Hertz 2007 Annual Report Download - page 53

program cars from us, we would sustain material losses, which could be as high as over $200 million,
upon disposition of those cars. A reduction in the number of program cars that we buy would reduce the
magnitude of this exposure, but it would simultaneously increase our exposure to residual value risk.
See ‘‘—We face risks related to decreased acquisition or disposition of cars through repurchase and
guaranteed depreciation programs.’’
Any default or reorganization of a manufacturer that has sold us program cars might also leave us with a
substantial unpaid claim against the manufacturer with respect to program cars that were sold and
returned to the car manufacturer but not paid for, or that were sold for less than their agreed repurchase
price or guaranteed value. For the year ended December 31, 2007, outstanding month-end receivables
for cars sold to manufacturers were as much as $954 million, with the highest amount for a single
manufacturer being $195 million owed by General Motors. A decline in the economic and business
prospects of car manufacturers, including any economic distress impacting the suppliers of car
components to manufacturers, could also cause manufacturers to raise the prices we pay for cars or
reduce their supply to us. In addition, events negatively affecting the car manufacturers could affect how
much we may borrow under our asset-backed financing. See ‘‘—Our reliance on asset-backed financing
to purchase cars subjects us to a number of risks, many of which are beyond our control.’’
We may not be successful in implementing our strategy of reducing operating costs and our cost
reduction initiatives may have other adverse consequences.
We are implementing initiatives to reduce our operating expenses. These initiatives include headcount
reductions, business process outsourcing, business process re-engineering and internal
reorganization, as well as other expense controls. We cannot assure you that we will be able to
implement our cost reduction initiatives successfully, or at all. For the year ended December 31, 2007,
we incurred $96.4 million of costs relating to our cost reduction initiatives, and we anticipate incurring
further expenses throughout the upcoming year, some of which may be material in the period in which
they are incurred.
Even if we are successful in our cost reduction initiatives, we may face other risks associated with our
plans, including declines in employee morale or the level of customer service we provide, the efficiency
of our operations or the effectiveness of our internal controls. Any of these risks could have a material
adverse impact on our results of operations, financial condition and cash flows. In addition, investors or
securities analysts who cover the common stock of Hertz Holdings may not agree with us that these
changes are beneficial, and our stock price may decline as a result.
Our business process outsourcing initiatives may increase our reliance on third-party contractors
and expose our business to harm upon the termination or disruption of our third-party contractor
relationships.
Our strategy to increase profitability by reducing our costs of operations includes the implementation of
business process outsourcing initiatives. As a result, our future operations may increasingly rely on third-
party outsourcing contractors to provide services that we currently perform internally. Any disruption,
termination, or substandard provision of these outsourced services could adversely affect our brand,
customer relationships, operating results and financial condition. Also, if a third-party outsourcing
contractor relationship is terminated, there is a risk that we may not be able to enter into a similar
agreement with an alternate provider in a timely manner or on terms that we consider favorable. In
addition, in the event a third-party outsourcing relationship is terminated and we are unavailable to
replace it, there is also a risk that we may no longer have the capabilities to perform these services
internally.
33