Rental Car giants Hertz files for bankruptcy

Hertz Car Rental

Due to COVID-19 Hertz files for bankruptcy as the demand for rental cars go down day by day.

Hertz – a car rental company operating in about 150 countries. This Florida based company is the second-largest car rental company in the US in terms of sales.

It has been through difficult times before as well but survived through those times. So, by filing bankruptcy the company will try to modify the debts and come out as a financially stable company to stay in the business.

COVID-19 has affected the travel demand hugely, which has caused a sudden drop in the company’s profit. It has also affected the numbers of future bookings said the company in a statement. As it is unclear when the market will reopen fully and business will flourish as before so, we had to take prompt action to survive in this situation.

Many companies have filed bankruptcy such as JCPenney, J.Crew, Whiting Petroleum, and Diamond Offshore Drilling, but Hertz being a market leader filing for bankruptcy is a testimony on how hard the pandemic has hit this industry.

This pandemic has taken the rental car companies by storm. Most of the business of rental car companies comes from the airport locations, and as the air travel is down since March and April, the flow of people at US airport is plunged 94% as compared to last year.

In the past many companies such as General Motors and many airlines have filed for bankruptcy. But they got back in the business with significant profits. So, filing a bankruptcy does not mean a company cannot stay in the business. Filing bankruptcy will help the company restructure its debts and will help the company maintain a better financial position in the future.

Cost Cutting Plans

The company has laid off 12,000 employees in North America and 4,000 are furlough. The company is taking action for cost-cutting. Previously the company had a workforce of about 38,000 employees in the US. Hertz had announced that it will not make any new additions in its fleet this year and will start selling its cars as used cars. Up till now the company has sold 41,000 cars in the US and 13,000 cars from its European fleet.

Shares of Hertz have fallen 82% till this time of the year and shares were closed down 7.5%. Shares of Hertz are likely to drop as they announced bankruptcy.

A payment of Hertz was due on 27 April but the company was not able to pay the lenders who lease vehicles to its US rental fleet. The lenders have given another date to Hertz, which was May 22 to clear their payment.

The company’s fleet consisted of 568,000 vehicles and 12,400 corporate and franchise locations throughout the world. Most of them are located at the airports, other than airport pick and drops, Hertz rent cars to its customers as well. Because of lockdown people are working from home this has significantly impacted its demand.

Company’s Debts

Last year the company’s annual revenue was $9.8 billion. In 2019 the company’s Net loss was $58 million and in 2018 $225 million loss. Whereas this year it lost $356 million. Hertz has a $1.7 billion debt from last year and $18.8 billion debt as of March 31. Most of its debt, $14.4 billion is sponsored by its vehicles, including the non-payments of April.

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