Hertz’s Turnaround Potential and the Strategic Rationale Behind Pershing Square’s Stake

The automotive rental industry has long been a barometer for macroeconomic shifts, but Hertz Global Holdings (HTZ) has emerged as a case study in strategic reinvention. Under the stewardship of Pershing Square Capital Management, Hertz has embarked on a fleet optimization campaign that has not only curtailed losses but also positioned the company to capitalize on geopolitical tailwinds. With the Trump administration’s proposed tariffs on imported vehicles reshaping the cost landscape, Hertz’s asset-heavy model is now a focal point for value creation.

Fleet Optimization: A Blueprint for Depreciation Control

Hertz’s “Back-to-Basics Roadmap” has prioritized disciplined fleet management through its “Buy Right, Hold Right, Sell Right” initiative. According to a report by Hertz, this strategy has driven a 45% year-over-year reduction in vehicle depreciation, with first-quarter 2025 depreciation per unit (DPU) hitting $353—well below the $300 target [1]. The company’s ability to secure model-year 2025 vehicles at pre-tariff pricing has been pivotal, allowing it to avoid the steep cost increases anticipated under the proposed import tariffs.

Vehicle utilization has also improved, rising to 83% in Q2 2025, a 3% year-over-year increase [2]. This reflects a more precise alignment between fleet size and demand, reducing idle capacity and enhancing unit economics. Notably, Hertz’s pivot away from electric vehicles—particularly Tesla models, which contributed to a $2.9 billion loss in 2024—has further stabilized its asset base. Monthly depreciation per vehicle plummeted to $251 in 2025, a 58% decline compared to the previous year [2].

Tariff-Driven Asset Appreciation: A Tailwind for Hertz

The strategic timing of Hertz’s fleet rotation has positioned it to benefit from Trump’s proposed tariffs on imported vehicles. By replacing 80% of its core U.S. rental fleet with vehicles less than one year old, Hertz has insulated itself from the impending cost surge [1]. This proactive approach has already yielded tangible results: a marginal $1 million EBITDA profit in Q2 2025, defying expectations of deeper losses [1].

Analysts suggest that the tariffs could add up to $1.2 billion to Hertz’s auto assets by inflating the value of its used vehicle inventory [2]. As imported cars become pricier, Hertz’s fleet—largely composed of domestically produced or pre-tariff-purchased vehicles—will retain higher residual values. This dynamic aligns with Pershing Square’s investment thesis, which emphasizes exposure to businesses insulated from global trade volatility [3].

Pershing Square’s Strategic Rationale

Pershing Square’s $3.5 billion stake in Hertz is rooted in its conviction that the company’s asset base will appreciate in a protectionist trade environment. As stated by the firm in its Q1 2025 earnings report, Hertz’s liquidity—exceeding $1 billion—provides a buffer against short-term risks while enabling aggressive fleet optimization [3]. The fund’s broader strategy of investing in “trade-insulated” assets has found a natural fit in Hertz, whose fleet now serves as both a cost-efficient operational tool and a store of value amid tariff-driven inflation.

Risks and the Road Ahead

While Hertz’s turnaround appears well underway, challenges remain. The success of its strategy hinges on the durability of the Trump tariffs and the company’s ability to maintain disciplined fleet management. Additionally, the shift away from electric vehicles may limit long-term innovation, though Hertz argues that customer demand for conventional models currently outweighs the benefits of EVs.

For investors, the interplay between fleet optimization and tariff-driven asset appreciation presents a compelling case. Hertz’s ability to transform its fleet into a strategic asset—rather than a liability—has not only stabilized its balance sheet but also created a flywheel effect: lower depreciation, higher utilization, and a residual value boost from external macroeconomic forces.

Source:
[1] HERTZ REPORTS SIGNIFICANT PROGRESS TOWARDS ... [https://www.prnewswire.com/news-releases/hertz-reports-significant-progress-towards-key-milestones-for-first-quarter-2025-302452996.html]
[2] Hertz shares climb after smaller-than-expected Q2 loss [https://www.cbtnews.com/hertz-shares-climb-after-smaller-than-expected-q2-loss/]
[3] Pershing Square Holdings Ltd (LSE:PSH) Q1 2025 Earnings [https://finance.yahoo.com/news/pershing-square-holdings-ltd-lse-070433789.html]