It was not the transition to hybrid electric-thermal motor vehicles. The innovations brought by Uber and Lyft, the two main alternative taxi platforms, managed by private individuals, were not entirely. What led Hertz’s board of directors, led by Paul Stone since May 18, to the decision to resort to the restructuring is the context in which the American automobile industry is moving in the first place, and the evolution of the spread of the coronavirus Sars-Cov-2 in second instance. At stake are approximately $ 400 million that Hertz has to pay to creditors. Blame for the drop in rentals? Not only. It is not just the confinements imposed by governments to curb the spread of Covid-19 that has clouded the future of car rentals. In the case of Hertz, it is also the blocking of new orders already scheduled for 2021. 90% of them have been canceled in the last few weeks, but the advances remain paid, therefore it cannot return to increase the cash. Lost money, which, however, is added, as noted by the Apollo fund, to that still to be paid for the leases agreed for the current year. And which, as easy to understand, could not be used for travel between states.
Fewer cars hired, less cash liquidity, less possibility of repaying debts. Hertz’s approximately 38,000 employees are at risk. Last year’s revenues don’t count, $ 9.48 billion, in line with the $ 9.50 billion in 2018. Nor does it count as a supplier to many US federal agencies. For Hertz, already subject to price competition by Avis, on the corporate fleet front, and ZipCar, on the rental for private individuals, the impression is that it has come to the parking lot. Definitive. Moreover, if it has been known for years, as the Pew Research Center in Washington, DC periodically points out, that the Millennial generation (born on horseback between the eighties and nineties) has less and less interest in owning a car, it is true also that the movement methods have changed.
The influence of the young Swedish activist Greta Thunberg in the United States has been intense, as has the growth in the use of Uber, Lyft and Via. All elements that have reduced the attractiveness of normal car rental companies. But, unlike Enterprise and Avis, the two main competitors on the American market, Hertz has tried to the very end to create what the same company called “a different experience”. That is to say, more built around the customer, also on condition of a higher rental cost. A business model that has so far proved not up to expectations. Both because users’ habits have changed and because Wuhan’s new coronavirus has intervened to mess up the cards in play.
The decision, according to qualified sources of the company, will be formalized this weekend. CEO Paul Stone has opted for the toughest choice, but also the one with the greatest awareness of today’s picture. After replacing Kathryn Marinello a few days ago, the turning point. The former self-made man of Walmart, the largest chain of stores in the United States, who went from being the manager of a store to becoming vice president, decided to act in a timely manner. Before the creditors could be attacking the company. In the absence of an agreement with them, the duty of the company, sources of Hertz leak, is to “preserve the employees who have so far believed in our family”. If this means bringing books to court, then, the way will be. Provided that, however, the company points out, we are moving towards a complete reorganization, also by virtue of the changed macroeconomic scenario and the consequences of the ongoing health emergency. An emergency that has so far resulted in 97,590 deaths in the United States, against 1,643 million total cases.
A final solution could have come from Carl Icahn, the company’s main shareholder. The American financier a few days ago had bought new shares in the company, in order to protect his invested capital, equal to about 1.6 billion dollars. If he had decided to intervene on the market, Hertz’s rescue would have been a reality. However, no indication has arrived. So much so that Hertz’s stock on Wall Street lost more than 40% in closing. With the consequence that not even institutional investors believed that a solution could arrive by Monday. That in fact has not come.