Hertz has canceled most of its new-car purchases this year as the car rental company continues negotiations with lenders to avoid bankruptcy.
Through February, Hertz started the year with U.S. car rental revenue up 8 percent year over year, but as travel bans and shelter-in-place orders began to proliferate in March, U.S. car rental revenue for the full first quarter declined 9 percent year over year to $1.38 billion. International car rental revenue were down 15 percent year over year to $368 million in the quarter. Hertz's first-quarter loss was $357 million, compared with a $148 million loss in the first quarter of 2019.
In April, revenue "went into a freefall," president and CEO Kathryn Marinello said, which has forced the company to take "drastic measures."
Hertz has negotiated with automotive suppliers to cancel about 90 percent of its model year 2020 fleet orders, and the company has "no material incremental capital committed" to buy new vehicles for its U.S. fleet, she said. The company on March 30 began furloughing about 16,000 corporate and field employees in North America, and 12,000 of those became permanent. About 4,000 employees outside of North America currently are furloughed, she said.
The cuts have lowered annual expenses by about $2.5 billion, CFO Jamere Jackson said.
"We have to be pragmatic about the timing of an economic rebound, including the possibility of a second wave of the virus in the fall," Marinello said. "No business is built for zero revenue. There's only so long that a company's reserves will carry them, so we are focusing on safeguarding current liquidity and increasing cash through efficiencies and deferred investments."
In the meantime, Hertz is negotiating with lenders on overdue lease payments, which Marinello said "would allow us to have the funding to support operations in what could be a very prolonged travel interruption." Those negotiations currently have a deadline of May 22, and Hertz risks bankruptcy if it cannot come to a resolution with lenders.
Hertz executives did not provide an update on the negotiations in their earnings call this week, which did not include time for questions from analysts.
At the same time, Hertz is adjusting its business for the rebound. The company on Friday announced a new "Hertz Standard Gold Clean" sanitization process for all vehicles, which will include cleaning all contact surfaces with a disinfectant effective against the Covid-19 virus. Hertz also is offering a "Neighborhood Delivery" option in 3,000 U.S. neighborhoods, in which vehicles are delivered to customers rather than picked up at a rental location.
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