It’s accelerating, it’s expanding, and it’s looking very positive. In procurement, I said we spent almost $3 billion. If you just think about that for a second, 1% is $30 million. And first kind of observations, there’s more that we can do to leverage our larger spend on categories such as tire or glass and we can get real meaningful reductions here, and we’re going to. And finally, the last category, technology. Our modernization continues, we’re seeing benefit of the capabilities that were developed last year. This year, it’s all about prioritization, speed of completion, and we’re going to see meaningful reductions in spend year-over-year. And as you can hear, there’s a lot of activity there across activities. It’s the reason why we’re taking a programmatic effort to ensure that we stay on track and building out the program office.
And I’d just like to say, while I see $250 million of productivity that I outlined, I’m personally going to be disappointed if we don’t do more. The opportunities are there and it’s exciting to see the momentum continue to build. I look forward to giving you updates in the future. Thanks for the question. Hopefully, this clarifies.
Ian Zaffino: No, that’s great. Thank you very much. And I guess maybe a higher level on just another topic, you guys seem a little bit more confident in the rate environment and RPD going forward. Kind of what’s giving you that confidence or maybe give us a little data point on what you saw in January? Thanks.
Stephen M. Scherr: Sure. So let me start with what we’re seeing in January or what we saw in January. First of all, leisure business and leisure demand is really quite strong, and we’re seeing considerable volumes across the sort of Sunbelt from Florida all the way west to Hawaii, Hawaii making sort of a considerable rebound. We’ve seen larger inbound activity growth, and we’ve seen strong corporate growth, particularly in the Midwest, locations like Detroit and Chicago that are showing high volume. I would say that looking backwards, as I said in the prepared remarks, the rate of decline year-over-year on a quarterly basis is decelerating. And so we saw better performance in the fourth quarter on rate than we had seen, again, on a year-over-year basis in the prior quarters.
I’d also say that as we listen, as you listen to sort of what the airlines and the hotels and the travel industry is reporting, forecast growth which is substantial. And I think that the back half of this year holds considerable promise for us in the context of sort of economic trends that are playing, which is lower inflation, lower interest rates, and a clear view that the American consumer, in particular, continues to consume travel as an experiential good that they’re looking to partake in. And so we’re just seeing very strong demand. I would also say that where there are generally higher cost inputs, there is less incentive for any one of the major players in rental to sort of look to lower rate. And on that — in that regard, I think we feel quite good about what we’re seeing, both in terms of demand and what we saw as a decelerating trend in terms of decline.
And I’d also point out that, as I did in the remarks, we’re 40% better than where we were and stability around that number, I think, is in front of us.
Ian Zaffino: Perfect, thank you very much. Appreciate that.
Stephen M. Scherr: No problem.
Operator: Thank you. One moment please. Our next question comes from the line of Adam Jonas of Morgan Stanley. Your line is open.
Adam Jonas: Hey everybody, I have a question for Steve and one for Justin. Steve, what does transitional year mean, could Hertz lose money, earn cash, test the covenants, I’m getting a lot of questions, a lot of questions from clients on the covenants as another sign of the lack of confidence in the strategy and execution. I’m sure that’s not a surprise to you. But what message do you have for I mean, there’s just an army of people betting against Hertz right now and kind of how much worse does that have to get, obviously, we know it gets worse, but kind of is there some kind of without providing guidance, some base or kind of clearing or bottom that you might have some confidence in terms of how — where that bottom would be this year? That would mean a lot.
Stephen M. Scherr: Yes. So here’s what I would say, Adam, I think that had we not taken the step that we did around EVs in the fourth quarter, it would be a rocky path forward in terms of trying to sort of patch up for the continuing operational distraction and the cost that we were otherwise incurring on the bottom third of that fleet. And so I think by taking that step in the fourth quarter, we’ve set ourselves up with a much clearer path to sort of the reconciliation of our cost structure to a revenue line that is strong and sustainable. This company is not experiencing revenue intake or demand. What it was and is experiencing is a cost challenge. We pinched off the single largest component of that cost challenge, which is the EVs. And as I’ve said, if we need to do more, we will, but reducing a third of that fleet puts us in a better position.
It yields out certainly on depreciation and a short view on a reduction in expense, and it promises to carry lower direct operating expense relative to our ability to meet that demand with ICE vehicles. I think secondly, it sets up Justin to achieve the elements and items in his cost out that he reflected in the prior question. And I think these are in front of us, and this is not sort of a blueprint. These are actions that are being taken right now. It therefore gives us confidence that against a very good and solid demand rate and revenue backdrop, we have a path where we’ve already taken a very big down payment in the charge we took in the fourth quarter. And therefore, a transitional year means that in 2024 we are executing against the reduction in the EV fleet, against a series of very precise cost-out elements that gives us confidence that we won’t be in a position where the covenants will come into play and that we will emerge at the end of 2024 into 2025 with a much better cost structure against which we can engage on a level of demand that is in front of us.
And I think equally, if one forecast for what the back end of this year might look like, much as I’m not relying on that for the success of Hertz, but lower interest rates and continued demand and lower inflation spells well both for the core element of demand in the business, a control over cost, and equally stability to residual prices, which lends itself to an easier execution across the whole. And so that’s what I’m referring to in terms of transitional and kind of a little bit of my own mindset about how the forward is accomplished.
Adam Jonas: Thanks, Stephen. Justin, I know you’ve only been at the company for 90 days, but you did say you were out in the field. I’d be very interested in what the field managers, licensees, people on the desk, what they’re most concerned about, what’s their top like Justin, you got to fix this, this is not good enough, and anything take you by surprise? And as a follow-up, I’d be — well, I have one — and I just have one little follow-up to that question, but what were you hearing from them?
Justin Keppy: Yes, sure thing. So I’ll say it was extremely invigorating to go see the passion of the field. These employees, some of them have been there for decades, are hugely customer service-oriented and focused. And I’ll say the one kind of unanimous theme to answer your question is they were concerned about the EVs and having to substitute EVs for consumers that might not otherwise have wanted them. And that has an NPS effect. It’s certainly if people aren’t looking to drive an EV or whatnot, we’re seeing incident rates of damage and collision. But that — the feedback I’ve gotten with this announcement, it was — we didn’t take this announcement lightly, is that this will give us some bandwidth to focus back on servicing the customers as Hertz has been known to do.
Adam Jonas: Okay. And my follow-up there is, what about the mileage of the cars. My understanding is your cars are damn old, really just — what — did that come up and I’d be curious if you could please give us some data on that, what’s the average mileage of your fleet, for example, in the U.S., where is that versus normal, where do you want it to be, because that strikes me as an indicator, I don’t know if you’d consider it a KPI, Justin, but it’s something that if you have a smelly car with 60,000 miles on it, it’s just got getting your OPEX up that’s not something Enterprise and Avis is doing right now, but you are. So tell us where you are and where you want to be on that, that’s really important? Thanks Justin.
