In hindsight, it was inevitable. When two of your largest investors publicly declare they have lost faith in you, when your stock plunges against the strong performance of a major competitor, when your company is in the process of restating or revising earnings for three years after finding $46 million in accounting errors and will delay reporting 2014 first and second quarter earnings for the foreseeable future, yes, Mark Frissora, it looks like it was time to go.
Unlike the CEOs of Hertz’s competitors, Frissora was the very public face of Hertz. Just last week, he was surprising renters at Miami Airport with an exotic rental from the Dream Cars Collection. After only a couple of years in the car rental industry (moving from Tenneco in 2006), Frissora established himself as the industry’s most recognizable face. He headlined our Car Rental Show in 2012.
Is it fair that Frissora took the fall for Hertz’s series of missteps? After all, with a global company the size of Hertz, you’ve got a team of very smart people you must rely on for information. But whether Frissora took one for his team is not a question we’ll ever be enabled to answer. Besides, some key people are gone, including Elyse Douglas, Hertz’s former CFO, who started with the company in the same month as Frissora, and Scott Sider, Hertz’s group president of the Americas, who announced his retirement on Aug. 18. Sider started as a college intern at Hertz in the early ‘80s.
How did things snowball to this point? Again, this isn’t for us to know for sure.
You can look back to the protracted fight to get Dollar Thrifty, when people said Frissora’s job was on the line if it didn’t happen. Frissora ultimately got the brass ring, but at what price? Hertz almost made the deal at $41 a share, but ultimately bought at a whopping $87 a share. The deal might ultimately be worth it, but overpaying will put a lot more pressure on executing those expected synergies sooner than later. Delays in hitting those synergy milestones aren’t helping.
Not long after the Dollar Thrifty deal, Hertz said it was over-fleeted, in part because of Dollar Thrifty’s integration. Hertz decided to rent its excess fleet instead of selling those units into a seasonally weak used car market. In March, the company said it had moved past these problems. But recent auction activity shows that Hertz is still trying to unload 2012 and 2013 model-year vehicles with 50,000 to 80,000 miles (you heard correctly). You can blame the high number of recalls this year, but this isn’t the Recession. That’s not good news for a premium brand.
The notion that Hertz was under-depreciating its vehicles surfaced months ago, and it has now entered the public domain. It’s hard to fathom how a fleet could go under-depreciated for such a long period of time, but in this light, running the miles out so long starts to make sense. A great used car market will mask under-depreciation. But then again, everyone could see from years away the gentle deflation of the used car market to a period of historical normalcy. Hertz would’ve seen this as well as anyone.
During the Advantage spinoff and subsequent bankruptcy, not many people put much credence in Franchise Services of North America’s claim that it had no choice but to bankrupt Advantage because Hertz had overestimated the value of Advantage's fleet of 24,000 cars. We’ll leave that one alone.
To replace Frissora, Hertz shareholders are said to be courting Scott Thompson, erstwhile chairman and CEO of Dollar Thrifty, to come out of retirement to take the helm. Is this a good choice?
Thompson is a car guy, an expert at buying, selling and depreciating. He’s viewed as the rescuer of Dollar Thrifty when its stock teetered on the brink of delisting. Thompson is a great short-term pick, as quick turnaround guys such as Carl Icahn could maximize on the immediate stock gains.
Thompson may well be a great long-term pick, but remember that Dollar Thrifty’s business model was much more specific and mostly in North America. Hertz’s global fleet is six times the size, and Hertz is a globally diversified company with many more moving pieces. But at this point, Thompson as the choice is mere speculation. For that matter, it looks like investors want Roger Penske on the board.
So who does Hertz need as its new CEO? You talk to folks over a beer and they’ll say, with a smirk, that Hertz needs someone who knows how to depreciate cars.
I remember talking to old-time Hertz executives from the ‘60s. They called Hertz “the Fiefdom on Fifth Avenue,” and the department heads who reported to the CEO where called the “12 Disciples.” With Frissora at the helm, it felt like Hertz’s power was very much still concentrated in the CEO’s office.
Regardless of who is next on the throne, Hertz is due for a culture change at the top. To borrow a political analogy, Hertz does not need someone who believes in weapons of mass destruction whose underlings will inevitably find them. To prevent new problems from festering, Hertz needs a CEO with a collaborative, roll-up-your-sleeves whiteboard approach. Company culture can never be underestimated.
I admit, it’s easy for us armchair quarterbacks to tell a $12 billion company what it needs. But Hertz is in need right now. Frissora’s departure is the first step to put the problems of the past two years in the rearview mirror and move on.