Hertz, which started with a fleet of a dozen Ford Model T’s a century ago and became one of the world’s largest car rental companies, filed for bankruptcy protection on Friday after falling victim to its mountain of debt.
The coronavirus pandemic has devastated Hertz by grounding business travelers and tourists, making it impossible for the company to continue paying its lenders. A sharp drop in used car prices has also decreased the value of its fleet.
“They were doing quite well, but when you turn off the revenues and you own all these cars and all of a sudden the cars are worth less it’s a very tough business,” said John Healy, an analyst and managing director with Northcoast Research in Cleveland.
Hertz said late Friday that it would use more than $1 billion in cash on hand to keep its business running while it proceeds with the bankruptcy process.
“Today’s action will protect the value of our business, allow us to continue our operations and serve our customers, and provide the time to put in place a new, stronger financial foundation to move successfully through this pandemic and to better position us for the future,” Paul E. Stone, its chief executive, said in a statement.
The bankruptcy filing excludes operations in Australia, Europe and New Zealand as well as the company’s franchisee locations. Hertz also said that it had sought aid from the federal government, but that funding for its industry “did not become available.”
Though it had piled up $17 billion in debt, Hertz, which also owns the Dollar and Thrifty brands, was reporting healthy sales at the start 2020. The company’s revenue rose 6 percent in January and February.
But the pandemic dealt what the company has described as “a rapid, sudden and dramatic” blow. Sales dried up in March as much of the world started to shelter at home. Airports, where Hertz and its competitor Avis Budget Group earn most of their revenue, turned into ghost towns.
By late March, the company started to cut back on spending, sold some of its cars, furloughed workers and combined nearby outposts. Hertz management suggested that they had some room to maneuver, including access to $1 billion in cash.
“Hertz is a resilient company, with resilient brands and resilient people,” its chief executive, Kathryn Marinello, said in a statement at the time.
But Ms. Marinello resigned last week, and Hertz has since laid off or furloughed 20,000 employees, half of its work force. The company had cut pay for senior leaders in March, too, but reversed that decision recently.
The company’s march to bankruptcy began in late April when it missed a payment on a lease for some of its fleet, which includes about 667,000 cars, sport utility vehicles and other vehicles worldwide. It persuaded lenders to give it until midnight on Friday to put together a financial plan that they could accept. But in a filing this month, Hertz acknowledged the enormity of the task.
“If our business does not recover quickly and we are unable to successfully restructure our substantial indebtedness, obtain further waivers or forbearance or raise additional capital, there is substantial doubt that we will be able to continue as a going concern,” the company said.
Hertz had struggled in the years after the financial crisis of 2008 but had begun to turn around recently. Under Ms. Marinello, the company had improved operations, cut costs and reduced its debt, analysts said.
“I have no doubt that had the coronavirus not happened that Hertz would have eventually achieved its turnaround,” said Ryan Brinkman, an automotive industry analyst with J.P. Morgan.
The company’s shares closed on Friday at $2.84, down from around $20 in late February. Carl Icahn, the billionaire investor, owned about 39 percent of the company’s shares as of mid-March.
Its peers were better suited for the moment. Avis Budget Group, which has less debt, said last month that it had access to enough cash to survive the year. Avis, which also raised $500 million in a bond sale this month, acted more quickly to cut costs, analysts said. Enterprise, a private company, is better diversified and not nearly as reliant on rentals at airports as either Avis or Hertz.
When Ms. Marinello took the helm of Hertz in early 2017, she inherited a troubled company.
In addition to amassing a lot of debt, Hertz had recently purchased too many compact cars, which have been falling out of favor with American drivers for years, and failed to meet corporate cost-cutting goals. Her predecessor spun off the company’s equipment rental business. Earlier, Hertz decided to move its headquarters from New Jersey to Florida, which led many seasoned executives to leave the company.
“The company lost a lot of momentum during that time,” Ms. Marinello told investors soon after taking over. She was the company’s fourth boss in three years. And Hertz had been poorly served by “incredibly optimistic demand forecasts” and misguided car purchases, she said.
By some accounts, the company’s modern difficulties date to 2012. That year, Hertz, under the leadership of Mark Frissora, bought Dollar Thrifty in a deal valued at $2.3 billion, a price that some investors and analysts believed was too rich.
“That was the beginning of their troubles,” said Betsy Snyder, a credit analyst at S&P Global Ratings.
In mid-2014, Hertz said it would need to correct its financial results going back three years because of a string of accounting errors. A few months later, Mr. Frissora stepped down.
Frequently Asked Questions and Advice
Updated May 20, 2020
What are the symptoms of coronavirus?
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
How many people have lost their jobs due to coronavirus in the U.S.?
Over 38 million people have filed for unemployment since March. One in five who were working in February reported losing a job or being furloughed in March or the beginning of April, data from a Federal Reserve survey released on May 14 showed, and that pain was highly concentrated among low earners. Fully 39 percent of former workers living in a household earning $40,000 or less lost work, compared with 13 percent in those making more than $100,000, a Fed official said.
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Should I wear a mask?
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.
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If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
How do I get tested?
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.
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Charity Navigator, which evaluates charities using a numbers-based system, has a running list of nonprofits working in communities affected by the outbreak. You can give blood through the American Red Cross, and World Central Kitchen has stepped in to distribute meals in major cities.
Hertz had overstated income before taxes by $235 million, the Securities and Exchange Commission said last year. The company agreed to pay the regulator $16 million to settle fraud and other charges. Hertz sued Mr. Frissora and other former senior managers, seeking to recover at least $56 million in compensation and arguing that they had pressured subordinates to meet financial goals, which they did through the misleading accounting. The case is still pending.
Mr. Frissora does not agree that he is to blame for the accounting errors or the company’s current problems, Stephen Cohen, a spokesman, said in a statement.
“During his tenure at Hertz, Mark presided over substantial value creation and operational improvements,” Mr. Cohen said, noting that he was succeeded by several chief executives in the six years since he left Hertz. “Those C.E.O.s, and not Mark, have set the company’s strategy and overseen its operations leading to the company’s current circumstances.”
Also in 2014, Mr. Icahn, the activist investor, disclosed that he had amassed a stake of almost 8.5 percent in the company. He has since gained control of three board seats and expanded his holdings in the company, most recently in March when he purchased about 11.5 million shares at $7 to $8 each.
The bankruptcy filing represents a devastating blow to an institution that began in the early days of the American automobile industry.
Hertz was founded in Chicago in 1918 when a former Ford Motor salesman, Walter Jacobs, bought a dozen Model T’s and formed Rent-a-Car, Inc. The business grew rapidly and, within five years, it had a fleet of about 600 vehicles, according to Hertz.
In 1923, Jacobs sold the company to John Hertz, the owner of Chicago Yellow Cab Company, who renamed it. Together, the pair expanded the business nationwide. In 1932, the company opened its first airport car rental facility at Chicago’s Midway Airport, according to Hertz. The next year, it started offering one-way rentals. By 1955, the company had more than 1,000 locations worldwide. Today, there are more than 12,000 corporate and franchisee locations.
The company’s future is uncertain, though most analysts are optimistic that it can emerge from bankruptcy after restructuring its debt.
“I don’t think Hertz is going away,” Ms. Snyder said. “When you think about car rental, you think about Hertz. It’s an iconic brand.”