Hertz Files For Bankruptcy, Stunning US Automakers As Leaders Scramble For Solutions

Car rental companies feel the symptoms of the coronavirus. GETTY

Late last night, Hertz (NYSE: HTZ) filed for bankruptcy. The restructuring has sent shockwaves through the US auto industry, according to CNN. What’s driving the decision? Reduced air travel. The TSA reports that domestic flights are down 94%. As a result of this massive shrinkage, car rental rivals Avis Budget Group (NASDAQ: CAR) and privately-owned Enterprise are also hurting. Last year, all US rental car companies bought nearly 2 million automobiles — or about 10% of the US auto industry production. Now, major auto manufacturers like Ford (NYSE:F), GM (NYSE: GM) and Fiat Chrysler (NYSE: FCAU) are seeing a vast aspect of their annual sales threatened. What are the implications for Detroit — and the US economy as a whole — as the coronavirus finds more corporate victims?

At the start of the year, Hertz had 568,000 vehicles parked at 12,400 locations across the globe. The company’s overall revenues in 2019? $9.8 Billion. But carrying cars on a balance sheet is a pricey proposition: in March of this year the company was servicing nearly $19 billion in debt- with only (only?) $1 billion in cash available, according to CNN reports. But the bankruptcy filing has broader implications than just Hertz’s balance sheet.

Turning Cars Into Cash: Difficult

In the US, Hertz employs 38,000 people. So far, 12,000 have lost their jobs and 4,000 have been furloughed, according to CNN reports. To gain some breathing room, the company renegotiated with lenders on debt due in April — extending the payment deadline to May 22.

That was the day the company filed for bankruptcy.

To be clear, bankruptcy is a restructuring — not a declaration that the company is going out of business. Hertz already abandoned part of its fleet, selling 54,000 cars in March — but the cancellation of auto auctions (and the closure of many new car dealerships) has blocked the company from continued relief. Rival Avis Budget Group is in a little better shape, but will cut its new car purchases this year by 80%. These rental car companies will hopefully be able to come out on the other side — but they will be reshaped into something quite different than the structure we see today.

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Source: Chris Westfall | Forbes