Car rental firm Hertz is latest victim of auto recalls

(Reuters) - While an improving U.S. economy has helped rev up demand for car rentals, the rental companies have found themselves short of vehicles due to the slew of recalls by car manufacturers this year.

The latest casualty was Hertz Global Holdings Inc, whose stock slumped 13 percent on Wednesday after the company withdrew its full-year financial forecast, blaming a shortage of cars due to the recalls and costs associated with an accounting error.

"... They (Hertz) weren't able to get the benefit of a strengthening market because they simply didn't have the cars," Michael Millman of Millman Research Associates told Reuters.

Millman said the shortage was compounded by the fact that Hertz has a lot of contracted business that gets priority on available cars.

Hertz, Avis Budget Group Inc and market leader Enterprise Rent-A-Car control about 90 percent of the U.S. car rental market.

The recalls have hurt business. And more so Hertz, than Avis, since cars made by General Motors Co account for a bigger portion of its fleet.

GM cars comprise nearly 28 percent of Hertz's U.S. fleet, compared with 19 percent for Avis. GM, the No.1 U.S. automaker, has recalled millions of cars this year, most notably for a deadly ignition-switch flaw.

Companies such as Ford Motor Co and Honda Motor Co have also recalled vehicles in the United States this year.

"Record levels of vehicle recalls hit Hertz harder than peer Avis Budget," MKM Partners managing director Christopher Agnew wrote in a note.

Avis had nearly 125,000 cars, or about one-third of its fleet, recalled till July 31 and has said costs associated with the recalls were expected to affect current-quarter results.

"Some cars have been grounded for literally months because of an inability to get parts," Avis Chief Executive Ron Nelson said in a post-earnings conference call earlier this month.

Hertz on Tuesday said it expects 2014 results to be "well below" its previous forecast due to the recalls and costs related to correcting financial results to fix accounting errors originating in 2011. (http://1.usa.gov/YwpVmG)

"Sounds like (CEO Mark) Frissora is doing a horrific job and we would not be surprised to see shareholders want to get a new CEO," said a Hertz investor, who declined to be named.

The investor said Frissora, who moved the company's headquarters to Florida last year, had done a poor job in integrating the Dollar Thrifty acquisition from 2012.

"You don't move to Florida to save personal taxes after you just buy a company like Dollar Thrifty," the investor said.

J.P. Morgan Securities cut its rating on Hertz's stock to "neutral" from "overweight" and its target price by $7 to $25.

Deutsche Bank downgraded the stock to "hold" from "buy".

Hertz's shares were down nearly 10 percent at $28.44, while Avis was slightly lower at $68.72 in afternoon trading.

(Additional reporting by Ankit Ajmera in Bangalore; Editing by Savio D'Souza and Maju Samuel)

WhatsAppFacebookTwitterLinkedinBeloudBluesky