Hertz Says It’s in Talks With Two Carmakers to Lease Vehicles
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By Carol Wolf
May 6 (Bloomberg) -- Hertz Global Holdings Inc., the second-largest U.S. car-rental company, said it’s negotiating with two automakers to lease as much as 20 percent of its U.S. cars with the goal of cutting fleet financing costs.
“We would essentially lease fleet from the carmakers and it is on their balance sheet, not ours,” said Chief Executive Officer Mark Frissora in an interview yesterday, identifying the carmakers only as investment-grade companies, ruling out U.S. automakers. “Hertz wouldn’t take title of the vehicles.”
A lease deal this year would help replenish inventory and reduce the need for $5 billion in fleet financing next year without tapping credit markets that are currently closed to rental-car companies, Frissora said. It would be a first in the U.S. for Hertz, which has lease agreements in Germany and Switzerland.
“This would be a whole new world,” he said. “We don’t even need a balance sheet for financing our cars in Switzerland. The cost of financing isn’t burdened with the rental-car company.”
Hertz, based in Park Ridge, New Jersey, fell 10 cents to $8.35 at 9:30 a.m. in New York Stock Exchange composite trading. The stock had jumped 67 percent this year before today.
Last year, Hertz bought about 30 percent of its U.S. fleet from Ford Motor Co. and 25 percent from General Motors Corp., which is cutting costs to avoid bankruptcy. The rental-car company sold about 63 percent of its cars back to their manufacturers after six months to eight months, with the rest sold to the market. Hertz uses proceeds from car resales to pay back loans, which are primarily asset-backed securities.
Diversifying Fleet
Hertz is diversifying its fleet with cars from Toyota Motor Corp., Hyundai Motor Co. and Kia Motors Corp., Frissora said.
The leasing program in the U.S. would be one of several ways to reduce the fleet financing due in the second half of 2010, Frissora said. Others ways include running the fleet more efficiently and taking advantage of a government program designed to encourage car sales as the auto industry deals with losses.
“We want to have a couple billion dollars of the $5 billion in refinancing completed this year,” Frissora said.
Hertz had $7.64 billion in car assets on its balance sheet as of December. Almost all of that is financed through the credit markets currently, the executive said.
Vehicle financing “is the biggest piece of our assets that we finance at our company,” he said.
Investment Grade
Hertz’s first-quarter loss was wider than a year earlier as the global recession stifled business and leisure travel, reducing sales, the company said April 28.
Standard & Poor’s rates Hertz BB-, which is three levels below investment grade. The company is cutting fleet debt to ultimately become an investment-grade company, Frissora said, without providing a timeframe.
Nissan Motor Co., Toyota and Honda Motor Co. of Japan, and Hyundai and Kia of South Korea are all rated investment grade by S&P. GM, based in Detroit, and Ford, based in Dearborn, Michigan, are rated junk.
Lori Scholz, a spokeswoman for Hyundai’s U.S. unit in Fountain Valley, California, said the carmaker isn’t talking about a lease deal with Hertz.
Kia continues to do “standard” fleet business with Hertz, in which the rental company takes title of the vehicles it purchases, said Alex Fedorak, a company spokesman.
A lease agreement would have to come from investment-grade companies, Frissora said.
“They have to be investment grade to support that on their balance sheet,” he said. “There aren’t that many investment- grade carmakers today.”
To contact the reporter on this story: Carol Wolf in Washington at [email protected].
Last Updated: May 6, 2009 13:53 EDT
Share | Email | Print | A A A
By Carol Wolf
May 6 (Bloomberg) -- Hertz Global Holdings Inc., the second-largest U.S. car-rental company, said it’s negotiating with two automakers to lease as much as 20 percent of its U.S. cars with the goal of cutting fleet financing costs.
“We would essentially lease fleet from the carmakers and it is on their balance sheet, not ours,” said Chief Executive Officer Mark Frissora in an interview yesterday, identifying the carmakers only as investment-grade companies, ruling out U.S. automakers. “Hertz wouldn’t take title of the vehicles.”
A lease deal this year would help replenish inventory and reduce the need for $5 billion in fleet financing next year without tapping credit markets that are currently closed to rental-car companies, Frissora said. It would be a first in the U.S. for Hertz, which has lease agreements in Germany and Switzerland.
“This would be a whole new world,” he said. “We don’t even need a balance sheet for financing our cars in Switzerland. The cost of financing isn’t burdened with the rental-car company.”
Hertz, based in Park Ridge, New Jersey, fell 10 cents to $8.35 at 9:30 a.m. in New York Stock Exchange composite trading. The stock had jumped 67 percent this year before today.
Last year, Hertz bought about 30 percent of its U.S. fleet from Ford Motor Co. and 25 percent from General Motors Corp., which is cutting costs to avoid bankruptcy. The rental-car company sold about 63 percent of its cars back to their manufacturers after six months to eight months, with the rest sold to the market. Hertz uses proceeds from car resales to pay back loans, which are primarily asset-backed securities.
Diversifying Fleet
Hertz is diversifying its fleet with cars from Toyota Motor Corp., Hyundai Motor Co. and Kia Motors Corp., Frissora said.
The leasing program in the U.S. would be one of several ways to reduce the fleet financing due in the second half of 2010, Frissora said. Others ways include running the fleet more efficiently and taking advantage of a government program designed to encourage car sales as the auto industry deals with losses.
“We want to have a couple billion dollars of the $5 billion in refinancing completed this year,” Frissora said.
Hertz had $7.64 billion in car assets on its balance sheet as of December. Almost all of that is financed through the credit markets currently, the executive said.
Vehicle financing “is the biggest piece of our assets that we finance at our company,” he said.
Investment Grade
Hertz’s first-quarter loss was wider than a year earlier as the global recession stifled business and leisure travel, reducing sales, the company said April 28.
Standard & Poor’s rates Hertz BB-, which is three levels below investment grade. The company is cutting fleet debt to ultimately become an investment-grade company, Frissora said, without providing a timeframe.
Nissan Motor Co., Toyota and Honda Motor Co. of Japan, and Hyundai and Kia of South Korea are all rated investment grade by S&P. GM, based in Detroit, and Ford, based in Dearborn, Michigan, are rated junk.
Lori Scholz, a spokeswoman for Hyundai’s U.S. unit in Fountain Valley, California, said the carmaker isn’t talking about a lease deal with Hertz.
Kia continues to do “standard” fleet business with Hertz, in which the rental company takes title of the vehicles it purchases, said Alex Fedorak, a company spokesman.
A lease agreement would have to come from investment-grade companies, Frissora said.
“They have to be investment grade to support that on their balance sheet,” he said. “There aren’t that many investment- grade carmakers today.”
To contact the reporter on this story: Carol Wolf in Washington at [email protected].
Last Updated: May 6, 2009 13:53 EDT
