Hertz file for bankruptcy – CNN

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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 filing is probably the highest profile bankruptcy of the Covid-19 crisis, which has resulted in the bankruptcies of domestic retailers such as JCPenney, Neiman Marcus and J.Crew, along with some energy companies such as Whiting Petroleum and Diamond Offshore Drilling. But none of the companies to be archived so far have had such a large share of their sector as Hertz, which together with competitors Budget Avis (CAR) and the private enterprise dominate the rental car industry

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.

Filing for bankruptcy does not mean that a company will be forced to close. Many companies went through the process and continued to record record profits, including the automaker General engines (GM) and many airlines in the nation. But many companies that filed for bankruptcy with the intention of staying in business have not survived the process.

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.

Hertz (HTZ) equities closed 7.5% on Friday and have so far declined 82% this year. Shares fell sharply in trading after midnight on Friday evening. Actions are likely to become unnecessary as part of the bankruptcy process.
Hertz missed a payment on April 27 due to a group of lenders that rented vehicles in the US rental fleet every day. Funders extended a grace period for payment until May 22nd “to initiate discussions … with the aim of developing a financing strategy and structure that better reflect the economic impact of the global Covid-19 pandemic and the continued operation and financing of Hertz requirements. “

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.

A significant part of Hertz’s non-airport business is to rent cars to people who are repairing their vehicles after accidents. But with so many people out of work or working from home, the miles traveled and the number of road accidents decrease significantly. Automotive insurers voluntarily return over $ 7 billion to their customers, which is between 15% and 25% of premiums.

Accumulation of losses and debts

Hertz posted annual sales of $ 9.8 billion last year, a business record, and its rental car revenue is comparable to that of its competitors. Avis Budget Group (CAR). But Hertz has problems that precede the Covid-19 pandemic. It posted a net loss of $ 58 million in 2019, down from a loss of $ 225 million in 2018. But it lost $ 356 million in the first three of this year.

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.

Hertz has had several high profile business owners, including RCA, United Airlines (UAL)and more recently Ford (F), which sold it to a group of private equity firms in 2005 for $ 5.6 billion. It was made public a year later.

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.

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