A WSJ article chronicled how HTZ was struggling long before COVID‑19, including reference to its belated digital shift relative to peers and repeated missteps with regard to its digital strategy. This reportedly included adverse impacts on fleet management while it cycled through four CEOs in less than 10 years.
COVID‑19 is the catalyst that is exposing the differences between good digital transformations versus bad digital transformations. Though all rental car companies are in trouble, 1-Star-rated HTZ was both overly financially engineered and served as a case study in bad digital transformation, outlined in our January Alert and follow-on note after the March downgrade. These twin issues of poor financials and poorly executed digital transformation underpinned its persistently poor cyber governance. This helped make HTZ more vulnerable to the COVID‑19 disruptions that accelerated its decline towards last Friday’s bankruptcy filing.
Across all sectors, the management of technology and digital strategies a key factor in separating the outperformers from underperformers (like HTZ). Other high-profile failures J. Crew and Neiman Marcus also shared HTZ’s combination of weak financials and poorly executed digital strategies.
Cyberhedge rates companies based on cyber governance from 5-Star (best) to 1-Star (worst). We rated HTZ a 1-Star in January, two months before the COVID‑19 lockdowns. Since the lockdowns, 1-Star companies like HTZ are 3.5 times more likely to have a credit downgrade than 5-Star companies within the industrial sector peer group. HTZ experienced a downgrade in March prior to last week’s bankruptcy.
In other words, while COVID‑19 has presented all companies in the travel sector with similar demand destruction challenges, what could help explain the difference between the sector’s outperformers and underperformers? Digital technology.