As we've said in a half dozen contexts over the years:
You can mess with depreciation for a while but eventually it catches up with you. Those under-depreciated assets sitting on the balance sheet are like bombs just waiting to go off."Always remember: In the short run balance sheets don't move stocks, in the long run they rule."
From Wolf Street, Nov. 9:
The Chilling Thing Hertz Just Said about the US Auto Boom
Icahn gets totally crushed by Hertz, goes for More Pain.
Hertz Global Holdings, the giant rental car company which also owns Dollar and Thrifty, got crushed on Tuesday, as is so often the case, by an otherwise boring accounting entry.As usual, see that spookily ahead-of-the-game-writer-on-salmon-colored-paper, October 2015:
Depreciation of its cars had to be adjusted. Depreciation of the rental fleet is a huge expense in the industry: for Hertz, 29% of its total expenses. Depreciation is supposed to bring the value of these cars down to what they can be sold for when they’re scratched and dented and have 37,000 miles on them. Depreciating the fleet just a little less aggressively would boost earnings for a little while and is a very tempting strategy.
But a few quarters later, when the cars have to be sold, reality comes home to roost.
This accounting entry also shows how ever so slowly the rug is being pulled out from under the booming auto industry.
Hertz shares plunged 52% in the morning to a low of $17.20. Then the company’s largest shareholder, Carl Icahn, stepped in with great fanfare and single-handedly worked a miracle. He’s got a lot on the line. He disclosed with his media-savvy fanfare in August 2014 that he’d acquired an 8.5% stake, which he since raised to nearly 16%....MORE
Do the economics of self-driving taxis actually make sense?
...Here, for example, are just a few of the problems we might easily undermine that vision:
- Depreciation. Cars don’t hold their value well for a plethora of reasons. For example, there’s mechanical and aesthetic wear and tear. There’s the fact they’re constantly being outdated by newer models and fashions. There’s essentialist contamination (would you want to own Jimmy Savile’s car?) which includes risk of exposure to internal spillage, food accidents, dog hairs, smoking habits, bad personal hygiene and all sorts. Renting vehicles out to strangers only increases these depreciation costs meaning the rental costs would have to more than compensate for depreciation and cleaning costs to make it worth anyone’s while....
Or...geez, I don't even remember anymore how many there were.