Ya gotta deal with the hole, the smaller bubble forming at 5 o'clock to the hole, and the rust that "seems" to be developing in the "seam" to the left of the hole.
Is the hole located above or below the muffler heat shield that overlaps into the bottom of the wheel wells? I think this hole looks like it's below the shield, so it should be a straight-thru hole that can be seen thru from the inside of the wheel opening. If so, you grind back the inner diamter of the hole until you hit good metal all the way around. On the outside sand back another 1/2 to 1 inch or so all the way around that. Treat with a rust converter (phosphate). Apply self-etching primer. Get a fiberglass hole repair kit at an auto supply. On the inside, remove the factory undercoating, then sand back as far as needed and apply the fiberglass patch as a backer. When the patch is done, on the outside apply a thin coat of bondo to take the place of the fender metal, forming and shaping before it hardens. Sand to shape, then apply glazing putty to fill in the pinholes. Sand to smooth and to final shape. Mask off and apply primer sealer. Final wet sand. Apply several thin color coats to build up paint thickness. Final wet sand with 1500. Not sure if this is a clear coat but if so, apply final clear coat. Buff and polish. Back to the inside of the wheel well, apply primer and color coats. Then apply undercoating to match existing.