Hertz Files For Chapter 11 Bankruptcy

Filed Under: Misc.

Hertz has just become the latest major travel brand to reorganize, as the company has voluntarily entered Chapter 11 bankruptcy.

Hertz files for bankruptcy

Hertz Global Holdings, as well as certain US and Canadian subsidiaries, yesterday filed voluntary petitions for Chapter 11 bankruptcy.

As the company explains, the impact of COVID-19 on travel demand has been sudden and drastic, causing a decline in revenue and future bookings. Hertz claims to have taken immediate action to prioritize the health and safety of employees and customers, eliminate all non-essential spending, and preserve liquidity.

However, due to uncertainty around when revenue will return and when the used car market will fully re-open for sales (which is a big part of the car rental business model), the company has decided to reorganize.

As of now Hertz has more than $1 billion in cash on hand to support ongoing operations. The company may seek additional cash (including through new borrowings) depending on how long the current situation lasts.

It’s also pointed out that the company was on a strong upward financial trajectory prior to COVID-19, including 10 consecutive quarters of year-over-year revenue growth. In January and February of 2020 the company increased revenue by 6% and 8% year over year, respectively.

What does this mean for the future of Hertz?

For those of you not familiar with Chapter 11 bankruptcy, this basically allows a reorganization whereby a business can be kept alive and creditors can be paid over time. The company can get out of some obligations, and in many cases the biggest losers are shareholders.

For now it should be business as usual for Hertz (at least business as it has been for the past several weeks). All Hertz businesses globally will continue to operate as they did before. This includes subsidiaries Dollar, Thrifty, Firefly, Hertz Car Sales, and Donlen.

All reservations, promotional offers, vouchers, and loyalty program rewards, are expected to continue as usual.

Bottom line

Hertz has become the first major car rental company to file for bankruptcy as a result of the current pandemic. If you’re a Hertz customer it should be business as usual for now, as it’s not like the company is liquidating.

Frankly it amazes me that car rental companies continue to do well during non-pandemic times, and even continue to grow. Personally I feel like ride sharing and car sharing has changed the way so many people get around when traveling.

Obviously there are still situations where people rent cars from the major companies, but I would have assumed that market is getting smaller and smaller. Apparently that’s not the case, though.

  1. @Lucky: regarding your point about car rental companies continuing to do well – why wouldn’t they? Renting a car in the US costs $30-40/day assuming a short term rental (as low as $10/day for long term, eg: more than 2 weeks). Car sharing services cost $10-15 per ride on short distance trips, and more (assuming they’d even take you) on long distance ones. A rental car gives you flexibility and is, in many cases, cheaper, even if you take into account fuel and parking. Of course, you wouldn’t rent a car in a big city where parking is expensive or impossible, but in a place like LA or the Bay Area, a rental car makes transportation so much easier and cheaper given the distances.

  2. While ride “sharing” has its definite benefits it’s still doesn’t replace the complete autonomy and time savings of a rental car in most places.

    The post Corona world will show that things like public transport will also be devalued. Sharing a packed bus or subway isn’t going to be acceptable to a lot people.

    NYC is already bracing for an influx of personal automobiles when things return to somewhat normal.

    As someone who has regularly commuted to/from Manhattan by public transport I would much rather be on a plane than on a packed C/E train out of Jamaica or a #6 train on the East Side.

  3. Let’s hope this hits where it should: shareholders.

    It’s truly a disgrace that hard-working taxpayers and employees were fleeced to pay for airlines’ stock buybacks and churners’ stockpiles of credit card miles.

  4. It will be interesting to see how this all plays out. After all here in the United States we are down to only 3 major rental car companies (Hertz – as mentioned above also owns several other companies) National (which is owned by Enterprise which also owns Alamo) and the Avis/Budget group.

    Car rentals have been going down the last few years in part because of the ride-sharing services. However, while ride-sharing has its place, it does not work if you are planning on going to more than one place when you reach your destination.

    I am not surprised that Hertz was the first to go into reorganization considering it is owned by Carl Icahn, but I am surprised it is actually in a better position than I thought it would be.

  5. @Sorin

    How do you even get $30-40/day rates anymore unless you rent a tiny shoebox with wheels. Let me know how you get $10/day, I’ll rent rather then lease a car. They even make more than you think.
    The problem is they can’t rent out much cars or sell their old fleet right now. But they took out a big chunk of loan to keep their fleet fresh. Just like airlines, it’s a liquidity problem.

    @Matt Fortini
    Did you gracefully return your $1200 or did you disgracefully take that hard-working taxpayers and employees who were fleeced to pay for your new TV and Xbox.

  6. As a kid I would always scream on the Hertz airport shuttle bus “who’s dick hurts “? Then my sister would say “ he’s the CEO. “

  7. I helped book a One-Way rental from Enterprise for a friend going from Charlotte, NC to Mobile, AL $29.16. Including tax. Probably not the same everywhere but I can get an Intermediate car through my Avis/Budget corporate account for a week here in Charlotte, NC for $110. I am sure it is not the same everywhere but prices have come down 30-40% at the moment. I think most people that are renting now are people that are experiencing a loss of a car rather than travelers. I may rent a vehicle in June for one day I can get a mini van for $48.

    I am generally leery of buying rental vehicles off lease but they will be dumping cars that are way short of their expected rental life cycle which might be worth a look. The used car market will in the short term favor the buyer than the seller until we get back to more normal activity.

  8. a) maybe they shouldn’t have ripped people off globally for years with fees – some might say karma (I mean I rent on corporate rates and we don’t have to pay for most of the extras and the bill is still 3/4 mile long just to justify all the fees. There is no such thing as a $40 day rate.

    b) some of the numbers involve here are absolutely horrific. And the solution to dump the cars out enmasse is going to be as successful as that time Gordon Brown sold the UK’s gold reserves…

  9. Ben
    Eskimo’s second posting should be removed–“TWA KARMA” This is no place to post religious or biased comments. This is disgusting and I believe against your rules.

  10. I use rental cars a lot (including one bizarre day when I had 3 cars in 3 countries!).

    They are often much cheaper and easier than taxis and give easy access to out of town hotels (often much cheaper) and offices as well as making visits to multiple locations feasible. As a property guy this is essential to me.

    Also I use them when I am doing a lot of business miles as it can work out cheaper than using my own car. Once you book in 28 day lots (in the UK anyway) rates tumble and I have rented Mercedes for about £11 ($15ish) per day many times often with a free upgrade or two.

    To me ride sharing is a taxi alternative not a rental car alternative.

    With regard to Hertz the main problem I found was that they were always very expensive compared with the competition.

  11. @Airfarer

    They sure footed the bill for the CARES stimulus. And the employees are paying with forced reductions in hours.

    Grossly incompetent, disgustingly overpaid, and fully amateurish leaders like Parker, Munoz, and worst of all, Scott Kirby, should’ve gone down with their leveraged ships. Shareholders, management, and miles stockpilers should’ve been wiped out.

    That money should’ve gone to protecting the workers while new airlines sprung up. Instead, they’re lining the pockets of some of America’s least competent managers. It’s not right.

  12. @AndrewP For the last 3 or 4 years Hertz will often beat the other brands on especially on weekly rentals.

    In my town we have three options: Enterprise, Hertz, and Budget/Avis. While I have never had a bad rental experience from Budget, I hate the fact that the price they show you on the website does not include taxes (Budget used to be only one that did show you the total price!). These days once in a while I will get a good deal from Budget but a majority of the time if its a weekly rental Hertz will win and if it is for one or two days Enterprise will win. I also usually like Enterprise cars better because they buy and sell their cars directly instead of doing leases from the manufacturers so usually, they are better equipped.

    I am taking a trip to Florida for a week in October and Hertz was cheaper than the others with a better class of car. The traditional low end companies such as Alamo were more expensive.

  13. Ride sharing is a replacement for taxis, not rental cars. Many vacations require the flexibility and autonomy offered only by rental cars. Just last year, my three big trips centered around rental cars – a road trip through Norway, Highway 1 in California, and South Africa (to travel around the region outside Cape Town, including the wine region, the Cape, and farther afield to the East).

    Come to think of it, almost every single one of my favorite vacations/trips involves a rental car in some way. New Zealand, driving around the western US for a month, checking out castles in Germany, the Dalmatian Coast, the South of France, even in the Seychelles to explore more of the main island. I find it’s the best way to get a better feel for the country/area I’m visiting outside of the immediate city or resort I’m staying.

  14. @Lucky it’s interesting you say that rideshare ought to be displacing car rental. Car Rental has been a big part of how I’ve been able to not own a car for the last 15 years. Yes public transport and rideshare sorts me out for short trips and car share for when I need a big shop, but traditional rental is often cheaper than car share for trips out of town for a weekend or a week and hertz has been my go to because their in town office is most convenient for me. Rideshare is part of changing approaches to car ownership (madness to personally own a rapidly depreciating asset IMO), but it doesn’t mean that car rental suffers because of it.

    They also own a car share company here in Australia, rent cars to rideshare drivers, rent construction equipment and logistics vehicles etc.

  15. Three months ago Hertz shares were selling for more than $20. (Yes, Icahn owns 38% of them, but the rest are publicly traded.) Friday, they closed below $3 a share.

    I wonder how many Senators were selling in February.

  16. @Eskimo:

    I always try to go for a compact or intermediate and never pay more than $30-40/day in the US. With the status I have from my Platinum, I always get upgrades with Hertz and Avis (or ask for one if they don’t proactively offer it), so it’s never a “shoebox on wheels”.

    Here are some rates I’ve had:
    – Nissan Versa for $550 for 28 days in the SF Bay Area
    – Ford Explorer for $700 for 21 days in Miami
    – Ford Mustang for $100 for 3 days in the SF Bay Area
    – Ford Focus for GBP90 for 7 days in London
    – Various VW Polo & Golf combos for about a dozen 3-4 day weekends in Germany last year, none for more than $80

    Rental rates are cheap, you just have to look for them, or negotiate on pickup.

  17. This is way too optimistic about Hertz. This was a company that was poorly run for years. It lost money for four consecutive years leading upto COVID. It took on way too much debt and now doesn’t have enough cash left over. Contrast it to Enterprise, which is in much better shape.

    While this is Chapter 11, and the firm will run for a while, they are going to have to shrink pretty dramatically to survive.

  18. One time I had to transfer from Laguardia to JFK. The cheapest option was to rent a car. We had time to kill so had a mini tour as well. Thrifty even charged less than the quote.

  19. @D3KingAmerican

    Says the leech using using their grandmother’s flight benefits to be able to afford flying.

  20. positive Hertz US ; nice selection president area, good pricing with discount on premium cars; good pricing overall (full size)
    negative: most cars I had were dirty. and I mean really dirty. The cars are mainly basic versions
    Hope they get through this, would miss them

  21. They also have a huge business renting to insurance companies who provide vehicles to people as part of their policies when their cars get in wrecks. That’s what most of the non-airport locations are for…

  22. @AaronP Well that part of Hertz is not that big as Enterprise has dominated the marketing in the last 25 years since putting most of the little guys or franchises such as Thrifty out of business or out of the market.

  23. Don’t blame the pandemic. They were about to die a long time ago. Worst car rental out there. From the best to the worst. Terrible customer service, terrible cars. Well deserved to disappear.

  24. 15-20 years ago, renting a car was second-nature whenever I was planning a trip. For a while, I was car-free, so I’d also rent from Hertz “Local Edition” when I wanted a car for the weekend. Even after I bought a car, renting was still part of most trips.

    But two things have happened before figuring in the COVID-19 situation. Taxes and fees have soared. You might pay $10/day for a convention center tax, plus a large percentage for airport concession fees as well as electronic tolling fees, parking ticket surcharges, and other fees. Often your final bill is twice the published rate. Also, public transportation and ride-sharing options have improved at many airports. I haven’t rented from Hertz or anybody else since 2009. Ironically the virus may cause more demand for clean, non-shared vehicles, but that business is probably months away.

  25. Let’s be honest: taxpayers haven’t covered most government spending for decades. They’re barely keeping up with interest in a ZIRP environment, which is why NIRP is next.

  26. @Mark you bring up a good point. Politicians have seen “tourist” taxes as a pot of gold and there is a lot of people that support it because it taxes people from “out of town”. Want to build a new stadium, tax tourists who will never use it but they don’t vote locally. How many people get excited that they will get a new stadium and think they will not have to pay for it because people from out of town will pay for it. If the taxes are paying for roads or other infrastructure that the tourist actually uses is another thing but few of these taxes do pay for those items.

  27. I think you’re forgetting that many rental cars are used for those whose vehicles are being repaired. My car was in the repair shop for a month being repaired after someone hit me on the freeway, so I had an Enterprise rental the whole time. Travelers aren’t their only customers!

  28. I agree, Mark. The ancillary charges can double the cost of a car rental. Once you add the rip-off parking cost at many city hotels and it’s just not worth it.

    Whenever there is a financial problem, Chapter 11 or otherwise, it’s easy to say as @Matt Forintini writes: Take it out of the (damn) shareholders, many of whom are small investors or have a 1K or Keogh retirement plan and not the stereotype Wall Street raiders. If there were no shareholders, there would not be many companies. Everything would be owned and run by the Government. Welcome to Capitalism.

  29. Hertz’s problems were long before the lockdowns. Much like Ravn Alaska (first US airline to file bankruptcy due to the lockdowns), mismanagement and financial problems were there for years. This just gives them a convenient excuse to file and hope to cash in on the emergency relief funds.

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