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D’ye recall how Hertz went bust?

The value of used cars fell. The used car fleet they’d financed with bonds. The bonds had a clause in there meaning the capital value must be maintained – by cash movements from the company into the bond fund if necessary. Hertz didn;t have the cash, Hertz went bust.

Of course, when in Chapter 11 used car prices then rose so the equity became worth something again. But, you know……

A motor leasing giant chaired by the retail veteran Lord Stuart Rose is facing a debt crunch amid a slump in prices for second-hand electric cars.

Zenith Automotive, which is owned by private equity giant Bridgepoint, has been put on debt downgrade watch by the ratings agency Moody’s owing to concerns over its finances.

The Leeds-based group is one of Britain’s largest independent fleet managers, owning and managing more than 170,000 cars including electric vehicles (EVs) for companies such as Travis Perkins.

The recent plunge in EV prices has spooked Zenith’s bondholders over fears the group’s portfolio of vehicles will be worth less in future.

Hmmmm

Although Zenith has no need to refinance its debts and has around £100m of cash it can draw on, the group has borrowed around £1bn of loans and a further £475m of debt repayable to bond investors.

The issue has spooked bond markets, which have sent the price of Zenith’s debts down sharply in recent months.

The group’s £475m bond, a key indicator for the group’s health, has fallen to around 65p in the pound versus around 80p six months ago.

Depends on the terms of the bonds, no?

24 thoughts on “D’ye recall how Hertz went bust?”

  1. “The Leeds-based group is one of Britain’s largest independent fleet managers, owning and managing more than 170,000 cars including electric vehicles (EVs) for companies such as Travis Perkins.”

    The thing is that most of these aren’t proper company cars. Not as in, sales reps or service blokes driving around the country. Electric cars don’t suit that. It’s about the government tax break for company electric cars and some staff on 40% tax are giving up some salary to have a company car instead. These people wouldn’t be having the cars without the tax break.

    And I’m wondering… did no-one at this leasing company get this? That the thumb was on the scale at new, but after 3 years, it’s gone, and the resale price is going to be less than a regular car? 😉

  2. Person in Pictland

    “retail veteran Lord Stuart Rose” Don’t I remember him as boss of M & S?

    In particular, wasn’t he a rather unsuccessful boss? Or am I confusing him with the pill who used to run Tesco?

  3. Person in Pictland

    @Western B: do they get particularly good (i.e. subsidised) terms if their company car is an EV?

  4. It’s not the subsidies on EVs, it’s the tax on ICE:

    How BIK is calculated
    The total company car tax you pay depends on your annual salary.

    If you qualify for the 20% income tax bracket, you pay 20% of: the car’s P11D value multiplied by the appropriate BIK %. If you’re in a higher income tax bracket, you pay 40% or 45%.

    BIK on a small petrol company car is a shit deal, especially if you’re on not-shit wages. EVs are currently exempt from BIK.

  5. “It’s about the government tax break for company electric cars and some staff on 40% tax are giving up some salary to have a company car instead. These people wouldn’t be having the cars without the tax break.”

    The company car became a big thing in the 50s and 60s in North America mostly because of the stupidly high marginal income tax rates. The tax rates were lowered and suddenly the company car died as a universal perk.

  6. Person in Pictland

    Thanks, Steve. Should the absence of a tax count as a “subsidy”?

    Close but no cigar.

  7. “ And I’m wondering… did no-one at this leasing company get this?”

    Nobody in the car industry – except maybe Toyota – ‘got’ that the infrastructure for BEVs, from generating capacity, grid infrastructure to carry the load, number and position of charging points, repair/maintenance facilities was wholly insufficient – with no plans or resources to correct this. That the majority of car users are unable to charge at home, that the main competition – ICE – has features and price advantage which produced benefits BEVs lacked making BEVs uncompetitive on nearly every level, that BEVs were a ‘boutique’, niche market plaything.

    It is an instruction on the quality of todays’s managers.

    Meanwhile company executives are discovering that putting diversity, equity, inclusivity before selling things profitably to consumers, is fatally affecting company fortunes and antagonising shareholders.

  8. PiP – an udder thing is tax on petrol and diesel.

    53p per litre PLUS 20% is taking the piss, and it’s why EVs appear ~ competitive on running costs. If we paid similar taxes on electricity nobody would have an electric car.

    John – meanwhile company executives are discovering that putting diversity, equity, inclusivity before selling things profitably to consumers, is fatally affecting company fortunes and antagonising shareholders.

    They don’t give a fuck. Britain is the home of shit businesses, run by clowns. Yes, DEI is cancer that will kill the business (so will the “circular economy”), but it won’t personally affect anybody in the C suite. Worst case, they just move to another board and fuck up a different company after they’ve laid off all the UK staff in their current gig.

    British businesses are run by the kind of people who think Keir Starmer would make a good PM.

  9. BiND on Fehmarn. So far off the beaten track it isn't in the Rough Guide

    “ The company car became a big thing in the 50s and 60s in North America mostly because of the stupidly high marginal income tax rates. The tax rates were lowered and suddenly the company car died as a universal perk.”

    It became a big thing in the UK in the 70s to get round government wage controls. As they were tax free they quickly became popular not just as a tax efficient way to pay people but also as status symbols, hence lasting so long even after they were taxed.

  10. “It is an instruction on the quality of todays’s managers”

    Back in antediluvian times my father used to declare that the people who run large companies could almost never be classed as businessmen.

    I’m amused that Mr Strimmer, Shadow Minister for Open Spaces and Grassy Verges, is so ashamed that his father was a successful small businessman (while coping with a grievously ill wife and a brood of children) that he tries to suppress the fact. “He was a toolmaker” he declares. Presumably that’s where he started but it’s not where he ended up. Good for Rodney Strimmer, say I, and a pox on his son, the Human Rights lawyer.

    (Afterthought: how do you run a small business when the house is full of children and your wife suffers from a serious chronic illness? I don’t suppose Rodney hired what the Americans call “help” did he? Who knows?)

  11. Steve
    BIK on a small petrol company car is a shit deal, especially if you’re on not-shit wages. EVs are currently exempt from BIK
    Just ordered my new EV company car for that precise reason. Company will even put in the charging for free an’ all.
    Wife has a gas guzzler for when we want to actually drive any real distance.

  12. The Meissen Bison

    BiND on the Insel Fehmarn: if you’re planning to work your way round the Lübeck bay and onto Lübeck itself, stop for Kaffee & Kuchen at Niederegger and try the Nußtorte.

  13. dearieme,

    “Back in antediluvian times my father used to declare that the people who run large companies could almost never be classed as businessmen.”

    Few of them have built a business and are mostly very good administrators. Often, they were in the right place at the right time. You see this when opportunity or disruption arrives and how often businesses fail to respond. Even things that are really obvious like digital music.

  14. Leaving aside the tax treatment, the other obvious problem is that new EVs tend to have better range than used ones. The 150mi-range used cars will need to sell at a sharp discount to compete against the 300mi+ new cars.

  15. TMB,

    Thanks for the tip, Lübeck is our plan for tomorrow or Wednesday and we’re halfway there already. fehmarn

    I see from a Google search it’s a chain so will definitely give one of the, a go, perhaps in Travemunde although Mrs BiND likes the look of the Arkadencafé building.

  16. The Meissen Bison

    The Travemünde branch is a new one to me but the original one is the one to go for in Lübeck itself: shop downstairs, café upstairs. The town is well worth an afternoon’s trundling around with its many spires depicted on the Niederegger logo and the Holstentor which you might recognise from the DM50 banknote.

  17. So basically they took out a load of loans using a choc ice as collateral.

    Then when the lenders saw that the borrower was holding nothing but a load of molten goo running down his arm, they were somewhat alarmed and demanded something useful as collateral instead.

  18. Jimmers – makes sense, right?

    Otherwise you’d be paying a whack of cash to Jeremy Hunt every month for a car you’ll never own.

    My wife loves EVs because they’re so easy to drive.

  19. The Meissen Bison

    My wife loves EVs because they’re so easy to drive.

    Does she have a view on how the Ukraine incursion might best be resolved?

  20. How the electric company car scheme works

    Car has a list price of £60k, leasing co gets it for £50k but charges end-user company £60k.
    End-user company gets a 100% write-down against copt tax in year 1 for electric cars bought or leased, at 20% corp tax saved, that’s £12k straight away, which would be used as the deposit.
    The moment that the car is delivered, leasing co already has £22k paid on a £60k car.

    End user pays £600/mo via salary sacrifice. At 42% marginal tax rate, that’s effectively £348/mo There’s also a 2% BiK on the P11D value of the car, i.e. £60k, so 40% x 2% x £60k = £480pa or £40/mo. Let’s round it up to £400/mo all-in to make it a round figure. Compare that to what you could get for £400/mo and nothing up front as a regular private punter and it’s a good deal.

    For the leasing co, they’ve got £38k to finance. At 6% that’s £2280 pa. Income is £7200 pa, so they’re paying off about £20k of that £38k over 4 years.

    If leasing co can sell a 4-year-old car that was £60k (list) new for £18k — maybe £19k to cover some overheads — then they’ve broken even. If they can’t then they’re buggered. Given the prices of 2-3 year old electric cars on Autotrader, I’m going to go with buggered.

  21. To add to ^…

    Normally assuming that a 4-year-old car in good condition with non-spaceship mileage will retain 40% of its list price would be a certain bet. The second-hand electric car market was reasonable* in 2018-21, but very thin. The leasing companies assumed that it would remain as buoyant with larger volumes, and it appears that they might not have called that one correctly.

    *apart from the Nissan Leaf and Renault Zoe where they had the genius idea of not cooling the batteries so that they degraded like $metaphor_of_choice

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