As the coronavirus continues to drastically curtail global and domestic travel, there are several industries which have found themselves in a great deal of financial trouble as a result. Both the auto manufacturing and car rental industries have been struggling to stay afloat during these unprecedented times, but it seems that they are being hit with one blow after the other.
Car rental company Hertz Global (NYSE: HTZ) has run into some serious financial trouble due to a significant decline in rental-car demand, and is currently in the midst of negotiations with its senior lenders as a move to temporarily defer a potential bankruptcy filing. However, in a recent conference call, CEO Kathy Marinello revealed that Hertz is in much deeper trouble than previously anticipated. Due to a first quarter net loss which ended up being much bigger than predicted, the car rental company is now resorting to a cancellation of 90% of its 2020 model year new vehicles.
Such a drastic move suggests Hertz is not anticipating that rental car demand will recover anytime soon, but it’s not the only company implementing such a move. Enterprise Holdings and Avis Budget Car (NASDAQ: CAR) have also recently announced they will be reducing and/or cancelling new vehicle orders from car manufacturers. This in turn puts American automakers in a very tough spot.
Since rental car companies account for approximately 10% of total US auto sales per year, car makers such as Ford, General Motors, and Fiat Chrysler are soon going to find themselves swamped with an oversupply of new vehicles with no new owners. However, some car manufacturers including General Motors have agreed to take back a portion of new vehicles slated for rental car companies, as a move to alleviate some of the challenges resulting from the coronavirus pandemic.
Information for this briefing was found via Bloomberg and the Detroit Free Press. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.