As if you needed more evidence that the stay at home, all digital world was shattering the “old” economy, or that online platforms have provided (more than) viable alternatives in terms of how we get around for work, errands or leisure …
Car rental giant Hertz Global Holdings Inc. has gotten a bit of breathing room, just barely, from lenders to find new ways to contend with challenges that have dented top lines and cash flow.
As reported, Hertz was reportedly quite close to filing for bankruptcy, as early as today (May 5) if it was not able to work out a deal with its creditors, in part to extend a grace period on a missed debt payment.
A Chapter 11 filing, of course, would have let Hertz stay in business even as it cobbled and then executed a plan to satisfy creditors.
Now that option does not seem to be imminent (though it may indeed still be on the table). The company has until May 22 to, as stated in a regulatory filing relayed by Bloomberg, “develop a financing strategy and structure that better reflects the economic impact of the COVID-19 global pandemic.”
The struggle comes amid a cash crunch and waning demand in the wake of the coronavirus. There’s been a double whammy, as travel demand has evaporated, and as car sales (rental firms sell used vehicles) have been hit, too.
We note that the window to get toward a restructuring is a relatively brief one.
In the meantime, and as has been reported, Hertz has looked to conserve its roughly $1 billion in cash on the balance sheet vs. a total outstanding debt load of $17 billion (though maturities are staggered). The company said at the end of last month that it would lay off about 10,000 of its roughly 38,000 employees.
Those moves come against a longstanding trend where car rental companies have been losing business to firms such as Uber and Lyft (Lyft, incidentally, said at the end of last year that it was getting into the rental business). In a nod to how ride-hailing firms, serving as effective substitutes, have been eating into demand for car rentals, done through the giants such as Hertz and Budget, Epsilon-Conversant estimated that, of $140 billion in travel-related transactions over the two years into 2019, 63 percent of car rental customers reduced spending on rentals — equating to a $3 billion loss.
There’s another angle too, as Hertz looks to restructure — tied to the used car market.
As noted late last week and reported in Automotive News, “The risk for the auto sector occurs if the creditors of the debt using the rental vehicles as security decide to liquidate the fleet to repay the bonds,” Benchmark analyst Michael Ward wrote in a report, adding, “A fire sale of a significant portion of the Hertz fleet could add to the price volatility in the used vehicle market.”
That scenario — if it indeed plays out — may be a boon for companies that have adopted the platform model, and are likely eying a snapback in demand. Vroom CEO Paul Hennessy noted in a conversation with Karen Webster late last month that there has been a “small chilling effect” on the firm … and said, too, “The only thing that I don’t worry about in this new world is having enough supply.” He told Webster there’s ample supply tied to car rental agencies looking to liquidate supply, and cars coming off leases to dealerships that cannot make sales due to closures.