Hertz has halted about 90% of its new vehicle orders for 2021, a move that could pinch automakers as the vehicle rental segment typically brings about 10% of auto sales for the year.
After several last-ditch efforts to avoid it - and five days after installing a new CEO - Hertz Global Holdings filed for bankruptcy May 23. The second-largest U.S car-rental-car company does not need debtor-in-possession financing for now, according to a person familiar with the matter, because it has more than $1 billion cash on hand. In fact, the long-running car-rental company in the USA has reportedly been in a critical financial condition earlier this month, citing a 73 percent drop in shares over the past three months.
Before the pandemic the company had amassed billions of dollars in debt, with the rise of ride-hailing apps leading to a drop in demand for auto rentals.
The Chapter 11 filing was made in the U.S. Bankruptcy Court for the District of DE and includes its Hertz's U.S. and Canadian subsidiaries.
Under a Chapter 11 restructuring, creditors will have to settle for less than full repayment, but the business is likely to continue operating.
A Hertz car rental is closed during the coronavirus pandemic in Paramus New Jersey
Hertz has been approached for comment over the implications of the bankruptcy on its British and Irish operations.
The company has a fleet of about 400,000 cars in the US that are not subject to repurchase agreements with vehicle manufacturers and could be liquidated, Michael Ward, an analyst at Benchmark Co., wrote in a report last week. Hertz said their ultimate goal is to provide 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".
Automotive News reported Hertz had until Friday to make $400 million in lease payments. Selling off cars quickly can help maximize the value of assets that rapidly depreciate, but flooding the market with too many cars depresses prices.
Hertz, originally known as Rent-a-Car Inc., was founded in Chicago in 1918.
The company intends to stay in business, taking this opportunity to restructure its finances.
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