money when

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Speaker 2: the Hurtz cars get sold used is in fact working too.

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Speaker 1: But so interesting. There seems to be a couple of

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Speaker 1: ways to read the story. Either it's evs as a

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Speaker 1: business model don't work, or Hurtz failed to make EV's

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Speaker 1: work for their business model. It seems like maybe it's

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Speaker 1: a little bit of both.

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Speaker 2: I think it's a combination of the two. There's no

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Speaker 2: question that the world is electrifying. It's now electrifying more

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Speaker 2: slowly than it was in twenty twenty one. It seemed

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Speaker 2: like electrification was around the corner. But all the early

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Speaker 2: adopters have bought their Teslas and bought their evs from

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Speaker 2: other manufacturers, and so demand for new evs is slowing.

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Speaker 2: Evs haven't worked out, and we'll see if they do.

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Speaker 2: It might be that they never work out. It might

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Speaker 2: also be that these guys were just way too early.

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Speaker 1: In case you're wondering, my trip upstate ended up okay.

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Speaker 1: We made it to our campsite, charged the car in

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Speaker 1: the morning, and spent the rest of the trip finding

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Speaker 1: other places to charge. This is the Big Take from

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Speaker 1: Bloomberg News. I'm Sarah Holder. This episode was produced by

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Speaker 1: Adrianna Tapia. It was edited by Aaron Edwards and Danielle Sachs.

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Speaker 1: It was mixed by Ben O'Brien. It was factchecked by

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Speaker 1: Alex Sugiura. Our senior producer is Naomi Shaven. Elizabeth Ponso

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Speaker 1: is our senior editor. The Cold Beamster Borr is our

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Speaker 1: executive producer. Sage Bauman is our head of podcasts. Thanks

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Speaker 1: for listening. Please follow and review The Big Take wherever

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Speaker 1: you listen to podcasts. It helps new listeners find the show.

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Speaker 1: We'll be back tomorrow