My ode to Hertz (NYSE: HTZ) is set to the tune of "The Tracks of My Tears," by Smokey Robinson and The Miracles:

People call Hertz the life of the party
'Cause it rents a car or two.
Although it might seem like it makes decent money,
Its GAAP results will make you blue.
So take a good look at its statements;
You'll see goodwill looks out of place,
If you look closer, it's easy to trace
The tracks of billions in intangible asset writedowns.

Granted, that last line needs some work
Outside, Hertz's management is masquerading; inside, shareholders' hopes are fading. Its stock price hit an all-time low in November. And after incurring hefty intangible asset impairment charges, Hertz lost an equally hefty $1.2 billion, or $3.76 per diluted share, on $1.8 billion in revenues during its fiscal 2008 fourth quarter.

However, management for the world's largest car-rental company reported that at least one aspect of its business doesn't seem impaired: its ability to generate net cash flows. Although the company's substantial capital expenditures put a crimp on free cash flow, the $1.8 billion in net cash flow that Hertz generated exclusive of capital expenditures enabled it to reduce its total debt somewhat. 

In addition, as long as Hertz continues operating within the confines of debt covenants, it should have $4.8 billion of liquidity available -- roughly 25% of total assets. That should help Hertz stay afloat in a turbulent economy. Unfortunately, so should a much more painful move.

Layoffs by any other name
When the economy gets tough, companies must often endure significant restructuring or downsizing. At Hertz, they prefer to call fleet reductions and job cuts "rightsizing." So far, about 7,000 Hertz employees have already been affected by the cuts -- that's about one-fifth of its former workforce.

Whatever you call it, it had to be done, given the stiff competition. On the car rental side, Hertz faces Avis (NYSE: CAR) and Dollar Thrifty (NYSE: DTG). Its equipment rental business, which now contributes about 20% of total revenue, shares that market with The Cat Rental Store, a Caterpillar (NYSE: CAT) subsidiary, and a number of other profit-seekers.

In my opinion, Hertz's intangibles are susceptible to further writedowns. The company's looking cheap now, but there's still room for downside. Check back when we're out of this recession.

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