When most people plan to travel for vacation or business, they usually opt for a rental car. And when someone decides to rent a car, they usually turn to Hertz. The reason is that for many people across the United States, Hertz is as synonymous with car rentals as McDonald’s is with fast food. Basically, you can’t have one without the other.
Sadly, though, it seems nostalgia and brand loyalty alone aren’t enough to keep Hertz in the dark. Unfortunately, since May 22, 2020, Hertz has officially filed for bankruptcy.. As you probably guessed from the start, the COVID-19 pandemic had something to do with the situation Hertz found itself in.
However, despite the obvious damage the pandemic has inflicted on “America’s favorite car rental company,” there are other reasons why Hertz has found itself in this precarious position. After all, if slow car rentals were the only problem, chances are every car rental company would file for bankruptcy. So why was it only Hertz that was “hert”?
Let’s explore the multitude of reasons behind the ruin of everyone’s favorite black and yellow car rental company.
The pandemic was the beginning of the end
Yes, as we mentioned earlier, COVID-19 was indeed a major reason why Hertz went bankrupt. As you probably already know, when the pandemic was officially recognized in all areas, interest in travel (whether for business or pleasure) completely collapsed. Unfortunately, even an iconic brand like Hertz would not be spared the economic destruction that would result.
Because international (let alone interstate) travel was disrupted, it quickly became clear that people wouldn’t need rental cars for the foreseeable future. As a result of this rental car shortage, Hertz ended up taking huge hits to its profitability margins. So much so that it would actually only take Hertz about three months to throw in the towel.
Initially after the pandemic, used car sales bottomed out
Now, if you know a thing or two about Hertz, you might already know that car rental wasn’t the only type of business they got into. Moreover, they also played a role in the used car market. This side of the business operated by selling the old used cars inherited from their rental fleets.
Unfortunately for Hertz, when the pandemic first spread, used car sales quickly hit an all-time low. This is because people started losing their jobs and also pledged to save as much money as possible at the same time. Because of this problem, Hertz could not even turn to its used car department for additional funds (Curiously, we are currently facing the exact opposite problem, as the demand for used cars is now at an all-time high; what particular era we live in).
So why did Hertz do so poorly compared to other rental companies?
So, now you might be wondering, “Why don’t companies like Avis go bankrupt?”. Well, the answer to that question can be found when we look at what Hertz was doing just before the pandemic started. Basically, simply put, they just finished spending a ton of money.
In the few years leading up to the pandemic, Hertz pledged to completely revamp the entire company from the ground up. As a result of all the upgrades implemented, Hertz had completely exhausted all of its reserve funds. Unfortunately for America’s favorite car rental company, it couldn’t have picked a worse time to do all of this.
Hertz’s plans for re-emergence in the near future
Although it initially owed more than $650 million to creditors, Hertz is now officially out of bankruptcy and looking to the future.
Since emerging from its distress, the company has acquired almost $6 billion in capital from companies: Knighthead Capital Management and Certares Management. Supposedly, Hertz and these loan companies believe the worst is now behind them.
To generate more profits and entice more people to rent cars, Hertz has increased many of the benefits included in its loyalty program. Additionally, Hertz has also been able to capitalize on the boom in the used car industry that we currently find ourselves in. Specifically, they were able to sell 200,000 of their fleet of 650,000 existing cars to eager consumers.
While it’s currently impossible to know what tomorrow will bring (hopefully not another pandemic), it’s starting to feel like things are beginning to return to something resembling normal. Hopefully, this trajectory bodes well for companies like Hertz, as companies like this are thriving virtually outside the normal. That said, the next time you need a rental car, don’t be afraid to show Hertz some love. Remember, just like the rest of us; they had a hell of a year.
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