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Annmarie Fertoli: Last spring, rental car company Hertz was bankrupt. Now it sealed a big EV deal with Tesla, and is gearing up for re-listing.
Nora Naughton: With a fresh balance sheet and cash in hand, they are moving quickly to reestablish themselves as a more modern company. And they would like to reintroduce themselves to Wall Street.
Annmarie Fertoli: But will the company’s reinvention work? And is a billionaire’s income tax constitutional? Plus, which expensive master’s degrees pay off? It’s Wednesday, October 27th. I’m Annemarie Fertoli for the Wall Street Journal. This is the PM edition of What’s News, the top headlines and business stories that moved the world today.
As Democrats scramble to reach an agreement on their massive spending bill, Oregon Senator Ron Wyden is proposing a billionaires tax on the nation and wealthiest Americans to help pay for it. Our tax policy reporter Richard Rubin has more from the capital.
Richard Rubin: If you qualify, if you’re a billionaire, if you have a billion dollars in assets or a hundred million of income for three straight years, you would have to pay capital gains each year, as if you had sold your assets. Right now you don’t have to pay taxes until and unless you sell. This would basically treat the end of every year for you as a billionaire, as a sale of your publicly traded stock.
Annmarie Fertoli: It’s still unclear whether the proposal will gain traction. Earlier today, West Virginia Senator Joe Manchin called the plan convoluted. Other Democrats have previously questioned the tax, and there are legal questions too. Here’s Richard, again, to explain.
Richard Rubin: The 16th amendment allows income taxes to exist and be created by Congress. And it allows them to be outside of the rules on direct taxes that date back to the original constitution and are quite cumbersome. So the question here is whether this is a tax-on property that would have to be a direct tax, and follow a bunch of additional rules. Or whether this, as the supporters say, has precedent and is a tax that is either really an allowable income tax, or is a sort of excise tax like an estate tax that is allowable under the constitution, and without cumbersome rules of apportionment.
Annmarie Fertoli: The Justice Department is looking into Visa’s relationships with large financial companies, including Square, Stripe, and PayPal. Sources tell the Wall Street Journal that investigators are examining financial incentives Visa gave to those companies. And they want to know whether the deals kept the fintechs from using other card networks or payment technologies. The inquiry is part of a broader antitrust investigation into Visa, which is the nation’s biggest card network.
In earnings news, General Motors’ net profit dropped 40% in the third quarter compared to last year. The automaker says it continues to struggle with computer chip shortages and the rising cost of parts, which is denting their factory output and earnings. Despite the challenges, GM has been able to offset some of the loss with record pricing on their fleet of expensive SUVs and trucks. General Motors said that the impact from the chip shortage would continue through next year, and that auto lots could be sparse through 2022.
We report exclusively that activist hedge fund Third Point has taken a large stake in Royal Dutch Shell, and is urging the oil giant to break up. Sources say the activist’s stake in Shell is well over $500 million, which would make it one of the company’s largest investors. In a letter to its investors that was viewed by the Wall Street Journal, Third Point advised Shell to create two standalone companies. One focused on its legacy businesses like refining, and another focused on renewables to appeal to different sets of investors. Shell is set to report third quarter earnings tomorrow.
Pharmaceutical giant Merck says it will license its at-home COVID-19 treatment pill to a UN-backed nonprofit to provide supplies to low and middle income countries. The drug promises to be the first pill that those with COVID could take at home to prevent hospitalization, which would fill a huge gap in countries lacking access to basic healthcare. Wealthy countries are also bidding for the drug. The US has ordered 1.7 million courses, should regulators clear it for use. Merck says it can manufacture 10 million courses by the end of the year, and will work on increasing that amount.
And the state department has issued its first passport with an X-gender designation, for people who as non-binary, intersex, or gender non-conforming. In recent years, more states and companies have offered the option on driver’s licenses and other forms of identification for those who don’t identify as male or female. According to a recent study from UCLA, more than 1.2 million people in the US identify as non-binary.
Coming up, how Hertz is reimagining its rental car business.
Hertz has been making headlines this week. On Monday, the rental car company announced a deal to buy a hundred thousand electric vehicles from Tesla by 2022. Tesla shares soared on the news, and propelled the electric vehicle maker into the trillion dollar club. Today Hertz announced that it would make half of those EVs available to Uber’s ride sharing network by 2023.
It’s a remarkable rebound for a company that fell into bankruptcy a year and a half ago. Joining me now with more on how Hertz got here, and what it means for the EV market, is Wall Street Journal automotive reporter Nora Naughton. Hi Nora, thanks for being here.
Nora Naughton: Hi, thanks for having me.
Annmarie Fertoli: Nora, first let’s start back last year. Hertz was in a very different position than it is now. Remind us how the company ended up in bankruptcy.
Nora Naughton: Simple answer is they missed a payment on their vehicles. And the sort of compounding factors that got them there was, they had been aggressively borrowing for their fleet for years, they had racked up about 19 billion in debt, and were already really on this razor’s edge before the pandemic hit. And then of course the travel industry was one of the hardest-hit by the pandemic. Bookings just completely collapsed, and they lost this source of revenue that was sort of keeping them afloat. And without a steady flow of business, they just weren’t able to keep up with the bills.
Annmarie Fertoli: So take us up through the past couple of months, and just how Hertz was able to reemerge here. We’ve seen a rebound in travel, and demand for rental cars specifically has been surging. How did Hertz get here?
Nora Naughton: Sure. So in June they emerged from bankruptcy injected with cash and capital. They reduced their debt significantly. They’re getting ready to re-list on the New York stock exchange this quarter to raise even more money. But with this fresh start, with a fresh balance sheet and cash in hand, they are moving quickly to reestablish themselves as a more modern company. We all went through this when GM went bankrupt too. It’s the new Hertz, just like it was the new GM. And they would like to reintroduce themselves to Wall Street.
Annmarie Fertoli: Let’s talk a little bit more about the deal with Tesla. What’s behind the strategy here for Hertz, and how is it really responding to the marketplace and demand from consumers?
Nora Naughton: It’s been a really good situation for them, coming out of bankruptcy and coming out of this pandemic. Broadly there’s been more demand for rental vehicles because people are choosing that type of travel over air travel during the pandemic. And the whole rental industry really went through this interesting, from a crush-and-bust to just completely on top of the world.
So they’ve seen a huge increase in demand for their services, they can barely keep up now with bookings. And also prices for these daily rentals are way up, just like everything else in the world is right now. So it’s been a pretty good story.
Annmarie Fertoli: And as we talked about, we saw Tesla shares soaring earlier this week after the deal was announced. What does this order for a hundred-thousand EVs mean more broadly for the electric vehicle market?
Nora Naughton: It’s a big deal. Because there’s a difference between people, early adopters buying an electric car and making that part of their life, and having an electric car on the rental lot. I mean, one of the things that has really been a barrier to electric vehicle adoption is things like range anxiety and charging infrastructure.
So this is a signal that Hertz, which relies on being a reliable form of transportation, Hertz feels that they can offer that with an electric car. And so just generally that should provide consumers with more confidence in this segment of vehicles. And then also the rental car industry has always been a great proving ground for a new model. It’s a way for people to get in front of a car and spend time with it without going to a dealership or actually considering a purchase. You might end up in a car you never would’ve considered because it was what was at the rental counter when you landed.
Annmarie Fertoli: And what does this mean for ride sharing companies? They were obviously also hard-hit during the height of the pandemic, as people were spending more time indoors. Is the Uber part of this deal that we heard about today a bet that an even stronger resurgence for ride sharing companies is imminent?
Nora Naughton: I’m not sure. I think Hertz and Uber actually go back to 2016. Hertz has been providing vehicles to Uber’s drivers for a while. And I think this says more about the confidence in the EV segment, and that these vehicles can be used in ride hailing. So I think it has to do with that preexisting relationship, and I think it has to do with the confidence in these vehicles.
Annmarie Fertoli: That’s Wall Street Journal automotive reporter Nora Naughton. Nora, thanks so much for your time today.
Nora Naughton: Thank you for having me.
Annmarie Fertoli: And finally, many students pursue a masters in business administration in the hopes of jump-starting their careers and making big bucks. But the degree comes with a hefty price tag, and some students have to borrow thousands of dollars to get one, adding on to the debt from their undergraduate degrees.
So are MBAs worth it? A recent WSJ analysis shows the return on investment is pretty good. Here’s our business education and careers reporter, Patrick Thomas.
Patrick Thomas: In the data we analyzed from the education department of nearly 600 programs, so not just the top ones you hear about but all of them, on a one-to-one debt income ratio, 98% of those business schools typically made more money two years out of school than they had borrowed. Which is the metric to show when, if it’s paying for itself, right after graduation. And compared to other graduate programs, the MBA fared much better.
Where we know where law degrees, only 6% of programs had graduates with higher BD and earnings than debt. MBAs, it was 98%. So it’s a much bigger difference in terms of how this degree, just the volume of schools that can pay off compared to other graduate programs, and even top schools. But compared to law, which is another popular degree if you’re a career-switcher for students. A lot of students decide between the MBA or law school. This just kind of shows that the MBA wins out a little bit there.
Annmarie Fertoli: But that’s not always guaranteed. For more on the payoffs of an MBA, listen to the latest episode of our sister podcast, Your Money Briefing.
And that’s what’s news for this Wednesday afternoon. We’ll be back tomorrow morning. If you like what you hear, please rate and review us. I’m Annemarie Fertoli for the Wall Street Journal.