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New Hertz CEO faces tough drive out of ditch
December 14, 2016 / 6:07 PM / a year ago

New Hertz CEO faces tough drive out of ditch

NEW YORK (Reuters Breakingviews) - Hertz Global’s new chief executive faces a tough drive out of the ditch. Kathryn Marinello has a great résumé. The problem is that she’s the $2 billion rental-car outfit’s third boss in two years - and activist investor Carl Icahn is in the back seat, fidgeting with a 35 percent stake. Moreover, the company’s engine is sputtering, despite her predecessor’s attempts to get it firing more smoothly.

The logo of the American car rental company Hertz is seen at the Nantes-Atlantique airport in Bouguenais near Nantes, western France, April 7, 2016. REUTERS/Stephane Mahe/File Photo

The outgoing boss, John Tague, took over in late 2014 with Icahn’s backing. The former United Airlines executive’s overhaul included spinning off the equipment-rental division earlier this year.

His latest, and last, set of quarterly earnings was a wreck, though. Early last month, the company missed estimates for the third quarter by a country mile and cut full-year guidance by a third as it admitted it bought too many compact cars and hadn’t hit cost-cutting targets. In an ominous message for his successor, Tague told investors he had “underestimated the depth and the breadth and the complexity of the transformation” he had undertaken.

Marinello can draw upon an early career in banking, a decade running various General Electric businesses including auto-related financial units, and experience as a CEO. She also has a view into other parts of the car business as a board member of both General Motors and truck maker Volvo.

That should afford her some insight into the effects of new technology on the Hertz business, be that driverless cars, ride sharing or other developments. GM, after all, has a stake in and a car-rental agreement with ride-sharing upstart Lyft.

In an effort to get on the bandwagon, Tague struck agreements with both Lyft and market leader Uber over the summer. But Hertz’s woes show how app-driven rides and the sharing economy in general are undermining its traditional rental model.

The disruption has left Marinello with financial matters to deal with. Hertz’s debt ratio has increased to 4.8 times pruned estimates for this year’s EBITDA, according to Morgan Stanley. Rival Avis, by contrast, boasts a relatively safe 3.4 multiple.

Icahn expressed his support for the new CEO’s appointment. He liked Tague, too, however. Marinello’s journey could be a stressful one.


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