The recent decline in used car prices in the U.S. is hitting home hard for Hertz Global Holdings Inc.
Following a sharp decline in the National Automobile Dealers Association’s used-vehicle price index, the value of Hertz shares dropped 20 percent, according to Bloomberg. Hertz closed Monday at $17.25 on the New York Stock Exchange, it’s lowest closing price since April 2009.
The NADA’s index fell by 1.6 percent in February, despite experts’ estimations of a 1 percent increase, according to the organization’s website. This marks just the second time in roughly 20 years used car prices have dropped in February, and Ford and Ally Financial expect the trend to continue in March.
Investors reportedly consider Hertz to be more exposed to the decline in used car prices than rivals, such as Avis Budget Group Inc., as it’s currently is in the process of updating its fleet by unloading older vehicles.
“You have a long list of concerns and you can’t give them (Hertz) the benefit of the doubt,” Chris Agnew, analyst for MKM Partners LLC, told Bloomberg.
The rental company’s problems largely stem from the fact a significant portion of its fleet is comprised of “risk cars,” which means after a certain amount of time the manufacturers won’t buy them back, via Bloomberg. As a result, Hertz is forced to assume all of the financial risk associated with selling those vehicles on the second-hand market.
In the fourth fiscal quarter of 2016, the average depreciation rate across its entire fleet reportedly was 19 percent. That equates to a loss in value of $321 per car.
Thumbnail photo via Flickr/dhub limited
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