Hertz is Hurting

Rental car company may be in financial trouble.
5:54 | 08/20/14

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Transcript for Hertz is Hurting
I'm Bonnie and -- in Washington as the New York financial markets close on Wednesday August -- if this is story stock. Today a closer look at the Hertz rental car company it sputtering on two fronts dented by the cost of all those car recalls. Combined with a highly publicized review of the company's financial results. And here to discuss the recent hurts -- is Mike -- toll of Yahoo! finance thanks for joining us Mike. -- thanks. So first of -- how have the car company recalls managed to hurt hurts what exactly is the problem. What -- basically blames the recalls on the fact that they often did not have cars available for people wanted to -- them. So essentially they couldn't honors many reservations -- could take as many reservations. As customers might have wanted. -- -- obviously the cooperating with the recalls but it's a big logistical issue. To essentially comply with those recalls get those repairs done and still have enough cars in the lot so essentially this is probably the secondary point in -- -- bad news release of yesterday but it was something that dampened demand. And sort of compressed revenue at a time when they had all these other accounting related issues also going wrong. Summer is fast car recalls are -- challenge what else is damaging the company's bottom line. Well first of all the company has not. Released formal first and second quarter financial results. Because they're doing an ongoing review of the company's accounting policies and he basically say they couldn't rely on this past results of a essentially having a kind of a top to bottom audit. Of their their books internally not by by outside authorities but basically they're saying they can't really -- give investors guidance for the remainder of this year. What their profits and revenues are going to look like -- withdrew -- guidance and essentially saying we're -- square when we have to figure out exactly what we have. Final point is that the company was in the process of preparing to separate its equipment leasing business centrally spin that off. That process has been potentially delayed is well on that was something -- a lot of folks on Wall Street we're anticipating as a positive catalyst for the company. An examination. Hurts his books is sound certainly -- -- quite a serious manner. Is so can you talk a little bit more about that how that all camp to be. Well it's essentially we really don't know indeed -- specifically what. Accounting policies or procedures were not up to snuff so essentially this probably came in the course of an examining the books from past years there was also will say one of the -- directors and the the executive in charge of the rental car group also retired from the company. -- in the process here so we probably are not privy to all the details of what happened nobody is really saying it's anything in the matter of -- wrongdoing or anything like that just yet but it does seem as if the company had to essentially rethink its accounting treatment of things and I will say. Here's the interesting part the company the stock was down substantially close to 10% or more most of the day and kill. Just the past the last half hour of trading the activist investor Carl Icahn disclosed that he has built up an 8% interest in -- potentially even just today. And the stock started to bounce from there have this losses of earlier in the day so people essentially your saying an icon a seemingly sank. There's value here in the business we think it's mismanaged we're gonna buy a piece of it and try to get it figured out perhaps just with with stressing some other strategic. Moves down the road -- who knows maybe -- management. And you mentioned there -- -- -- can you take us through the two day chart and it tells how street is reacting. Yes this the stock actually had been on a high -- -- rebounded strongly. From August from an August decline he saved the news came out well before trading started today. Dropped immediately from the mid thirties thirty -- down to 28 dollars a share. Kind of hung around there all day trending slightly higher -- alas we'll spurt higher. Is on the news that the tape the Carl Icahn took an interest in -- by the way Carl Icahn is now. Active on Twitter he also tweeted out the fact that he filed formal papers saying that he owns an interest in -- So is there anything that hurts can do -- -- little gas back in its -- Well they can obviously get the book straight that's number one they're gonna have to probably. Listen to what mr. Icahn has to say if he has in the ideas about how to run the visit better some people were out there were saying you know. That is that the CEO of the to step down the stock will go to 32 right away so who knows exactly what they can do it's really not at this point. A matter of the business it's not as if the brand is broken it's not as if they're not all the right places to capitalize on a decent travel market clearly it's about -- -- -- having integrated some acquisitions down the road that's one of the other issues they have been. Kind of growing by acquisition they bought other brands those have not been integrated well so -- -- operations and accounting issue. Not so much about in -- renting cars to people at a good price. Now -- is struggling -- has because of so many car recalls I imagine that's a problem for other car rental companies. So what does that mean for investors is the time to be cautious about investing in rental car company stocks. You know I don't think for that reason it is you -- it has been dragged for the first half of this year for these companies to have to comply with these recalls Avis Budget for example was saying that they did. Have some shortages and -- kind of being judicious about how many reservations they were taken but this goes back a few months so I don't think it's really. A prison issue are forward looking issue. For either companies or investors. But it's definitely something keep in mind when it comes to evaluating how they've -- In the first half of this year so it's probably a nagging issue more than it is a decisive one in deciding how well these businesses -- done. Mike -- toll from Yahoo! finance thanks for joining us OK thank you. And you've been watching a story stock stay with abcnews.com for your latest headlines I'm -- cannot meet in Washington.

This transcript has been automatically generated and may not be 100% accurate.

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