What are the implications and reasons behind such a big player reducing its fleet size, and is it an acknowledgement of a shaky future to come?

Assuming that Hertz will not be reducing the size of its fleet due to reduced client numbers, one major implication of such a move would be a lot of disappointed customers. This would be especially so for customers who are always used to getting a vehicle from Hertz every time they visit its rental office. Now the likelihood of getting one would have been reduced – don’t be surprised if psychologists of the world report increased airport rage! 

One major question that immediately springs to mind when you hear that Hertz is reducing the size of its fleet is where the unwanted cars will end up. Naturally, Hertz will not give the cars away to its loyal customers like Oprah Winfrey once did to her audience members. Most likely the cars will find themselves on the second hand car market

Depending on the numbers that will be offloaded, this is likely to have, for the consumer at least, a positive effect on the second-hand car market. For one, the resale values of some cars will go down especially those that Hertz favours. (Ford cars spring to mind). Hertz was once owned by Ford, so it is not a coincidence that most of the brands on the fleet are from the car giant.

For consumers of second-hand cars, this is of course good news because the vehicles will now be cheaper since the supply has increased. And with the global economy in stagnation, new car sales are not set to increase. This is made even worse by the rising fuel prices and as you know, even with the advent of bio-fuels and electric cars, most of the cars in the world run on the commodity that the Organisation of Petroleum Exporting Countries uses to hold the world at ransom. So the supply in the second hand car market will obviously outstrip the demand, leading to low prices.

For the Hertz corporation itself, the implications of such a move of reducing the size of their fleet are myriad. For one, the stock price is likely to fall because the first thing that comes to a shareholder’s mind when they hear that their company is reducing its fleet size (which, after all, is the firm’s lifeblood) is that in the future, profits are likely to reduce. While this may be or may not be true, a good number of the shareholders, especially the speculative type, will dump the stock and run for cover elsewhere.

Now the issue of either the profits of the car rental company going down or up immediately comes to mind. Will the profits go down? This is really arguable. For instance, if the fleet size that is being reduced is the economy category (that probably has the least returns compared to other categories) then probably the dent would not be that big. Actually the company’s strategy might be to shun green-thinking and reduce the low-end/small vehicles and concentrate on the upper end, bigger vehicles.

As you know, when the global travel economy is depressed, the low end category is the one that is worst hit since the people who spend in that bracket are likely to have cut back on non-basic needs like leisure travel. But the upper end of the market on the other hand is likely to be fairly unaffected by any global travel recession since these are people who are not likely to feel the pinch and therefore they spend as usual. Actually when you come to think of it, such a strategy is brilliant, not very green, but brilliant.

Still on the implications of Hertz reducing the fleet of their car rentals to the company itself, another one would be decreased maintenance costs for their fleet. Obviously when the fleet is small in number, the maintenance expenses are much lower than they would be when the fleet is large.

But even while exploring the implications of a fleet reduction by Hertz, it is important to consider what might have triggered such a decision. These days it is hard to listen to a business executive without the issue of rising fuel prices cropping up and how all this and other factors are conspiring to choke the life out of businesses.

When it comes to Hertz that could be true as well. With record-high oil prices, perhaps people are not driving as much anymore and so fewer vehicles are being hired which then means there is a lot of idle fleet. Given such an explanation you cannot blame the car rental company.

Besides the rising fuel prices, another reason would be the depressed travel market arising from a stagnant economy or recession which is arguable as well. This of course could be playing a big role in the fact that fewer people are travelling and therefore lower numbers are taking up rental cars.

Yet another very valid reason would be increased competition which could mean that Hertz has lost some market share to its rivals such as Avis, National, Dollar, Enterprise, Budget or even other up and coming green car rental companies and has therefore been forced to reduce its fleet size.

Sometimes in business, one unit of the one company might prove to be more profitable than another unit of the same company.

This forces the company to concentrate more on the profitable unit and slowly edge itself out of the unprofitable unit. This could be what Hertz is doing. It is a fact that Hertz has an equipment renting division as well as a truck renting division. It is also a fact that Hertz has a leisure business that could be said to be flourishing. For instance the deal for clients travelling with their kids who may rent a portable media player known as ‘Nick on the Go’ might mean that the company is making more money per rental for extra services in some categories and has therefore decided to reduce its fleet in the low profit categories.