Hertz files for bankruptcy

Hertz filed for bankruptcy, the latest victim of the sudden economic downturn sparked by the Covid-19 pandemic.

Posted: May 26, 2020 6:11 AM
Updated: May 26, 2020 6:11 AM

Hertz filed for bankruptcy Friday night, the latest victim of the sudden economic downturn sparked by the Covid-19 pandemic.

The company has been renting cars since 1918, when it set up shop with a dozen Ford Model Ts, and has survived the Great Depression, the virtual halt of US auto production during World War II and numerous oil price shocks. By declaring bankruptcy, Hertz says it intends to stay in business while restructuring its debts and emerging a financially healthier company.

"The impact of Covid-19 on travel demand was sudden and dramatic, causing an abrupt decline in the company's revenue and future bookings," said the company's statement. It said while it too immediate action in response to the crisis, "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 filing is arguably the highest-profile bankruptcy of the Covid-19 crisis, which has prompted bankruptcies by national retailers like 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 file so far have had such as large a share of their industry as does Hertz, which along with rivals Avis Budget and privately held Enterprise dominate the rental car industry

The entire rental car industry has been devastated by the plunge in travel since the pandemic hit earlier this year. Nearly two-thirds of its revenue comes from rentals at airport locations, and air travel has fallen sharply. Since the start of April, the number of people passing through TSA checkpoints at US airports has plummeted 94% compared with a year ago.

A bankruptcy filing does not mean a company will be forced out of business. Many companies have gone through the process and gone on to post record profits, including automaker General Motors and many of the nation's airlines. But many companies that have 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 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."

Deep cuts already in place

The company rents cars under the brands Hertz, Dollar, Thrifty and Firefly, a discount brand outside the United States.

The company has already made deep cuts to stem its losses. It has notified 12,000 employees in North America that that they were losing their jobs, and another 4,000 are on furloughs. Its US workforce stood at 38,000 employees at the start of the year, with about a quarter of them represented by unions.

Hertz shares closed down 7.5% on Friday and have fallen 82% so far this year. Shares moved sharply lower in after-hours trading Friday evening. Shares are likely to become worthless as part of the bankruptcy process.

Hertz missed an April 27 payment that was owed to a group of lenders that lease vehicles in Hertz's day-to-day US rental fleet. The lenders extended a grace period for the payment until May 22 "to engage in discussions ... with the goal to develop a financing strategy and structure that better reflects the economic impact of the Covid-19 global pandemic and Hertz' ongoing operating and financing requirements."

The company had a total of 568,000 vehicles and 12,400 corporate and franchise locations worldwide at the start of this year. About a third of those locations are at airports.

A significant portion of Hertz's nonairport business is renting cars to people who are having their vehicles repaired after accidents. But with so many people out of work or working from home, the miles being driven and the number of car accidents are down significantly. Car insurers are voluntarily returning more than $7 billion, or between 15% to 25% of premiums, to their customers.

Mounting losses and debt

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

Hertz had $18.8 billion of debt on its books as of March 31, up $1.7 billion from the end of last year. Most of that debt, $14.4 billion, is backed by its vehicles. That includes the debt for which it missed the payment in April the prompted this latest crisis. It had only $1 billion in cash on its balance sheet as of the end of March,

A storied history

Hertz was founded in Chicago just more than a century ago by Walter Jacobs, who sold the company in 1923 to John Hertz, who renamed it and expanded the fleet to 600 cars. He began the nation's first national rental network in 1925 and opened its first airport location at Chicago Midway Airport in 1932.

Hertz has had a number of high-profile corporate owners, including RCA, United Airlines, and most recently Ford, which sold it to a group of private equity firms in 2005 for $5.6 billion. It was taken public a year later.

Its primary shareholder today is activist investor Carl Icahn, who owns about 38% of its shares outstanding. He continued to increase his stake in the company all the way through mid-March. Those shares, which increased the size of his stake by 26%, have lost more than 60% of their value in the two months since his most recent purchases.

The problems at Hertz and the rental car business overall are particularly bad news for the world's automakers. Rental car companies are traditionally a major purchaser of new cars. Last year they purchased 1.7 million US cars, according to Cox Automotive. That equaled to 10% of US new car purchases.

Hertz had already announced it would not purchase any new cars for the rest of this year, and that it is starting to sell its vehicles as used cars. As of early March, it had sold 41,000 cars out of its US fleet and another 13,000 out of its European fleet. But a halt of used car auctions and the closure of many used and new car dealerships has brought sales to a virtual halt.

But it is clear that as used car sales channels return to normal, rental car companies will continue to slash the size of their fleets. Avis Budget said it expects its fleet in the Americas will be reduced by 20% by the end of June, compared to a year earlier.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 613228

Reported Deaths: 9728
CountyCasesDeaths
Marion846851338
Lake45676687
Allen32980552
Hamilton29649315
St. Joseph27531382
Elkhart24478345
Vanderburgh19610250
Tippecanoe18108141
Johnson15191295
Porter14944169
Hendricks14485250
Madison11044222
Clark10811144
Vigo10795181
Monroe9458113
Delaware9170134
LaPorte9145164
Howard8292144
Kosciusko810183
Warrick680299
Hancock6782104
Bartholomew6640100
Floyd6507110
Wayne6177162
Grant6027116
Dubois558680
Boone556468
Morgan548695
Henry511464
Marshall506984
Cass486964
Dearborn486545
Noble475659
Jackson427747
Shelby420781
Lawrence393780
Clinton375044
Gibson374459
Harrison353045
DeKalb349864
Montgomery347654
Knox336239
Miami324544
Steuben315046
Whitley311126
Wabash305851
Adams302836
Ripley300546
Putnam298950
Huntington294860
Jasper291734
White275143
Daviess271774
Jefferson266238
Decatur249583
Fayette248648
Greene242262
Posey241028
Wells236951
LaGrange230062
Scott226839
Clay224332
Randolph215248
Jennings200636
Sullivan193533
Spencer193022
Washington188023
Fountain184927
Starke176444
Jay168623
Owen167637
Fulton164830
Orange160935
Carroll159715
Rush156318
Perry155929
Vermillion149734
Franklin149333
Tipton133133
Parke13088
Pike118526
Blackford111822
Pulaski97837
Newton92021
Brown88335
Benton87110
Crawford8099
Martin74913
Warren6857
Switzerland6695
Union6297
Ohio4977
Unassigned0376

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 868656

Reported Deaths: 10768
CountyCasesDeaths
Franklin102154707
Cuyahoga865201153
Hamilton64744448
Montgomery43516419
Summit35250762
Lucas31663631
Butler31268232
Stark26096443
Warren19830142
Lorain19296229
Mahoning17471339
Lake16250154
Clermont16128112
Delaware1453680
Licking13326137
Fairfield1294981
Trumbull12920317
Greene12174141
Medina11732168
Clark11058265
Wood10457158
Allen9988127
Portage9454111
Miami924473
Richland9236118
Marion7486113
Tuscarawas7440183
Columbiana7409124
Pickaway732150
Wayne7111172
Muskingum710342
Erie6221130
Ross5558100
Hancock555292
Scioto542764
Geauga515955
Darke473492
Lawrence460658
Union456928
Ashtabula456473
Sandusky439562
Mercer435089
Seneca433866
Huron432841
Auglaize424164
Shelby422522
Jefferson422469
Belmont421145
Washington394240
Athens38389
Putnam378075
Madison358129
Knox356122
Ashland349038
Fulton340443
Defiance334486
Crawford325774
Preble322737
Brown315821
Logan312132
Ottawa296543
Clinton291543
Williams280367
Highland279018
Jackson265845
Guernsey257126
Champaign253428
Fayette239530
Morrow23464
Perry233718
Holmes226774
Henry221953
Hardin215533
Coshocton206922
Van Wert203445
Gallia199826
Wyandot196751
Pike178017
Adams177715
Hocking173224
Carroll157616
Paulding145321
Noble121040
Meigs109724
Monroe102232
Harrison89921
Morgan83931
Vinton71314
Unassigned00
Fort Wayne
Cloudy
28° wxIcon
Hi: 33° Lo: 27°
Feels Like: 20°
Angola
Cloudy
23° wxIcon
Hi: 31° Lo: 23°
Feels Like: 23°
Huntington
Cloudy
28° wxIcon
Hi: 32° Lo: 27°
Feels Like: 28°
Fort Wayne
Cloudy
28° wxIcon
Hi: 33° Lo: 28°
Feels Like: 20°
Lima
Cloudy
29° wxIcon
Hi: 33° Lo: 28°
Feels Like: 21°
More Clouds than Sun Wednesday
WFFT Radar
WFFT Temperatures
WFFT National

Community Events