hertz

On 29 April, Hertz failed to make a monthly lease payment tied to its 500,000 vehicles. Credit: Kekyalyaynen / Shutterstock.

The car rental industry experienced a rapid, sudden and dramatic negative impact when the Covid-19 outbreak started to take full effect. The next few months were always going to be challenging, however, poor decision-making from Hertz has made the challenge even greater.

On 29 April, Hertz failed to make a monthly lease payment tied to its 500,000 vehicles. Fortunately, the company managed to avoid bankruptcy as lenders gave the company until 22 May to pay the bill. However, it remains unclear if Hertz will be able to make the payment.

The car rental industry is massively dependent on air travel. According to GlobalData, 53.4% of all car rental sales are made offline, with much of this in airports. As long as travel restrictions are in place, an enormous part of the car rental market is no longer active. This has led to Hertz making 10,000 of its staff redundant.

No car rental firm has had it easy over the last couple of months. Avis posted a net loss of $158m for the first quarter of the year, with sales down 9% to $1.8bn. These figures highlight the devastating impact of Covid-19 on car rental companies.

However, unlike Hertz, Avis negotiated an additional $750m in borrowing capacity from a JP Morgan-led lending group. This financing could be critical in Avis’ survival and is something that Hertz should have addressed before reaching this point.

Issues for Hertz started before the Covid-19 outbreak

The car rental market was in a good place before the outbreak. According to GlobalData, since 2014, the number of car rental days globally has increased at a CAGR of 4.7%, resulting in 216 million additional car rental days. Meanwhile, investment in technology and sustainability was making car rental a more attractive prospect for customers.

However, Hertz was already beginning to struggle and was burning through cash at a rapid rate. It had a net loss of $58m in 2019 and a loss of $225m in 2018. The Covid-19 outbreak seems to be highlighting many of the frailties that Hertz already possessed.

If Hertz is able to survive the extremely challenging months ahead, something needs to be done about the enormous losses the company is making each year. Until these issues are addressed, the company will continue operating under financial pressure.

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