Ryan Brinkman: I heard in the prepared remarks that like in 2022, you expect to be agile in ’23 in allocating capital between capital spending, share repurchases and other initiatives. First, maybe just other initiatives, what is this? This is spending apart from CapEx? Is it acquisition? What are the other initiatives? And then what are the current priorities in that hierarchy for capital spending? And then what would you say are like the major factors that would cause you to allocate capital differently to remain agile as 2023 plays out in your share price, interest rates, travel trends? Or what should we be thinking about?
Stephen Scherr: Well, I think the truth is you listed them all out. I mean the fact is that capital allocation sort of comes in what I would describe as sort of three categories, okay? We look at fleet, we look at non-fleet and we look at the opportunity to engage in share repurchase, okay? And we probably look at them in that order with the ability to sort of play in all three, okay? We’ve talked a lot about fleet and how we think about it. We maintain a level of control around fleet relative to demand, and we’re looking to sort of optimize the return on that in terms of the amount of money that we put against it, okay? On non-fleet, we will continue to invest in the fundamental sort of foundational elements of the company so that we can execute effectively in our core business and around growth initiatives.
It means technology, it means human capital. It means putting tools in the hands of our employees — and all of that equally is accretive to us the way in which the business is run and then we look at where share repurchase otherwise sits. When I speak about other initiatives, there are small immaterial opportunities for us, for example, to look at certain franchises that were sold, okay, during bankruptcy, which I think in the better light of day, we sooner own than have as a franchise. These are mostly U.S.-based opportunities. And the ability to potentially buy in one or two of those. Again, I want to be crystal clear. These are immaterial. They are very small. They’d be in the category of bolt-on acquisitions, but they would prove to be accretive to sort of the performance of the company overall.
We will look at those as and when they present themselves, but that won’t be realized from kind of what we’re looking at in terms of fleet and non-fleet and again, what we do in terms of share repurchase itself.
Ryan Brinkman: And then just last one for me. What is the very latest in terms of what you’re thinking in terms of the implications of the inflation Reduction Act on commercial EV purchases and the potential impact to Hertz.
Stephen Scherr: Well, I think we’re still in a mind that, again, separate out what the provisions that were for individuals, okay, as opposed to provisions that were guided towards us because they were two separate pieces of the legislation. As it relates to us, we still view ourselves as being in a position to benefit from the tax credits. There’s still sort of elements of that and rulemaking that will need to go on, the devil will inevitably be in the detail, but we view that benefit as being consequential to us on forward EV purchases. There have been some changes on the individual sort of purchase side where classifications of certain cars have opened up and the like. But as it relates to Hertz proper were of no different view about the benefit of that tax credit that will play to us in the forward sort of acquisition of EVs.
Operator: Our next question comes from the line of Christopher Stathoulopoulos with SIG.
Christopher Stathoulopoulos: Stephen, could you elaborate on your comments around the sharp reversal in price declines of used vehicles in your prepared comments. I know you subsequently touched on that, but any more color there, the drivers, your view of the current market and your thoughts on that into the spring? And then I have a follow-up.
Stephen Scherr: Yes, of course. So in — I want to say, in each of the last four or five weeks, we have seen a tick up in the residual value of cars as computed by Manheim and other indices, okay? It’s important to recognize that there’s a general pool of cars that they look at and then there is a fleet view, which is obviously more relevant to us. Both have been up, but we obviously watch sort of where we are. And that has been obviously beneficial in the context of how we think about the overall performance of the company and what we think we can do in terms of the movement of cars and gain that we can capture as against that. As for the factors that are guiding it, I would say that new cars remain elevated in price and at a premium in terms of availability.
And I think that coming out of kind of a trough period for purchase I think people who are in need of cars are coming to the recognition that a new car, if available, is still at an elevated price point and they’re otherwise coming back to the used car market as a source for buying a car. And so I think this is a little bit of the dynamic as to where the OEMs are forecasting sort of opportunities, the price that they’re holding and what that means in terms of people coming back into the used car market as a source of a vehicle for them to buy. But it’s been fairly consistent in the context of the first four or five weeks of the year.
Kenny Cheung: Yes. I’ll add two things. I think not only have we seen the week-over-week increases, as Stephen mentioned, we’re — we also see retention. They’re actually holding those prices as well, which bodes well for future indication. And then we’re also coming up spring break in March, April time frame, which is seasonality, one of the strongest moments for used car sales.
Christopher Stathoulopoulos: And my follow-up. So I’m curious, — as it relates to the airlines, obviously, the airport business, given the challenge the airlines have been having and will likely continue to have with respect to capacity and their ability to handle harsh weather versus what’s been an ongoing momentum in demand recovery. Is that dynamic at all reflected in your outlook? I know that you spoke to some pressure on the top line and perhaps some costs, I believe it was with the BOM cycle in December. And this sort of this dynamic persists. Is that contemplated and how you’re thinking about the guidance or your business going forward?
Stephen Scherr: Yes. Well, I think the reference we made and that you just made now, just sort of Christmas, I think, is pretty telling in that what we would have lost because you obviously experienced cancellations to the extent that there are airline cancellations as a customer doesn’t arrive, we saw a meaningful pickup in one-way rentals, as I had mentioned. And those come kind of with the benefit of being at a higher rate. And then equally, they repositioned cars from areas where we need them less to where we need them more and to avoid spending a couple of thousand dollars on the transportation of a car, that’s a benefit. And so there’s a wash, if not a positive benefit to that, not that we wish the circumstances that played out in Christmas to happen, but I think we are positioned to be able to respond to it.
Now the way we respond to it is a little bit of a function of what I said in response to the question earlier about the business performing better. We have a better insight into pricing. We have a better insight into how we manage the fleet. All of that are elements that enable us to be very quick and very responsive to sort of changing circumstances in travel. I would also point out that there are very few car rental companies that can respond to what we saw in Christmas relative to Hertz. Now there are other majors that can but there are a myriad of smaller players that are not in a position to put their customers in one-way rentals in the way in which we can. And I think that’s a very big deal to the extent that customers are going to be anxious about disruption to airline travel, they will know that if they’re in a Hertz, if they are in a Hertz rental that we’re going to be in a position to serve them no matter where they get rerouted or how they want to get to where they get to.
That’s a competitive edge for us relative to smaller niche players in the rental car industry. And I think when it’s tough, you want to be able to sort of rely on a company to deliver and we did in Christmas, and we will should those disruptions sort of happen again.
Operator: This concludes today’s question-and-answer session. I’d now like to hand the call back to Stephen Scherr, Chief Executive Officer. Please go ahead.
Stephen Scherr: So thank you all for your participation today. We look forward to sharing further updates with you all certainly on our next call, if not before. And with that, I’ll turn it back to the operator.
Operator: This concludes the Hertz Global Holdings Fourth Quarter 2022 Earnings Conference Call. Thank you for your participation.
