Hertz 2009 Annual Report Download - page 49

ITEM 1A. RISK FACTORS (Continued)
for federal and state income tax liabilities. Our inability to obtain replacement financing as our debt
matures would likely result in an extended reduction in purchases or downsizing of the fleet. See ‘‘—Our
reliance on asset-backed financing to purchase cars subjects us to a number of risks, many of which are
beyond our control.’’
If we are unable to purchase adequate supplies of competitively priced cars or equipment and the
cost of the cars or equipment we purchase increases, our financial condition and results of
operations may be materially adversely affected.
Historically we have purchased more of the cars we rent from Ford than from any other automobile
manufacturer. However, our master supply and advertising agreement with Ford expires in 2010. We do
not expect to extend the master supply and advertising agreement with Ford beyond its current term and
to date, we have not entered into any long-term car supply arrangements with manufacturers other than
Ford.
In addition, certain car manufacturers, including Ford, have adopted strategies to de-emphasize sales to
the car rental industry, which they view as less profitable due to historical sales incentive and other
discount programs that tended to lower the average cost of cars for fleet purchasers such as us.
Furthermore, a number of the manufacturers that we purchase cars from have experienced financial
difficulties, such that their ability to continue to supply us with cars on competitive terms and conditions
has come into question. By way of an example, New General Motors, or ‘‘General Motors Company,’’
which required significant government assistance during 2009, manufactured approximately 17% of the
cars purchased for our U.S. car fleet and 11% of the cars purchased for our international fleet during
2009. In the event that General Motors Company, or any other manufacturer, were to cease
manufacturing and selling automobiles, we would have to increase the number of vehicles we purchase
from other manufacturers, or start purchasing vehicles from one or more manufacturers from which we
do not currently purchase vehicles. In addition, it is possible that a manufacturer experiencing financial
difficulties could attempt to increase the cost of the cars they sell to us. There can be no guarantee that,
in such a circumstance, we would be able to purchase a sufficient number of vehicles at purchase prices
similar to those for the vehicles we currently purchase, or at all. If we are not able to purchase sufficient
quantities of cars on competitive terms and conditions, or if a manufacturer from whom we purchase a
significant number of cars or equipment is unable to continuing supplying us with cars, then the cost of
the cars we purchase may increase. Reduced or limited supplies of equipment together with increased
prices are risks that we also face in our equipment rental business. If we are unable to pass on any
increased costs to our customers, our financial condition and results of operations may be materially
and adversely affected.
Declines in the value of the non-program cars in our fleet due to decreases in residual values could
adversely impact our financial condition and results of operations.
For the year ended December 31, 2009, approximately 53% of the cars purchased in our combined U.S.
and international car rental fleet were subject to repurchase by car manufacturers under contractual
repurchase or guaranteed depreciation programs. We pay more to purchase these ‘‘program cars’’, in
exchange for the car manufacturers agreeing to repurchase these cars at a specified price, or
guaranteeing the depreciation rate on the cars during a specified time period. While the repurchase
price and/or depreciation rate is typically subject to certain conditions, including the condition of the car,
mileage and holding period requirements, the use of program cars limits our risk that the market value of
a car at the time of its disposition will be less than its estimated residual value at such time.
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