Explanation

Item 20 data from 2022 to 2024 shows a moderate number of franchisees ceasing operations for reasons other than termination or non-renewal (24 in 2024, 21 in 2023). While not alarmingly high as a percentage, the consistent number of closures warrants investigation. Understanding why these franchisees left the system is crucial for assessing potential challenges you might face, such as profitability issues or operational difficulties.

Potential Mitigations

• A thorough discussion with your business advisor is needed to analyze the franchisee turnover data and its potential implications.
• Contact several current and former franchisees from the list in Exhibit G to inquire about their experiences and reasons for leaving.
• Your accountant can help model the financial impact if your location were to face similar challenges leading to closure.

Explanation

While franchised units have grown, the number of company-owned outlets has declined significantly, resulting in a net decrease in total system outlets from 2022 to 2024. This, combined with the major financial losses reported in Item 21, suggests that growth in franchise sales may not be supported by a stable and growing corporate infrastructure. Rapid franchising without a strong corporate base could strain support systems available to you.

Potential Mitigations

• Question the franchisor directly about their capacity and plans for scaling franchisee support infrastructure in light of shrinking corporate operations.
• A business advisor can help you evaluate whether the franchisor has the resources to adequately support both new and existing franchisees.
• Interviewing a broad range of existing franchisees about the current quality and responsiveness of franchisor support is highly recommended.

Explanation

Hertz discloses a large and extensively experienced management team in Item 2. Most executives have significant backgrounds in the transportation, airline, or logistics industries. However, a notable number of the top executives, including the CEO, CCO, and CFO, have only been with the company since 2024 or later. While they bring external experience, their short tenure with this specific company and its franchise system could present a learning curve.

Potential Mitigations

• A business advisor can help you research the recent performance of the companies where the new executive team previously held leadership roles.
• When speaking with current franchisees, inquire about any noticeable changes in strategy or support since the new management team arrived.
• Discuss any concerns about management turnover and strategic direction with your attorney.

Explanation

Item 1 indicates that Hertz's parent company, Hertz Global Holdings, Inc., has affiliates like CK Amarillo, which is connected to investment firms. This structure is common with private equity involvement. The Franchise Agreement in FA § 20.1 allows Hertz to assign the agreement and sell the system without your consent. This could lead to a new owner prioritizing short-term returns over long-term franchisee health, potentially increasing fees or cutting support.

Potential Mitigations

• Your business advisor can help you research the track record of the investment firms affiliated with the franchisor and their history with other franchise brands.
• Speaking with franchisees about their experiences since the current ownership structure has been in place can provide valuable insights.
• Your attorney should explain the implications of the franchisor's broad right to assign the franchise agreement to a new owner.

Explanation

The FDD discloses predecessors and a complex history involving the acquisition of Dollar and Thrifty, as well as a major Chapter 11 bankruptcy in 2020. While the history is disclosed, its complexity, including significant past litigation and the recent bankruptcy, means that the system carries historical challenges and potential liabilities. Understanding this full history is critical to assessing the operational and financial environment you would be entering.

Potential Mitigations

• Your attorney should carefully analyze the disclosed history of predecessors, acquisitions, and the bankruptcy to identify any inherited risks.
• A business advisor can help you research the historical performance and franchisee relations of all brands (Hertz, Dollar, Thrifty) involved.
• When speaking with long-term franchisees, ask about their experience through the bankruptcy and integration of the different brands.