Hertz, the car rental group backed by US billionaire businessman Carl Icahn, has filed for bankruptcy, joining a growing list of illustrious American companies forced out of business due to the impact of the coronavirus pandemic.
The Florida-based company said its US and Canadian subsidiaries had filed for Chapter 11 bankruptcy after it failed to meet a payment deadline agreed with its lenders. Hertz had already missed a payment earlier last month but its lenders had agreed to postpone the payment to Friday.
Hertz’s European, Australian and New Zealand operations are not affected by the filing.
“The impact of Covid-19 on travel demand was sudden and dramatic, causing an abrupt decline in the company’s revenue and future bookings,” Hertz said.
Coronavirus, which has prompted government lockdowns around the world and brought international travel to a virtual halt, has triggered an existential crisis among the world’s largest car rental companies in recent weeks that is likely to force other companies to file for bankruptcy.
Car rentals largely depend on airports for profits in the US and across Europe, which account for two-thirds of their business. However since flight numbers have collapsed due to travel bans, rental groups have seen revenues evaporate.
Hertz, which has about $19bn in debt, had been trying to restructure the business long before coronavirus brought the travel industry to a standstill as the rental group was struggling to fend off losses due to rising competition from rivals such as Avis and upstarts such as Uber.
In April the company, in which Mr Icahn is the biggest shareholder with a 39 per cent stake, decided to cut 10,000 jobs, more than a quarter of its US workforce, in an effort to mitigate the impact of the health and economic crisis.
The pandemic is having an effect on the entire car rental sector globally.
In the US, Avis posted a $158m loss in the first quarter, warning of an 80 per cent fall in sales in April and an $800m cash burn between April and June.
Privately held Enterprise, the industry’s biggest group, said it faced significant and unprecedented challenges.
In Europe Germany’s Sixt was forced to seek a €1.6bn loan to help it navigate the crisis, while Paris-based Europcar tapped its banks for a €220m loan.
US-based groups have been affected more severely than their European counterparts partly due to their business model. American groups buy the cars outright, saddling them with the job of selling the vehicles at a later date. This model is heavily reliant on a functional second-hand car market.
European groups favour the “buyback” model, where rental companies take vehicles with an agreement the carmaker will buy them back at a fixed date and price. This protects the rental groups from unexpected changes in used car prices.