Lack of travelers hurts Hertz
As if you need more proof than staying at home digital everyone was shattering the ‘old’ economy, or that online platforms have provided (more than) viable alternatives in terms of trips for work, shopping or leisure…
Car rental giant Hertz Global Holdings Inc. has had little wiggle room, barely, from lenders to find new ways to deal with challenges that have rattled revenue and flows cash.
As reported, Hertz would have been on the verge of filing for bankruptcy today (May 5) if it was unable to reach an agreement with its creditors, in part to extend a grace period on a payment of missed debt.
A Chapter 11 filing, of course, would have allowed Hertz to stay in business even if it tinkered and then executed a plan to satisfy creditors.
Now, that option doesn’t seem imminent (although it may indeed still be on the table). The company has until May 22 to, as noted in a regulatory filing relayed per Bloomberg, “developing a funding strategy and structure that better reflects the economic impact of the global COVID-19 pandemic.”
The fight comes amid a cash crunch and falling demand in the wake of the coronavirus. There was a double whammy, as travel demand evaporated and car sales (rental companies sell used vehicles) were also hit.
Note that the window to move towards a restructuring is relatively short.
In the meantime, and as reported, Hertz has sought to keep its roughly $1 billion in balance sheet cash against total debt of $17 billion (although maturities are staggered). The company said late last month that it would lay off around 10,000 of its approximately 38,000 employees.
The moves buck a long-standing trend of car rental companies losing customers to companies like Uber and Lyft (Lyft, by the way, said at the end of the article). last year it entered the rental business). In a nod to how ride-sharing companies, serving as efficient substitutes, have eaten away at rental car demand, achieved through giants such as Hertz and Budget, Epsilon-Conversant estimated that out of 140 billion in travel-related transactions in the two years since the start of 2019, 63% of car rental customers reduced their rental spend, which equates to a loss of $3 billion.
There is also another angle, like Hertz seeks to restructure – linked to the used car market.
As reported at the end of last week and reported in automotive news, “The risk to the auto sector arises if debt creditors using leased vehicles as collateral decide to liquidate the fleet to repay obligations,” benchmark analyst Michael Ward wrote in a report, adding, “A Fire sale of a significant portion of the Hertz fleet could add to price volatility in the used-vehicle market.
This scenario – if it does indeed materialize – can be a boon for companies that have embraced the platform model and are likely looking at a pick-up in demand. Vroom CEO Paul Hennessy noted in a conversation with Karen Webster last months that there has been a ‘little chilling effect’ on the business… and also said: ‘The only thing I don’t worry about in this new world is having enough supply. He told Webster that there is abundant supply linked to car rental agencies looking to liquidate supply, and cars rolling out of leases from dealerships unable to sell due to closings.