The company has been renting cars since 1918, when it founded a store with a dozen Ford Model Ts, and has survived the Great Depression, a virtual halt to US car production during World War II and various oil price shocks. By declaring bankruptcy, Hertz said it intends to stay in business while restructuring its debt and creating a financially healthier company.
“The impact of Covid-19 on sudden and dramatic travel demand has led to a decline in corporate revenues and bookings in the future,” the company statement said. It said meanwhile action was too fast in responding to the crisis, “uncertainty remains about when revenue will return and when the used car market will fully reopen for sales, which requires action today.”
The entire rental car industry has been devastated by a downturn in travel since the pandemic struck earlier this year. Nearly two-thirds of its revenue comes from rentals at airport locations, and air travel has fallen sharply. Since early April, the number of people who passed the TSA checkpoint at US airports has dropped 94% compared to last year.
Hertz said the bankruptcy process would give him “a stronger financial structure that puts the company’s best position for the future while navigating what could be a long journey and an overall global economic recovery.”
The deep cuts are in place
The company rents out cars under the Hertz, Dollar, Thrifty and Firefly brands, discount brands outside the United States.
The company has made deep cuts to stem losses. This has told 12,000 employees in North America that they lost their jobs, and another 4,000 leave. The US workforce stood at 38,000 employees at the beginning of the year, with around a quarter of them represented by unions.
The company has a total of 568,000 vehicles and 12,400 company locations and franchises worldwide earlier this year. About one third of these locations are at airports.
Piling up losses and debt
Hertz has $ 18.8 billion in debt on March 31, up $ 1.7 billion from the end of last year. Most of the debt, $ 14.4 billion, is supported by vehicles. That includes debts that were missed in April that triggered the latest crisis. It only had $ 1 billion in cash on the balance sheet at the end of March,
Hertz was founded in Chicago more than a century ago by Walter Jacobs, who sold the company in 1923 to John Hertz, who changed the company’s name and expanded its fleet to 600 cars. He started the country’s first national rental network in 1925 and opened his first airport location at Chicago Midway Airport in 1932.
Today’s main shareholder is activist investor Carl Icahn, who owns about 38% of the outstanding shares. He continued to increase his ownership in the company until mid-March. The stock, which increased its ownership size by 26%, has lost more than 60% of its value in the two months since its last purchase.
The problem in Hertz and the rental car business as a whole is bad news for world car makers. Car rental companies are usually the main buyers of new cars. Last year they bought 1.7 million US cars, according to Cox Automotive. That’s the same as 10% of US new car purchases.
Hertz has announced it will not buy a new car for the rest of the year, and that he is starting to sell his vehicle as a used car. In early March, he had sold 41,000 cars from the US fleet and 13,000 from the European fleet. But the cessation of used car auctions and the closure of many used and new car dealers have made sales stop completely.
But it is clear that when used car sales channels return to normal, car rental companies will continue to cut their fleets. Avis Budget said it expected its fleet in America to be reduced by 20% by the end of June, compared to the previous year.