Car rental firm Hertz files for bankruptcy, falling prey to debt of $17 billion
Iconic car rental company Hertz has filed for bankruptcy protection, devastated by the fall in business due to the coronavirus pandemic.
The 100-year-old company which started its business with a dozen Ford models, went on to become one of the largest car rental companies in the world, before running up a pile of substantial debt.
Hertz said late on Friday that it would use more than $1 billion in cash on hand to keep its business running while it proceeds with the bankruptcy process.
“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,” Paul E. Stone, its chief executive, said in a statement.
The bankruptcy filing excludes operations in Australia, Europe and New Zealand as well as the company’s franchisee locations. Hertz also said that it had sought aid from the federal government, but that funding for its industry “did not become available.”
Though it had piled up $17 billion in debt, Hertz, which also owns the Dollar and Thrifty brands, was reporting healthy sales at the start 2020. The company’s revenue rose 6% in January and February.
But the pandemic dealt what the company has described as “a rapid, sudden and dramatic” blow. Sales dried up in March as much of the world started to shelter at home. Airports, where Hertz and its competitor Avis Budget Group earn most of their revenue, turned into ghost towns.
By late March, Hertz started to cut back on spending, sold some of its cars, furloughed workers and combined nearby outposts.
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.
The entire rental car industry has been hit hard 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.
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. At the same time, 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.”
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 non-airport 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.