The company has been renting cars since 1918, when it opened a shop with a dozen Ford Model Ts, and has survived the Great Depression, the virtual shutdown of American car production during the Second World War and numerous oil price shocks. By filing for bankruptcy, Hertz says it plans to stay in business while reorganizing its debts and emerging a financially healthier company.
“The impact of Covid-19 on travel demand has been sudden and dramatic, causing a sharp drop in company revenue and future bookings,” said the company note. He said that although action was too immediate in response to the crisis, “uncertainties remain as to when revenue will return and when the used car market will reopen completely for sales, which made today’s action necessary.”
The entire rental car industry was devastated by the collapse of travel after the pandemic hit earlier this year. Almost two thirds of its revenue comes from airport rentals and air travel has declined sharply. Since early April, the number of people passing through TSA checkpoints at U.S. airports has plummeted 94% from a year ago.
Hertz said the bankruptcy process will give it “a more solid financial structure that positions the company better for the future as it navigates what could be a prolonged journey and a global global economic recovery.”
Deep cuts already in place
The company rents cars under the Hertz, Dollar, Thrifty and Firefly brands, a discount brand outside the United States.
The company has already made deep cuts to stem its losses. He informed 12,000 employees in North America that they were losing their jobs and 4,000 others are fleeing. Its workforce in the United States was 38,000 at the beginning of the year, of which about a quarter represented by trade unions.
The company had a total of 568,000 vehicles and 12,400 corporate and franchise locations worldwide earlier this year. About a third of these locations are located in airports.
Accumulation of losses and debts
Hertz had a debt of $ 18.8 billion in its books as of March 31, an increase of $ 1.7 billion over the end of last year. Much of that debt, $ 14.4 billion, is borne by its vehicles. This includes the debt for which it missed payment in April and caused the latter crisis. He had only $ 1 billion in cash in his balance sheet at the end of March,
A historical story
Hertz was founded in Chicago just over a century ago by Walter Jacobs, who in 1923 sold the company to John Hertz, who renamed it and expanded the fleet to 600 cars. It started the nation’s first national rental network in 1925 and opened its first airport location at Chicago Midway airport in 1932.
Today the main shareholder is investor activist Carl Icahn, who holds around 38% of the outstanding shares. It continued to increase its stake in the company until mid-March. These shares, which increased the size of its holding by 26%, lost more than 60% of their value in the two months following its last purchases.
The problems of Hertz and the rental car industry in general are particularly bad news for car manufacturers around the world. Car rental companies are traditionally a big buyer of new cars. Last year they bought 1.7 million US cars, according to Cox Automotive. This equates to 10% of new car purchases in the United States.
Hertz had previously announced that it would not buy new cars for the rest of this year and that it was starting to sell its vehicles as used cars. In early March, it had sold 41,000 cars from its American fleet and another 13,000 from its European fleet. But stopping used car auctions and closing many used and new car dealers has brought sales to a virtual halt.
But it is clear that when used car sales channels return to normal, car rental companies will continue to reduce the size of their fleets. Avis Budget said it expects that its fleet in the Americas will be reduced by 20% by the end of June, compared to a year earlier.