Car rental giant Hertz has filed for Chapter 11 Reorganization.
The second largest car rental firm in the U.S. had been expected to make the filing official after weeks of speculation by analysts, including those here at Autoweek, about the loss of business due to the COVID-19 pandemic.
The 102-year old company runs several businesses across the world in addition to Hertz, including Dollar, Thrifty, Firefly, Hertz Car Sales, and Donlen. The second largest car rental company in the U.S. said the bankruptcy will include the company’s U.S. and Canadian subsidiaries but not its international operations in Europe, Australia or New Zealand.
“The impact of COVID-19 on travel demand was sudden and dramatic, causing an abrupt decline in the Company’s revenue and future bookings,” the company said in a statement announcing the filing. “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.”
Hertz’s statement underscores the uncertainty now faced by all industries connected to airline travel: Will the drop in business last months or years, and which companies will be able to survive the dramatic drop in travel? A crucial part of the reason Hertz was not able to secure a financial lifeline during this time is believed to be the lack of a reasonably confident outlook regarding just when business will return on a scale close to pre-pandemic levels, and how that return will look. Rental car operations are, by nature, tied closely to airline travel. Without a return to pre-pandemic levels of air travel on the horizon, it is difficult for banks and investors to make judgments regarding the financial health and timeframes of the rental car industry.
The process of the bankruptcy itself poses issues for other industries as well: Creditors could decide to liquidate parts of the company’s U.S. and Canadian fleet of more than 560,000 vehicles. Even if the fleet is not liquidated through one giant sale—an unlikely prospect as Hertz is expected to downsize its operations—the influx of vehicles into a used car market already facing oversupply poses its own set of unknowns, especially in a wholesale used car market facing its own downturn.
“Hertz has over a century of industry leadership and we entered 2020 with strong revenue and earnings momentum,” said Hertz President and CEO Paul Stone. “With the severity of the COVID-19 impact on our business, and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery. 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. Our loyal customers have made us one of the world’s most iconic brands, and we look forward to serving them now and on their future journeys.”
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