Curious to find out: Is Hertz Going Out Of Business? We got you!
Hertz, the popular car rental company, seems to be on a roller coaster ride since it filed for bankruptcy and somehow emerged from it the next year itself.
So, what is going on with Hertz? How did it go bankrupt in the first place, and how is it doing now? Keep on reading to find out.
Hertz is an American car rental company that was founded in 1918 by Walter L. Jacobs. The company began as a small operation when the founder began renting a dozen Model T Ford automobiles.
The company added a few more services, including self-drive rentals, introduced one-way rentals, and started expanding quickly both nationally and internationally.
Today, Hertz is headquartered in Estero, Florida, and is a well-recognized car rental company in the world. The company is active in more than 150 countries and can be distinguished by its yellow and black logo.
Having said that, Hertz has faced its share of downfalls to the point that the company went bankrupt in 2020. Keep on reading to find out the details of exactly what happened.
Hertz was one of the major companies that filed for bankruptcy thanks to the pandemic that halted the world temporarily.
In 2020, Hertz was already $18 billion in debt, and the pandemic made traveling impossible for the people. This resulted in approximately 700,000 Hertz rental vehicles sitting idle.
Eventually, the company failed to meet leasing payments and was forced to file for bankruptcy in 2020.
“Faced with the epic and unprecedented challenges presented by the Covid-19 pandemic, and unfazed by early leadership changes, we stayed focused on stabilizing the business and seizing opportunities to mitigate losses and create value for our stakeholders,” Keizer, chairman of Hertz’s board of directors said.
Reasons Why Hertz Went Bankrupt
Here are reasons why Hertz went bankrupt in 2020:
It all started when Hertz was bought by a private equity firm for $5.6 billion in cash. Now, despite taking $10 billion in debt, the new company paid $1 billion in dividends, a foolish move.
As a result, the company’s CEO, Mark Frissora, started cost-cutting measures and even laid off many employees. The cost-cutting measures indeed awarded him $19.2 million.
A few years later, in 2012, Hertz acquired Dollar Thrifty Automotive Group for $2.3 billion. Although this deal helped Hertz expand and beat competitors, it also added more debt for the company.
Additionally, Thrifty and Dollar allowed their tires to wear off much more than Hertz, for which Hertz ended up spending $30 million in upgrading tires.
These companies offered personal transport without going through the process of renting. This affected Hertz’s business model deeply, as described below.
Weak Business Model
Hertz makes money by renting a very large fleet of vehicles and relies heavily on an asset-fronted debt model. Under this model, the debt owed to the creditor actually depends upon the value of the leased vehicle.
So, with time, when the value of vehicles decreases, the creditors can change the terms of the
loan in its favor. As the competition from other car rental companies began to get serious, Hertz started making less and less money to fund its fleet of leased vehicles.
Surely, the pandemic gave a final push to Hertz and threw it into the pitfall of bankruptcy, but the company was trudging the path all along anyway:
Hertz Has Emerged From Bankruptcy Now
It might have seemed like the end of the world for Hertz, but surprisingly, the company turned the table around quickly. As the economy opened and the world started traveling again, Hertz was able to successfully emerge from bankruptcy in 2021.
So, how did Hertz go from bankrupt to being in business so soon?
Well, during the time of bankruptcy, Hertz promised to sell over 180,000 vehicles- and at that time, Americans were facing a shortage of new cars in the market. This increased the need for used cars, giving Hertz just what it needed.
Henry Keizer called this recovery “remarkable,” and we might as well call it miraculous.
Consequently, Hertz managed to find new investors- Knighthead Capital Management and Certares Opportunities- who provided $5.9 billion in new equity capital and saved the company.
Is Hertz Going Out Of Business 2024?
No, Hertz is not going out of business in 2024. The company filed for bankruptcy in 2020 and recovered from it in 2021, thanks to its new investors.
Also, the company has now reduced its debt by nearly 80%, which is $5 billion. The company has also improved its liquidity significantly to fund operations and future growth.
So, as of now, Hertz is doing just fine.
Hertz’s Annual Revenue (2013-2022)
|Annual Revenue (in Millions)
Competing with companies like Uber and Lyft is not easy, and over the years, Hertz has been somehow sustaining itself. In spite of a somewhat weak business model and poor management decisions, it has been able to emerge from the bankruptcy filed in 2020.
Hertz still has a long way to go. The company is trying to reduce its debt and change its business strategy; online time will tell how strongly this company will emerge in the coming years.
We hope after reading this article, you have now found the answer to your eager question: Is Hertz Going Out Of Business?
How is Hertz doing financially?
As per the third-quarter results in 2023, Hertz made revenue of $2.7 billion and $629 million in net income. These strong financial results tell us that Hertz is doing well financially right now.
Who owns Hertz currently?
Knighthead Capital Management, LLC is the largest shareholder of Hertz currently, followed by BlackRock Inc. and Vanguard Group Inc.
What is the Future of Hertz?
Initially, Hertz planned on electrifying its fleet and even placed an order for 100,000 zero-emission electric vehicles.
However, the company recently revealed that it will instead opt for gas-powered vehicles because the damage and collision of EV vehicles cost a lot.