Stephen M. Scherr: Hey Adam, let me take it first, and then I’ll pass it to Justin. The fleet plan that we have for 2024 is to meaningfully reduce the age of the fleet. I mean by several hundred basis points in terms of the percentage of cars that ultimately will be 50,000 miles or older. So that’s the path that we are on in the context of the first part of your question be about the transition. The second is that we do have homes for cars that are not otherwise being rented to premium customers. So for example, growth in Dollar and TNC, I’m not suggesting that these are cars that wouldn’t want to be rented, but these are older cars that have homes for them. And I think that’s an important sort of element to think about in the context of a comparison to others, where our Rideshare business is not sort of common to the others that are in it.
But the fleet in our current fleet plan is meant to become — or meant to be rendered appreciably younger, both in age and miles. And I’ll ask Justin to finish up on your question.
Justin Keppy: Yes, just to expand a bit upon that, too. The other positive thing as we look to our fleet plan for 2024, we’re noticing a transition with our becoming more of a buyer’s market than a seller’s market that we experienced with the OEMs over the past couple of years. Already in Europe, we’re seeing program cars that are at very favorable rates to what we’ve experienced in 2023 and earlier. And it enables us to take good actions with the refresh in the fleet that Stephen otherwise outlined.
Stephen M. Scherr: Adam, I’d also say that, obviously, in rendering your fleet younger, it is one-part buy and one-part sell. And I wouldn’t take the comment lightly in the context of our access, unlike others, to a proprietary retail network and Carvana and others like them, in part because in a declining residual market the delta historically between wholesale and that retail can be 10% or greater. And so the ability for us within the balance of what we’re trying to do in a transitional year, to dispose off fleet at prices that are not necessarily reflected in what you see in indices that track wholesale auction will be a benefit to us in the context of managing the financial element of this kind of fleet rotation.
Adam Jonas: Okay, thanks Steve. We’ll follow up on the mileage later if you didn’t want to provide it.
Operator: Thank you. One moment please. Our next question comes from the line of John Healy of Northcoast Research. Your line is open.
John Healy: Thank you. Stephen, I wanted to get a couple of big picture questions into you. Obviously, a lot of time spent this morning on EV. But can we talk about EV and ride hailing together, obviously, two businesses that are kind of newer to the company over the last five years. As you look at these businesses, does maybe the hypothesis or the penciling out of the potential need to be longer term revisited just from what you’re learning because I think there was an expectation that EV and ride hailing could be actually margin accretive type businesses. I’m curious to know now that you’ve been in them, if you agree with kind of the longer-term economics and potential of those businesses, or is this the sign that maybe it penciled out on Excel, but in reality, just these businesses are just different than we thought. So I’d love to get your thoughts there?
Stephen M. Scherr: No, that’s an excellent question. I would say the following. I think the long-term proposition around that business is a good one. I think that it’s not to be ignored that against the financial model, if you will, at the time that Hertz entered this when it came out of bankruptcy, a number of things have happened, not least of which is the deployment of Tesla has become a more expensive proposition because when the MSRP came down, the residual came down, and the depreciation went up. And obviously, the experience around damage has been elevated. So if you think about your revenue intake and you deduct your cost of the car, largely depreciation, you deduct damage and then you look at other expenses, it yields a positive margin, but not near that, which it had initially — or we had initially intended it to do.
So we need to rotate the sort of cars in there, and we have obviously reduced down the number of EVs that are in there. And the forward will be deployment of less expensive cars, which will render that business more profitable. The other thing I will say to you is that this business for drivers that are in our car for an extended period of weeks. So in other words, when you get past four weeks or five weeks of a driver in that car, the economics are very attractive, meaning you need to get through the initial underwriting of the driver, and some experience of that driver in the car. Because when you get that combination of a well underwritten driver and a driver that has experience, the margins on that car are very attractive in part because the maintenance and the turn goes down, the driver is keeping the car an extended period just as the model held.
The damage level is low because the incident level is low because the driver is experienced in the context of the EV, perhaps they hadn’t been at the start. So the real challenge is to get by. If you will, the cost of acquisition on the driver because the margin on the longer-term driver is very, very attractive. And you should assume that we are working with Uber and Lyft and others to sort of overcome that issue. And so I know that’s a little bit more than sort of a yes or no answer, but it is a finesse business model, and I think it works. I think we were thrown a curve relative to sort of how it modeled out from the start, but I think that’s the direction we’re going. And I think that’s an attractive business as a general matter, but we need to work through that underwriting segment of it.
John Healy: Thank you. And just a quick follow-up question for me, when you guys talked about the $250 million cost on EV being recovered over two years and then the $250 million of cost benefit this year, how much of that EV item do you think we recovered this year? And when you talk about those cost items, is that flow through for 2024 or is that like a run rate number, how do we parse what we actually might see kind of in the results this year? Thanks.
Stephen M. Scherr: Sure. So I would say on the $250 million of EBITDA recapture over two years in the aggregate, I mean, roughly speaking, I would say it’s 50-50, over 2024 and then 2025 and then obviously runs, okay, as a permanent fixture in our overall EBITDA production. On the separate $250 million of cost out that Justin was referring to, you should view that as cost coming out and materializing in 2024 and to carry forward on a run rate basis as we move. Again, that’s a byproduct of both productivity and cost.
John Healy: Great, thank you.
Operator: Thank you. One moment please. Our next question comes from the line of Stephanie Moore of Jefferies. Your line is open.
Stephanie Moore: Oh, yes, sorry, good morning. Thank you.
Alexandra Brooks: Hi Stephanie.
Stephanie Moore: Hey Stephen. There’s a good number of moving pieces here that you kind of went through on the call here. So Stephen, I know you said in the past that you expected to achieve EBITDA growth in 2024. But given the current dynamics and — but also your own cost reduction programs, is this still the case?
Stephen M. Scherr: Well, I think EBITDA in 2024 will show to be higher than what we produced in 2023, taking account of the EV charge that was otherwise taken in Q4. So I think we’ll see a higher level of EBITDA production in 2024 relative to the reported number in 2023.
Stephanie Moore: Okay. No, perfect. That’s helpful. And then as you think about the cadence of these initiatives, again, these kind of major cost savings, when should we expect to start to see those materialize in 2024, how quickly can these headwinds that we certainly saw in 2023 can start to be offset. I mean, is this more of a second half 2024 or just any kind of color on the cadence throughout 2024 would be helpful? thanks.
Stephen M. Scherr: Well, I think on the EVs, obviously, they are being sold out now, much as the depreciation has been stopped on those cars. So depreciation should fall pretty quickly in the context of that zeroing out on the chart itself. Obviously, the cost will be reduced down as progress is made on the sale of the 20,000 vehicles, which is running at pace. And we’re obviously quite incented to see that happen quicker than longer. Maybe I’ll ask Justin to comment on kind of the pace and when you’ll see some earlier, some later in the context of the categories he’s focused on.
Justin Keppy: Sure. Assuming just the cost out on budget reductions or third-party spend, we’ve enacted those already. So we’re going to see the benefit of those starting here in Q1, which will run rate through the entire year. Some of the other items will take a bit more time just to get in place as well as roll out across the broader network. So we will see a bit of a ramp as the year goes through. But that’s natural with any cost reduction program as you implement, you see the benefits compound in the back half of the year.
Stephanie Moore: Got it. And then just one kind of — related question. I think we saw that Tesla announced a pretty major recall here in the last couple of weeks. Can you just kind of walk us through what that impact could be on your business?
Stephen M. Scherr: Well, I think you should always assume that we obviously follow all of the recalls and make sure that we comply with necessary rules and laws as it relates to that with respect to the rental car industry. I would say on the recalls, at least in the past with Tesla, they’ve been over the air recall, so software adjustments that have been made. And so it is easier to execute on those recalls. But that’s largely how we’re dealing with all of them.
