It's a fact that compact cars and sedans are not selling nearly as well as they did just a few years ago. Crossovers and SUVs have become exceedingly popular instead, and this effect is now being felt in rental car companies like Hertz. Bloomberg reports that Hertz has been eagerly selling off its fleet of sedans and compacts for the specific purpose of adding more CUVs and SUVs. At first this may sound like a good idea, but there's a problem: the market for used cars is already weak, and those former rental cars aren't bringing in much of a return.
Hertz CEO Kathryn Marinello is taking quite a risk with this move because shares in the company have gone down recently as a result of taking on more debut in order to finance those new CUV and SUV purchases. Hertz stock is at its lowest closing price since March 2009, and 2017 is going to be a pivotal year as to whether or not Marinello's plan proves effective. Basically, things will get worse in the short term in order for more profits in the long term. But if a big rental car company like Hertz is experiencing this kind of trouble, we'd figure its competitors are as well, to varying degrees.
Think about it. The last time you rented a car, more than likely you had your choice of either a sedan or compact economy car; SUVs and the like were typically much more expensive. But the fact of the matter is that Americans love to rent SUVs and CUVs about as much as they like to buy them. Hopefully Hertz will be successful here.