Hertz Is Bankrupt - Here Is Your Opportunity
Leading car rental firm, Hertz, which has been around for over 100 years, recently filed for bankruptcy due to the ongoing coronavirus pandemic. The business has been thoroughly damaged due to the crisis, leading to a steep fall from grace for this auto rental giant. Hertz has filed for reorganization under Chapter 11, while the international regions of operations such as New Zealand, Europe, and Australia were excluded from the proceedings in the US.
The major crash of Hertz was due to the halt of rental car services at airports. These rental services played a significant role in defining the company's revenue, and its cessation was absolutely disastrous.
Hertz’s total fleet consists of around 500,000 vehicles, and because of the value decline during the pandemic, handling the lease obligations became a dramatic challenge. Part of the company’s recovery proposal involves Hertz selling around 30,000 cars. This is expected to raise a sum of approximately $5 billion if successful.
What It Means For You
Considering the situation, the primary point to be noted by consumers is the "selling of cars" part. As already explained, Hertz has decided to undergo a rapid selling spree throughout the rest of the year to try and account for some percentage of the debt balances outstanding.
While this seems like a very logically sound decision, the feasibility for doing so can be increased only by decreasing the price at which the used cars are sold. This could open up opportunities for buyers with limited cash flow.
It is expected that Hertz will discount selling prices steeply to cover these losses as quickly as possible. This could present an excellent opportunity for the general public to buy those cars. Even though Hertz's situation may be considered more manageable given the proposed remedies, the auto rental market's prospects are unlikely to stabilize in the second half of the year owing to the pandemic.
The Impact Of Covid-19 On The Car Industry As A Whole
For automakers, the collapse of Hertz has deep ramifications. The auto rental industry has a noticeable impact on automakers given the sheer size of their fleets and annual purchases. The unfolding impact is likely to hurt profitability, residual values, pricing standards, and many other areas.
According to a recent report by BCG and the Center for Macroeconomics, automotive sales are forecast to plummet by 14%-22% in 2020 alone. It is evident that the crisis will trigger a massive sales decline for an extended period. Automakers might be forced to discontinue generic rental car models or increase the prices of the existing ones. The latter option is relatively unfeasible given the current situation.
Ultimately, any prolonged sales decline will lead to automaker layoffs and other restructuring measures that will impact the wider job market. On the other hand, the market of used, 'second hand' cars will skyrocket, leading to a massive drop in the prices of used vehicles.
The dynamic shift between the used market and the new market of cars will feed more entropy into this already struggling industry. It could take almost another year for this market to stabilize and for conditions to return to some semblance of normalcy.
GM, Ford Motor, And Fiat Chrysler Affected Too
It is an undeniable fact that the impact of declining auto rental companies and the bankruptcy of these firms will result in a major decline in the automobile industry as a whole. The ones that sell a significant percentage of their rollouts to rental car firms are likely to feel the brunt of this cascading effect.
Industry leaders like GM, Fiat Chrysler, and Ford Motor have seen a massive decline in demand for fleet sales. A report shows that GM’s fleet sales as a percentage of total sales dropped to 16.1% in 2019 compared to nearly 30% in the previous years.
Still, for prospective car buyers who have not yet pulled the trigger on a new or used vehicle, these developments might signal forthcoming promotions and deep discounts designed to bring buyers back into the fold. Moreover, declining used car prices might present excellent opportunities to capture extra bargains.
Conclusion
While the bankruptcy filing is being considered, it could take a while for Hertz to proceed with ‘Asset Liquidation’. Although the case is viewed as manageable at this point in time, leisure travel is only expected to recover during the first quarter of 2021.
In the meantime, the company must do everything possible to keep itself afloat until the pandemic recedes and a more favorable climate returns in the auto rental industry. For car buyers, now may be the best time to start searching, negotiating, and closing an exceptional deal as the broader auto industry seeks to recover.
