Photo courtesy Hertz
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The writing was on the wall for the last month, at least. Hertz Global Holdings, Inc. has filed for Chapter 11 bankruptcy protection after the coronavirus pandemic sent rentals — and revenue — crashing, forcing the debt-laden company into a corner that’s proven near impossible to escape from.
One of the world’s largest car rental agencies, Hertz laid off more than 12,000 workers in March and furloughed another 4,000 before scrapping 90 percent of the new car acquisitions it had on the books for 2020. While that might have stopped some of the bleeding, the core issue remains: few people are travelling, and even fewer are renting cars.
In a release, Hertz said the voluntary filing with the U.S. Bankruptcy Court for the District of Delaware will allow it to keep its core business and subsidiaries functioning, with $1 billion in cash on hand to fund their operation. The company’s overseas operations and franchised locations are not included in the filing.
“The impact of COVID-19 on travel demand was sudden and dramatic, causing an abrupt decline in the Company’s revenue and future bookings,” Hertz Global Holdings, Inc. said in a release.
“Hertz took immediate actions to prioritize the health and safety of employees and customers, eliminate all non-essential spending and preserve liquidity. However, uncertainty remains as to when revenue will return and when the used-car market will fully re-open for sales, which necessitated today’s action. The financial reorganization will provide Hertz a path toward a more robust financial structure that best positions the Company for the future as it navigates what could be a prolonged travel and overall global economic recovery.”
As the pandemic tool hold, Hertz, unprofitable for the past four years, found itself holding a bag of debt totaling $19 billion. Following the initial layoffs, the company sought relief from its lenders, buying it a brief reprieve. That window drew to a close on Friday, however.
“Today’s action will protect the value of our business, allow us to continue our operations and serve our customers, and provide the time to put in place a new, stronger financial foundation to move successfully through this pandemic and to better position us for the future,” said newly minted CEO Paul Stone.
What will become of Hertz’s 700,000-strong global fleet, of which 400,000 vehicles reside in the U.S., remains to be seen. The company didn’t mention reducing its inventory, just its rate of turnover.
From Bloomberg:
Analysts have warned of ramifications for the broader auto industry from a Hertz bankruptcy. The company has a fleet of about 400,000 cars in the U.S. that are not subject to repurchase agreements with vehicle manufacturers and could be liquidated, Michael Ward, an analyst at Benchmark Co., wrote in a report last week.
It seems almost unavoidable that the company will have to dump a considerable portion of its fleet onto the used-car market, further slimming down an agency that’s already reduced its workforce by half.
No one’s crystal ball predicts the future with 100 percent accuracy, but the coming months — and perhaps years — will surely see a reduction in international travel and related vehicle rentals. Meanwhile, ride-hailing services aren’t going away.
[Image: Hertz]
