Monthly Archives: May 2020

Hertz bankruptcy a major road sign toward the future of cars and transportation

It was sad to see the oldest car rental institution in the world, Hertz, file for Chapter 11 bankruptcy on Friday, given the severe impact of COVID-19 on travel and the economy. But the story is a much bigger one — it reflects the difficulties of building a solid, profitable company in the car business with healthy cash reserves to survive a catastrophe; and it points to the fundamental changes in how people will be using cars, travel, and taking short rides in the city, in the years ahead.

I’d learned a lot about the car rental business and other elements of its supply chain — automaker fleet departments, airlines, hotels, travel management companies, reservation systems, and the used car remarking arm — as the editor of Auto Rental News; and later working with car rental industry expert and consultant Neil Abrams as the manager of his Abrams Travel Data Services business unit. Learning about the nuts and bolts of how car rental companies work gave me a wonderful education in economics, the auto industry, and the growing importance of travel to consumers and corporate executives — almost like an MBA. Automotive Digest Publisher Chuck Parker had served as the publisher of ARN, and encouraged me to take that publication where I wanted it to go — analyzing market data and offering readers a big-picture perspective on how all of this dynamic change would likely affect their future.

A Bloomberg article on the Hertz bankruptcy cited a ranking of top car rental companies that I put together for ARN in 1994. It ranked Enterprise its new No. 1 by fleet size and number of offices, bumping Hertz off its top spot for the first time. It was also during the time when Hertz’s advertising spokesman OJ Simpson was taken off his mantle and had his years-long contract with the auto rental giant taken away as his murder trial was scheduled. The 1990s also saw the beginning of company mergers and buyouts; and smaller car rental companies having to shut down and leave the business. The global economy was seeing similar trends with mergers and acquisitions taking center stage for automakers, airlines, hotels, media and entertainment companies, banking and investment firms, healthcare, and tech companies.

Over the next 20 years, we would see Enterprise purchase National and Alamo, Avis buy Budget and car sharing leader Zipcar, and Hertz buy Dollar and Thrifty. Hertz would take on Enterprise in the local market with its Hertz Local Edition division — offering replacement cars for repair and service, and weekend rentals to nearby residents who wanted a nice big vehicle to take a road trip. Hertz and Enterprise started car sharing units to compete with Zipcar and its parent Avis, along with Daimler’s car2go and General Motor’s Maven business units.

But what’s happened since then?

—Building a profitable business model continues to be tough:  Carl Icahn, a famous activist investor with plenty of holdings in the oil industry, could lose big with Hertz. Icahn, who owns nearly 40 percent of Hertz, is expected to lose his entire $1.5 billion investment if the company can’t survive its reorganization. Icahn had stepped in during 2014 to stabilize the company’s debt from its acquisition of the Dollar and Thrifty car rental competitors, and to take on competition from new modes of transportation led by Uber. Hertz had owed about $500 million in debt recently and had renegotiated a longer payment plan — given that it only had $1 billion in capital; but that payment was missed. The game is changing dramatically and COVID-19 isn’t at the root of it. It’s not the profitable model that major investors and stock market shareholders will need in the new economy. That’s the same for automakers, with Tesla going outside the norm as high-performing stock to own — unlike GM, Ford, and the other major manufacturers.

—Competitors like Enterprise, Avis, Uber, Lyft, and Zipcar, are preparing for a future with autonomous, shared, and electric rides.  That’s also the case for the two giant European car rental companies, Sixt and Europcar. But the car rental giants haven’t even started offering customers electric cars for rental. They might have a few hybrid models, but they have been sticking to the traditional vehicle choices. Hertz was set back by not getting enough SUVs into its fleet recently — as gasoline prices have stayed down and renters want to load up midsize-to-large crossovers and SUVs for long road trips. But that’s expected to change in the new decade as we emerge from the coronavirus, as environmental regulations take hold in North America, Europe, and Asia — meaning less gas-guzzling trucks and SUVs, and more electric cars and fuel-efficient vehicles. Consumers and fleets are starting to become more interested in owning EVs and taking shared, automated rides in autonomous shuttle buses. That will take a while to get a firm hold in the marketplace, but expectations are starting to change. Some analysts believe that COVID-19 is continuing to cause a series of changes in the general public’s priorities and expectations.

—Most companies in the global economy are dependent on steady revenue streams based on demand with very little in capital reserves — as well illustrated by Hertz.   When demand gets sidetracked for whatever reasons, there goes the company. Japan’s lean supply chain model has had a great deal of influence on all of it, but that was discredited in part by the 2011 nuclear power disaster — and its harsh impact on automakers around the world dependent on Japanese suppliers. Some countries like Japan are more willing to bail out their major corporations and keep their share. The US gave GM and Chrysler great deals with low-interest loans on their post-bankruptcy bailouts that were paid off. Will Hertz be able to find it from the Trump administration to emerge from BK in a stronger position?

—Hertz will have to save face on generous executive payments.  Hertz Global Holdings said today it has paid about $16.2 million in retention bonuses to a range of key executives. President and chief executive officer Paul Stone was paid $700,000, and executive vice president and chief financial officer Jamere Jackson $600,000 as retention bonuses, Hertz said in a filing to US regulators. That doesn’t look very good after laying off 10,000 of its employees in April. The business community and consumers do expect more from corporations these days — honest reporting, equity, treating employees respectfully, adopting sustainability practices, and supporting their local communities.

—Car rental holding companies are in a sound position for being leading players in the future of mobility.  They have the largest fleets in the world, historic brand names and public awareness, and infrastructures in place for serving airports and, especially for Enterprise and Hertz, serving local markets including much-needed replacement vehicles. What about adding EVs, autonomous shuttles, hourly rentals, and cheaper shared rides?

—Car rental companies are facing a serious turning point.  How will they compete in car sharing when those companies start to grow their audiences and car rental companies haven’t taken the segment very seriously? What about rental electric cars? It’s not happening yet. How do you compete with ride-hailing and ride-sharing giants out there in the global market? Consumers are changing their mobility methods and business travelers have been leaning in this direction too. COVID-19 and emerging from bankruptcy offer rare opportunities for stepping forward and doing the right thing.

China auto sales coming back, but US languishing for near-term future

China’s auto market grew in April, overcoming an early-year collapse triggered by the coronavirus shutdown — and ending a nearly two-year streak of sales declines that has shaken the world’s largest auto market. Before the coronavirus, China had been seeing an economic downturn following years of historic growth in new vehicle sales.

The market’s new energy vehicles also saw a turnaround during that month. China includes all electric, plug-in hybrid, and hydrogen fuel cell vehicles in these totals for passenger and commercial vehicles.

The Tesla Model 3’s sales in China fell over 64 percent last month compared with the previous month. That sales decline happened despite a 9.8 percent month-on-month increase in electric sales in China last month. The Model 3 did see very good months in the first quarter, bucking China’s trend in new vehicle sales plunging.

All of this is happening as the Covid-19 crisis impact has started softening in China’s economy and the world’s largest auto market. China’s recovery could be a good sign for the start of economic recovery that should slowly spread to the US.

But China’s leading auto trade group warns that the fight won’t be over — with sales expected to be down 15 percent overall versus the previous year. Much of that took place in the first quarter of this year, with sales improvements expected to continue for at least two more months.

US new vehicle sales volumes were down about 50 percent year over year in April. Car shoppers are staying out of dealerships during the pandemic — and that includes online sales. Tesla does have the advantage of getting its customers to go that route from its very beginning, with some analysts pointing to Tesla’s retail model as a sign of the future for competitors and their dealer networks.

Data on plug-in hybrid and battery electric vehicle sales in the US is very difficult to find these days, as the leading sources stopped publishing their reports last year and into this year. One analysis piece expects that EV sales will decline in the US for up to 12-to-18 months. A real double whammy has hit the market through the Covid-19 pandemic and drastically lower oil prices.

EV sales of course won’t be going away entirely in the US, and some automakers will continue to prioritize their lineups. Volvo Cars was pleased to announce that its Recharge lineup of plug-in models doubled in the first four months of this year from 7 percent of its sales to 14 percent. The company also reported seeing a nearly 44 percent drop in overall new sales last month.

Tesla chief Elon Musk was pleased to tell stakeholders at the company’s recent earnings call that the Model 3’s prices will be going down in China. That should help bring it back to competing with market leaders. BYD and Ford took the two top spots in China last month in EV sales, with the Model 3 coming in third.

Tesla wants to open up its third auto assembly plant in Germany, which appears to be going forward. For now, China will be a very important market to establish firm footing within. That’s the case for a few other major automakers that have put lots of capital into EV sales in China — including General Motors, Ford, and Volkswagen.

Renewable energy ready to grow, Fun activities to overcome cabin fever and boredom

Spain, one of many countries hit hard by Covid-19, is sending workers out to continue building up renewable energy to power its grid. Workers on the 500-megawatt Núñez de Balboa solar park have been wearing protective gear to finish installing the nearly 4 square miles of panels to supply power up to 250,000 people, becoming the largest in Europe.

That power grid is run by Iberdrola, a multination energy company based in Spain, but its one of many renewable energy projects continuing during the coronavirus crisis — even when oil prices have plunged downward. Fossil fuels make up a big chunk of power for the global energy grid; some countries may be adding it and taking advantage of the low cost, but renewables look like they’ll continue growing rapidly.

It’s a major trend to follow for those planning the future of energy used in generating electricity — along with fueling transportation. Opponents of adopting ambitious government mandates on bringing their country’s fleets over to electrified vehicles can point to the fact that natural gas, coal, and nuclear make up most of the power grid in the world — and that renewables like solar, wind, hydropower, and geothermal have a long way to go. Electric vehicle advocates lose some of their arguments made when the total lifecycle of the vehicles and their energy sources don’t clearly stand out from internal combustion engine vehicles — or from other alternative fuels.

As for growth, renewables have been the big winner in recent years, and that trend should continue. The International Renewable Energy Agency reports that between 2015 and 2019, renewable energy grew to make up 72 percent of of all new power generation last year. It outpaced nonrenewable energy during that time period.

The International Energy Agency (a separate agency from IREA) expects renewable power to grow by another 50 percent by 2024 with solar leading the way. The agency expects it to be the only energy source to grow this year, with fossil fuels taking a major hit because of decline in energy demands coming from the pandemic.

However, fossil fuels may also be coming up for a boost in energy consumption. Dan Jørgensen, Denmark’s minister for climate, energy and utilities, said he’s concerned that the recent dive in global oil prices might lead countries “that are built on an old-fashioned fossil economy” to see the transition to cleaner energy as unnecessary. It could be set aside in a few markets.

Jørgensen shared these perspective during IEA’s meeting last month with lawmakers and companies from around the world focusing on the role of renewable energy in the economic recovery expected to follow Covid-19. A common theme by speakers was not repeating the cycle following the 2008 financial crisis that had benefited suppliers of fossil fuels. Jørgensen said that the argument needs to be made that investing in renewables is a smart business strategy and not just an ideological choice.

The US has a long way to go in making this transition. The US Energy Information Administration reports that fossil fuels are by far the largest sources of energy for electricity generation. It’s led by natural gas, which made up about 38 percent of electricity generation in the US last year, followed by coal at 23 percent and petroleum at less than 1 percent. Nuclear powered 20 percent of US energy last year.

Renewable energy made up about 17 percent of electric power in the US last year. Hydropower plants made up about 7 percent of total US electricity generation during that time, with wind power making up that same share. Solar made up 2 percent and biomass was about 1 percent or energy in the US last year.

Hydropower plants using flowing water to spin a turbine connected to a generator — such as the Snake River providing Idaho’s energy. Wind turbines convert wind power into electricity. Photovoltaic (PV) and solar-thermal power are the two main types of solar electricity generation technologies being used in the US. As for biomass, that comes from steam-electric power plants that can convert gas that can be burned in steam generators, gas turbines, or internal combustion engine generators. Geothermal power plants contribute about a half of one percent of US power last year, and that comes from steam turbines.

Renewable energy made up a segment of US job creation efforts in the years following the Great Recession that struck in 2008. Advocates cite these projects and business startups that have thrived, and the contribution it’s making to reducing dependency on fossil fuels and to reducing carbon emissions.

From my blog:  Getting cabin fever? Looking forward to Covid-19 no longer running our lives? 
Along with taking all the social distancing and cleanliness guidelines suggested by the CDC seriously, it seems like a good idea to use the downtime for something good. My list of activities for your consideration to help get through the coronavirus includes watching the Oscar-winning Parasite. One way I could tell it was a great movie when a turn in the storyline happened, and I thought, ‘What the hell is going to happen now?’

Looking at advanced mobility in new publication: Automotive Digest Publisher Chuck Parker has a new publication called Fixes and Solutions geared toward automotive professionals looking out a the next wave of technology and industry changes — well beyond coronavirus. I just wrote a piece on the District of Columbia releasing a study examining four plausible scenarios on how autonomous vehicles could be adopted in the area. Economic growth and greater transport solutions for local communities are advantages, but new problems could arise from adoption of the technology. However, there is more I could write about. In fact, here are eight topics that will have to be considered as challenges to overcome and integrate before we all get to ride around in autonomous electric shuttle buses………. cyber security, Internet of Things, cloud computing, robotics, renewable energy, batteries, mobile devices, and 5G.

BYD and Hino commercial EVs:  BYD and Hino Motors have signed a strategic business alliance for collaborating on commercial battery electric vehicles development. The two companies will work together to develop the best-fit commercial BEVs for customers to achieve carbon reductions. Commercial fleet customers will be served, and BYD and Hino will cooperate in retail and other related business that will promote the adoption of BEVs. Hino’s director and senior managing officer Taketo Nakane said, “We are pleased with this collaboration aiming to realize commercial BEVs that are truly beneficial to customers both practically and economically. By bringing together BYD’s achievement in BEV development and Hino’s electrification technology and reliability built over years of experience in developing hybrid vehicles, we will develop the best-fit commercial BEV products for consumer in working towards swift market introduction.”