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Hertz files for Chapter 11 bankruptcy protection with $19 BILLION of debt

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Car rental giant Hertz has filed for Chapter 11 bankruptcy protection in the US after 102 years of trading.  This does NOT include its international operations, so any pre-paid bookings made for non-US locations should be safe – for now.

The process will, according to the company, leave it with:

“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.”

It is also important to remember that many smaller Hertz outlets, especially off-airport ones, are franchises.  These would not be impacted if the company did disappear for good.

Hertz also owns Dollar, Thrifty and Firefly brands which are also impacted by this filing.

The numbers are startling.  The company has almost $19 billion of debt (double its 2019 revenue) and under $1 billion of cash.  The majority of the debt is secured against its fleet of cars, but Hertz was caught out by clauses which force the company to make cash payments to lenders if second-hand car values fall.  The debt is primarily in the form of bonds which require regular repayments and, because of the large number of bondholders, is far harder to restructure than bank debt.

Chapter 11, of course, is NOT ‘receivership’ in the UK sense.  Chapter 11 is effectively a standstill arrangement, which gives Hertz breathing space to restructure its affairs without the risk of its assets being seized by creditors.

It is difficult to imagine any scenario in which the Hertz brand will disappear.  At the end of the day, the brand is the ONLY real asset that the company has.  It does not own any of its cars outright and the only ‘assets’ it has are its customer list and leases on prime airport pick-up locations.

The lenders should recover most of their money if the Hertz fleet of 560,000 vehicles did have to be liquidated, although it is beneficial for the entire car industry to keep the company alive.  CNN reported that car rental companies buy 10% of all new cars in the US – 1.7 million vehicles last year.   One plan, apparently, is for Hertz to begin selling down its fleet at the rate of 30,000 cars per month to raise funds.

It is bad news for Hertz shareholders, of course, although they had already lost over 80% of their value this year.  In truth, the car rental industry in the United States has been in trouble ever since the launch of Uber and Lyft.  Many travellers now find it more convenient to use a rideshare service during their travels rather than deal with the hassles of hiring a car.

Comments (41)

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  • Briandt says:

    I thought I heard that the UK was in big trouble as well.

  • DS says:

    Sounds like a good deal!

    “The company’s European division is stronger financially than the US arm as a larger percentage of its fleet of cars can be sold back to automakers at guaranteed prices, according to sources.”

    • Rob says:

      Yes, this was always quite a good deal.

      a) Hertz buys cars at a 30% (?) discount due to volume
      b) Carmaker guarantees to buy the car back after 6 months for the same price and then sell it second-hand via its dealer network

      • FloriGuy says:

        I could see the 30% discount making sense for the manufacturer in return for selling a guaranteed high volume.

        Where the logic breaks down in my eyes, is that the SAME party (i.e. the manufacturer) is guaranteeing to Hertz to buy the same vehicle buack for the same amount in 6 months time. Where does the manufacturer make money here? Other than “registering” a minimum number of cars.

        Surely they would be better off doing the same deal for its dealerships?

        • FloriGuy says:

          Although thinking about it that would probably flood the market with “pre reg” cars which diminishes the price of new cars. But still – why you would sell something on the basis you take it back in 6 months time in impaired condition for the same price is beyond me.

          • Tariq says:

            They don’t make money as such. The intangible benefit to the manufacturer is that they have their models out there for people to drive and touch and experience. If the product is good quality, it’s a marketing benefit that generates positive experience of the product.

            And the manufacturer gets a guaranteed stream of used stock for the second hand market. There are many who will ‘never buy new’ so this satisfies a market need.

            There will be clauses around damage and satisfactory condition like a standard lease I would expect – at the end of the day, these are the same standards that the rental companies will hold the renters to (BVRLA standards) and which they will surely charge the customer for in damage excess!

            I wouldn’t like to buy an ex-rental myself (fastest cars in the world…) but there are plenty of people that are a car as an appliance and wouldn’t be bothered. Most will be returned to the manufacturer before the first service is due and regularly washed, cleaned and inspected.

          • mike says:

            Because you are effectively making a second range of cars available that don’t otherwise exist.

            It means your franchised dealer range has a supply it can sell of.

            1) Brand new cars.
            2) Delivery miles cars at a discount.
            3) ex demo cars at a bigger discount.
            4) 3-6 month 10,000 miles cars at a bigger discount.
            5) 2-3 year (ex lease) up to 30,000 miles cars at a bigger discount.

            The different price points satisfy different groups of customers and the car manufacturers need to find a way to have the right number of cars in each group to maximise profit. The best way to get cars into group 4) is to give them to a hire company to let the miles go up.

            A customer who is able to afford a group 4) car might be of the mindset that they won’t buy a group 1) car, but there may well be more money to be made, after finance, servicing by the main dealer whilst under warranty etc even if the car looks to an outsider like it’s being sold at pure cost

        • TGLoyalty says:

          Two reasons.

          It’s a 30% discount vs retail. Retail includes dealer margins, variable marketing (discount) and fixed marketing expense to get bums on seats so to speak. This can easily add up to 25-30% so in reality it’s loaning the car for 6 months.

          2nd it’s the same argument around fixed vs truly variable cost that Rob has mentioned with the airlines. Sometimes it’s better to build the volume and just recover cost than not build it at all.

          • TGLoyalty says:

            There is actually a 3rd reason Lease companies pay for the cars so they don’t sit in inventory becoming aged stock for months. These can then be shifted through the used dealer network and other used cars sales channels without damaging the margin on new cars sales As buyers start to expect even higher levels of discount and that can be hard to recover from.

      • The Savage Squirrel says:

        It’s also worth remembering that this is a 30% discount to list price. I’d imagine for the non-sexy models that form rental car fleets, not that many are actually sold at list; so it’s a way for car manufacturers to sell at the “real” price while maintaining the fiction of a much higher list price for new cars so they can sell a few to the too-well-off-to-care or too-timid-to-negotiate groups at huge margin.

      • Kipto says:

        Hertz’ cars go to auction after a certain mileage is reached on the vehicle

      • Travel Strong says:

        Data point: I bought my car as a direct result of having the same model as a rental from Dollar in the USA, and essentially having a 2 month test drive that made me certain I wanted one!

  • Matthew says:

    Car hire companies are sharks,and will do customers over as and when they can, no wonder people are using alternatives, and with more and more anti car poloicies, parking costs etc. car rental is becomming more problamatic. if i go on holiday, I may only rent for part of the holiday, save on parking fees, and by renting down town, get away from airport surcharges. They all need to review their treatment of customers, in the new world.

    • Bagoly says:

      Interesting tactic, but I find renting downtown much more stressful.
      I agree with you about anti-car policies in cities, so I only rent a car if not staying in a city centre.
      If staying city-centre then I get a taxi from and to the airport.
      If staying out of town, or in a city not close to an airport with easy flights from my origin, I restrict myself to hotels with easy parking, and think of the savings of those two taxi trips as offset against the rental cost.
      Which leads me to not mix and match on a given trip.

    • J says:

      I’ve had many rentals with Avis and Hertz with no hassle, no fake charges etc. I tried Sixt once too and they were fine. One bad experience with Europcar though so I never use but have only ever heard bad things about them anyway.

    • Travel Strong says:

      Agreed, zero sharking from Hertz/Dollar/Thrifty in the USA. Screwing over the customer is a European car rental game!

      • Lady London says:

        Had it from Hertz at DFW. Without mentioning during a long wait for the vehicle the pricing prebooked was replaced with pricing two and a half times greater. Luckily after checking the vehicle I spotted it, walked back in and insisted on having the contract redone as booked. If I had driven that car out past the barrier without checking I would have been liable for the much higher price. The agent couldnt give me a reason why she had switched it just spluttered when I asked her for an the reason.

        I reckoned that branch must have been doing that 100 times a week and mostly getting awau with it. Often it goes by branch or branch manager, the extent of fraudulent tricks they try. Airport branches IME are the worst.

        Hertz TLS tried to rewrite my contract twice.for hundreds of euros more when i returned cars – no reason just a sh1ty branch manager at the time. Heathrow Hertz did it for a while to all sorts of people and tried with me twice too. it got to so I would avoid them but if I had to use them, told every person I dealt with upfront politely that I was being watchful and then there wasnt a problem.

        Hertz did catch me badly to the tune of over £200 extra when I literally didnt have my glasses and they switched the price thay had been agreed with the manager for a much higher one – I said I’ve forgotten my glasses and literally can’t see this to sign can I trust you that the total cost is x plus the conditions we agreed, staff said yes, I signed. Nasty surprise when i handed over the documents with the car 2 days later in another country.

        And Hertz are actually one of the better ones 🙂

        • Mike says:

          Bizarre. I’ve rented dozens of times from Hertz, National, and local rental companies, in the US, Europe and elsewhere and never yet been diddled. (Famous last words I know)

          I have top tier status with both Hertz and National but that doesn’t explain the small local firms being ok. Even in Italy when given a battered Fiat in Naples I had no problems returning it.

          The “pick any car and drive off” option when you have status with Hertz or National at many US airports leads to some unexpected fun rides if you’re lucky with selection.

          I normally book direct or prepaid with a broker (eg holidayautos) but the latter only if the underlying company has a good reputation, there are some shady lowballers out there…

      • @mkcol says:

        Screwing over the customer is most definitely not just a European game.

  • Matty says:

    If you owe the bank $100 that’s your problem.
    If you owe the bank $100 million, that’s the bank’s problem.

  • AlanC says:

    What do you think about my lowly 3,600 Hertz points expiring next month?

    • Darren says:

      You might get a mid range low mileage convertible for that.

  • BT01 says:

    I always use Hertz when I go back to Sydney and pickup the car from the airport, mainly because they are open when I arrive at 6:00am, I walk across to the carpark to Gold members pickup point, much quicker than getting a cab to Kings Cross to get the car also makes it easier to return the car to Mascot and fill it before I get to the Hertz carpark. The other benefit with using Hertz is I can prepay for the car in GBP, unlike most other rental companies I would have to pay in AUD.

  • Pat the Postie says:

    They may buy 10% of all new cars in the US but they are not really paying for them hence this problem they have run into!

  • Pat the Postie says:

    Interesting i just rebooked my European rental for 50 euros cheaper now with Hertz, pay at counter!

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