Business

Hertz files for bankruptcy

(CNN) — Hertz filed for bankruptcy Friday night, the latest victim of the sudden economic downturn sparked by the COVID-19 pandemic.

The company has been renting cars since 1918, when it set up shop with a dozen Ford Model Ts, and has survived the Great Depression, the virtual halt of US auto production during World War II and numerous oil price shocks. By declaring bankruptcy, Hertz says it intends to stay in business while restructuring its debts and emerging a financially healthier company.

“The impact of COVID-19 on travel demand was sudden and dramatic, causing an abrupt decline in the company’s revenue and future bookings,” said the company’s statement. It said while it too immediate action in response to the crisis, “uncertainty remains as to when revenue will return and when the used-car market will fully re-open for sales, which necessitated today’s action.”

The filing is arguably the highest-profile bankruptcy of the COVID-19 crisis, which has prompted bankruptcies by national retailers like JCPenneyNeiman Marcus and J.Crew, along with some energy companies such as Whiting Petroleum and Diamond Offshore Drilling. But none of the companies to file so far have had such as large a share of their industry as does Hertz, which along with rivals Avis Budget and privately-held Enterprise dominate the rental car industry

The entire rental car industry has been devastated by the plunge in travel since the pandemic hit earlier this year. Nearly two-thirds of its revenue comes from rentals at airport locations, and air travel has fallen sharply. Since the start of April, the number of people passing through TSA checkpoints at US airports has plummeted 94% compared with a year ago.

A bankruptcy filing does not mean a company will be forced out of business. Many companies have gone through the process and gone on to post record profits, including automaker General Motors and many of the nation’s airlines. But many companies that have filed for bankruptcy with the intention of staying in business have not survived the process.

Hertz said the bankruptcy process will give it “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.”

Deep cuts already in place

The company rents cars under the brands Hertz, Dollar, Thrifty and Firefly, a discount brand outside the United States.

The company has already made deep cuts to stem its losses. It has notified 12,000 employees in North America that that they were losing their jobs, and another 4,000 are on furloughs. Its US workforce stood at 38,000 employees at the start of the year, with about a quarter of them represented by unions.

Hertz shares closed down 7.5% on Friday and have fallen 82% so far this year. Shares moved sharply lower in after-hours trading Friday evening. Shares are likely to become worthless as part of the bankruptcy process.

Hertz missed an April 27 payment that was owed to a group of lenders that lease vehicles in Hertz’s day-to-day US rental fleet. The lenders extended a grace period for the payment until May 22 “to engage in discussions … with the goal to develop a financing strategy and structure that better reflects the economic impact of the COVID-19 global pandemic and Hertz’ ongoing operating and financing requirements.”

The company had a total of 568,000 vehicles and 12,400 corporate and franchise locations worldwide at the start of this year. About a third of those locations are at airports.

A significant portion of Hertz’s nonairport business is renting cars to people who are having their vehicles repaired after accidents. But with so many people out of work or working from home, the miles being driven and the number of car accidents are down significantly. Car insurers are voluntarily returning more than $7 billion, or between 15% to 25% of premiums, to their customers.

Mounting losses and debt

Hertz posted annual revenue of $9.8 billion last year, a company record, and its rental car revenue is comparable to that of rival Avis Budget Group. But Hertz has problems that predate the COVID-19 pandemic. It posted a $58 million net loss in 2019, down from a $225 million loss in 2018. But in the first three of this year it lost $356 million.

Hertz had $18.8 billion of debt on its books as of March 31, up $1.7 billion from the end of last year. Most of that debt, $14.4 billion, is backed by its vehicles. That includes the debt for which it missed the payment in April the prompted this latest crisis. It had only $1 billion in cash on its balance sheet as of the end of March,

A storied history

Hertz was founded in Chicago just more than a century ago by Walter Jacobs, who sold the company iin 1923 to John Hertz, who renamed it and expanded the fleet to 600 cars. He began the nation’s first national rental network in 1925 and opened its first airport location at Chicago Midway Airport in 1932.

Hertz has had a number of high-profile corporate owners, including RCA, United Airlines, and most recently Ford, which sold it to a group of private equity firms in 2005 for $5.6 billion. It was taken public a year later.

Its primary shareholder today is activist investor Carl Icahn, who owns about 38% of its shares outstanding. He continued to increase his stake in the company all the way through mid-March. Those shares, which increased the size of his stake by 26%, have lost more than 60% of their value in the two months since his most recent purchases.

The problems at Hertz and the rental car business overall are particularly bad news for the world’s automakers. Rental car companies are traditionally a major purchaser of new cars. Last year they purchased 1.7 million US cars, according to Cox Automotive. That equaled to 10% of US new car purchases.

Hertz had already announced it would not purchase any new cars for the rest of this year, and that it is starting to sell its vehicles as used cars. As of early March, it had sold 41,000 cars out of its US fleet and another 13,000 out of its European fleet. But a halt of used car auctions and the closure of many used and new car dealerships has brought sales to a virtual halt.

But it is clear that as used car sales channels return to normal, rental car companies will continue to slash the size of their fleets. Avis Budget said it expects its fleet in the Americas will be reduced by 20% by the end of June, compared to a year earlier.

Coronavirus links

Indiana coronavirus timeline

With updated information from the Indiana Deaprtment of Health on May 29, this timeline reflects updated tallies of deaths and positive tests prior to that date.

  • March 6: Indiana State Department of Health (ISDH) confirms the first case in Indiana. Officials say the Marion County resident had recently traveled to Boston to attend a BioGen conference as a contractor.
  • March 8: ISDH confirms a second case. An adult in Hendricks County who had also traveled to the BioGen conference was placed in isolation. Noblesville Schools say a parent and that parent’s children will be self-quarantining after attending an out-of-state event where someone else tested positive.
  • March 9: Avon Community School Corp. says a student on March 8 tested positive.
  • March 10: ISDH launches an online tracker. Ball State University basketball fans learn the Mid-American Conference tourney will have no fans in the stands. Three businesses operating nursing homes in Indiana announce they will no longer allow visitors.
  • March 11: The Indianapolis-based NCAA announces the Final Four basketball tournaments will be conducted with essential staff and limited family attendance. The Big Ten announces all sports events, including the men’s basketball tournament at Bankers Life Fieldhouse, will have no fans starting March 12. Ball State University suspends in-person classes the rest of the spring semester. NBA suspends all games, including the Indiana Pacers, until further notice. Butler University and the University of Indianapolis extend spring break, after which they will have virtual classes.
  • March 12: Gov. Eric Holcomb announces new protections that led to extended public school closings and the cancellation of large events across the state. The NCAA cancels its basketball tournaments. The Big Ten suspends all sporting events through the winter and spring seasons. The league including the Indy Fuel hockey team suspends its season. Indy Eleven says it will reschedule four matches. Indianapolis’ annual St. Patrick’s Day Parade is canceled. 
  • March 13: Indiana’s total of positive cases rises to 15. The Indiana High School Athletic Association postpones the boys basketball tournament. Wayzata Home Products, a Connersville cabinet maker, shuts down and lays off its entire workforce due to market uncertainty. Gov. Holcomb announces actions including the elimination of Medicaid co-pays for COVID-19 testing and the lifting of limits on the number of work hours per day for drivers of commercial vehicles. Franklin College says it will begin online classes March 18 and empty residence halls of students in two days. The Children’s Museum of Indianapolis closes indefinitely. The Indianapolis Public Library joins other libraries across Indiana and closes all facilities indefinitely.
  • March 14: The Indiana Gaming Commission says all licensed gaming and racing operations will close in two days for an indefinite period.
  • March 15: Indiana had its first death. St. Vincent Hospital in Indianapolis announces it will suspend all elective, non-urgent surgeries.
  • March 16: Indiana had its second death. Gov. Holcomb announced the first Hoosier death. He closes bars, restaurants and nightclubs to in-person patrons, but maintains carryout and delivery services.
  • March 17: Indiana had its third and fourth deaths. ISDH announces Indiana’s second death. Indiana’s Catholic bishops cancel masses indefinitely. Gov. Holcomb activates the National Guard. Purdue, Butler and Indiana State universities cancel May commencement ceremonies.
  • March 18: Indiana had its fifth death. Eli Lilly and Co. says it will use its labs to speed up testing in Indiana. The 500 Festival announces suspends all events. Simon Property Group closes all malls and retail properties.
  • March 19: Gov. Holcomb extends Indiana’s state of emergency into May. Holcomb says he’ll close all K-12 public and nonpublic schools. Standardized testing was canceled. The state’s income-tax and corporate-tax payment deadline was extended to July 15. Holcomb says the state will waive job search requirements for people applying for Temporary Assistance to Needy Families. The IHSAA Boys Basketball State Tournament was canceled. The Marion County Emergency Operations Center upgrades to Level 1 status.
  • March 20: Indiana’s death toll rose to 9. ISDH announces Indiana’s third death. Gov. Holcomb moves the state’s primary election to June 2. Indiana University says it is postponing May commencement ceremonies on all campuses.
  • March 21: Indiana’s death toll rises to 14. ISDH announces Indiana’s fourth death. Indiana National Guard says it and the Department of Transportation are distributing medical supplies to hospitals.
  • March 22: Indiana’s death toll rises to 19. ISDH announces seven deaths.
  • March 23: Indiana’s death toll rises to 24. Holcomb orders Hoosiers deemed nonessential to “stay at home” from March 24-April 7. Eli Lilly & Co. begins drive-thru testing for the coronavirus for health care workers with a doctor’s order. Ball State University cancels the May commencement.
  • March 24: Indiana’s death toll rises to 29. Fred Payne of Indiana Workforce Development says any Hoosiers out of work, including temporary layoffs, are eligible to apply for unemployment benefits.
  • March 25: Indiana’s death toll rises to 35. Indianapolis Motor Speedway announces the Indianapolis 500 is moved to Aug. 23. IndyGo suspends fares and changes its ride schedules.
  • March 26: Indiana’s death toll rises to 44.
  • March 27: Indiana’s death toll rises to 47.
  • March 28: Indiana’s death toll rises to 58.
  • March 29: Indiana’s death toll rises to 76. President Donald Trump announces in a press conference that the national social distancing recommendation will be extended by 30 days.
  • March 30: Indiana’s death toll rises to 91. Indiana health commissioner Dr. Kristina Box predicts the arrival of the surge in cases and deaths could come in mid-April to late April, but could be as late as mid-May, “but we don’t know.”
  • March 31: Indiana’s death toll rises above 100, to 113. Gov. Holcomb extends the limits of bars and restaurants to offer only “to go” and “carryout” through April 6. Health commissioner Box, asked about when Indiana will be in a surge of COVID-19 cases, says she thinks the surge is starting.
  • April 1: Officials extend Marion County’s “stay at home” order through May 1. Marion County health officials say they will start COVID-19 testing services for front-line employees. Gov. Holcomb announces the #InThisTogether campaign.
  • April 2: The state announces K-12 schools will be closed for the rest of the school year. The Indiana High School Athletic Association cancels spring sports seasons.
  • April 3: Gov. Holcomb extends the “stay at home” order through April 20. The state receives a federal Major Disaster Declaration for all 92 counties. The Indiana National Guard says it, the Army Corps of Engineers and state health officials will begin to assess sites for alternate health care facilities.
  • April 4: Indiana’s death toll rises above 200.
  • April 6: The state reports a Madison County nursing home has had 11 deaths. Gov. Holcomb extends the “stay at home” order through April 20. He also limits additional businesses to carry-out only.
  • April 7: Indiana’s death toll rises above 300. Indiana health commissioner Box says four long-term care facilities have 22 deaths that appear to be related to COVID-19.
  • April 10: ISDH said 24 residents of a long-term care facility in Madison County have died from COVID-related illness.
  • April 11: Indiana’s death toll rises above 400.
  • April 14: Indiana’s death toll rises above 500.
  • April 16: Tests ID more than 10,000 Hoosiers with coronavirus. The governor says he expects Indiana to experience a reopening in early May.
  • April 17: Indiana’s death toll rises above 600. The governor says that he will extend the “stay at home” order through May 1.
  • April 20: Indiana’s death toll rises above 700. Gov. Holcomb extends the “stay at home” order to May 1. The governor also says, if the medical supply chain is in good shape, other elective medical procedures can resume April 27.
  • April 22: Indiana’s death toll rises above 800. The Tyson facility in Logansport voluntarily closes so 2,200 employees can be tested for COVID-19.
  • April 24: Indiana’s death toll rises above 900. The Indianapolis City-County Council approves $25 million to help small businesses. Fishers City Council creates a city health department with a plan to test every resident.
  • April 25: ISDH says it will launch an antibody testing study for Hoosiers; thousands of residents were randomly selected to participate in the study.
  • April 27: Indiana’s death toll rises above 1,000.
  • April 28: Indiana officials say they will open COVID-19 testing to more Hoosiers, with expanded criteria and new testing services at 20 sites around the state.
  • April 29: The state says it will spent $43 million on contact tracing.
  • April 30: Indianapolis extends its stay-at-home order through May 15.
  • May 1: Gov. Holcomb announces a phased reopening plan for the state of Indiana. He also extends the stay-at-home order to May 4.
  • May 3: Tests ID more than 20,000 Hoosiers with coronavirus.
  • May 4: Indiana enters Stage 2 of its Back on Track plan, which excludes Cass County until May 18, and Lake and Marion counties until May 11.
  • May 6:The state begins testing for all Hoosiers at 20 sites, with plans to expand the number of sites to 50 in a week. Ivy Tech Community College says it will continue virtual classes when summer courses begin in June. 
  • May 8: Cris Johnston, director of the Office of Budget and Management, says the state missed out on nearly $1 billion in anticipated April revenues; all state agencies will be given budget-cutting goals. Purdue University OKs plans to reopen for the fall semester with social distancing and other safety measures.
  • May 11: Indiana’s death toll rises above 1,500.
  • May 13: The first phase of a state-sponsored study of the coronavirus estimated about 186,000 Hoosiers had COVID-19 or the antibodies for the novel virus by May 1. Indianapolis Mayor Joe Hogsett announced plans for limited reopenings of worship services, retail establishments, libraries and restaurants.
  • May 14: Indiana’s death toll rises above 1,600.
  • May 17: Indiana’s death toll rises above 1,700. Marion County’s death toll rises above 500.
  • May 18: Indiana reports its first case of multisystem inflammatory syndrome in a child. The Farbest Foods turkey-processing plant in Huntingburg is closed for three days; 91 people have tested positive there.
  • May 21: Indiana’s death toll rises above 1,800. Tests ID more than 30,000 Hoosiers with coronavirus.
  • May 22: Indiana advances to Stage 3 of the Back on Track reopening plan. Indianapolis closes portions of five streets to allow restaurants to reopen with outdoor dining only.
  • May 27: The U.S. death toll rises above 100,000. Indiana University says the fall semester will have in-person and online courses, plus an adjusted calendar through May 2021. Ball State University says the fall semester will be 13 straight weeks of in-person classes with no day off on Labor Day and no fall break.
  • May 28: Indiana’s death toll rises above 1,900.
  • May 29: Places of worship in Marion County can begin holding indoor services at 50% capacity with proper social distancing. Jim Schellinger, Indiana secretary of commerce, said the federal Paycheck Protection Program has made 73,430 loans in Indiana totaling $9,379,164,461, the federal Economic Injury Disaster Loan program has made 5,070 loans in Indiana totaling $445,428,500, and the federal Economic Injury Disaster Loans Advance program has made 38,365 grants in Indiana totaling $136,554,000.
  • June 1: Marion County restaurants can begin serving customers indoors and outdoors with 50% capacity. Marion County salons, tattoo parlors can reopen by appointment only. Marion County gyms, fitness centers and pools can open with 50% capacity and no contact sports.

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