Rental car company Hertz gets temporary emergency lifeline from lenders

On Tuesday, shares of rental car company Hertz fell more than 14% after it disclosed that it received approval from its lenders to continue negotiations through May 22 to “develop a financing strategy and structure that better reflects the economic impact" of COVID-19.

Video Transcript

MYLES UDLAND: As we expected, there are going to be bankruptcies as a result of this downturn, and the large public facing companies that you have probably heard of are getting into the mix at an increasing rate. Yesterday of course, we saw the news that J Crew had declared bankruptcy, L Brands and Sycamore called off their potential takeover, which would have seen Victoria's Secret get a rescue for itself, and now we're moving into the rental car space. News out of Bloomberg that Hertz is in discussions right now with its lenders to avoid a bankruptcy filing.

That stock right now is down some 14% today, and Melody, I think Hertz is an interesting company, because the threat that it's been facing for years now with the rise of Uber, the rise of Lyft, where exactly does a rental car or company fit into this? Not to mention the fact that its business model, the rental business model is great minus the fact that you have all this equipment on your balance sheet that is constantly depreciating in value, you're responsible for all the upkeep, and business travel is down, leisure travel is down. It couldn't be more of the perfect storm for a company like Hertz and its peers in the rental space that again, already had this kind of secular pressure on it.

MELODY HAHM: Yeah, and do you remember when the biggest existential threat to the rental car industry was that Uber and Lyft would be getting into rentals, which we do know to be the case, and Uber and Lyft themselves, their business is struggling. I think in this specific instance, Myles, with Hertz, to your point, it's just there isn't a real sign of life. There isn't a sign of hope in this sort of environment. I do know for a fact that when business travel is happening, I think all of us-- whether it's in the face of the Airbnbs of the world or the Uber and Lyft of the world-- there is some comfort, right, in being able to drive your own car and be able to stay at a hotel. Those are the two kind of OG methods when you would go on trips.

Now, it's all out the window. That's not even an option as people are not traveling, as people are not leaving their homes, and just thinking about, you know, me being based here in LA, I do know that people who did need to buy a new car or were thinking about buying a new car, those plans have been put on hold, so you can only imagine the leasing side of things or even the rental side of things. Those are completely businesses that have gone kaput. So in this environment, I can't imagine that you know, sure, they're safe from a bankruptcy for now, but I imagine that the secular trend looking ahead the next couple of years, it's not going to end well for a company like Hertz.

DAN ROBERTS: And guys, just a note on car rental service, because you know, I'm someone who when we travel-- whether it was for work or even pleasure-- I usually do rent a car, and I enjoy having a car to take around, but I have to say just anecdotally that you know, usually I'm agnostic to which provider it is, it's just about price, and I do it on an app, but when I have landed on Hertz, it's just not a good experience. I mean, especially in LA. I mean, I've waited for like an hour and a half in that line at the Hertz at LAX, and that's when you already have a reservation.

So I think part of this is that, you know, as tech advances, services are no longer getting away with having clunky, bad user experiences that drive you insane. Now that said, it makes sense that Uber and Lyft will get into car rental services, but Melody, I have a question for you. I remember hearing you cover that they were launching those businesses a while back, and then I never really heard much more about it or saw much more about it, but maybe it was unlucky timing, and it was right before coronavirus, but [INAUDIBLE]. I haven't seen or heard anything about Uber, Lyft car rental services anecdotally yet.

MELODY HAHM: Yeah, Lyft in particular had been very bullish on that space, specifically in cities like LA. I actually spoke with a bunch of different startups based here like Get Around and Fair that operates in similar business models. And judging by some of the executives-- this was pre-pandemic-- judging by some of those executives comments, they were not threatened at all by that service, and yeah, I think, Dan, to your point, overall, the experience, I think, in this industry, although most people are agnostic, I would say it's a pricing war, whatever is cheaper for the same car you'll probably take. Overall, it's not really a lucrative business. And so I think to that point, if you're going to be using Uber and Lyft, you're using it for ride share, you're not using it for rentals, so I think overall it was not seen as much of a threat whatsoever.

JEN ROGERS: I didn't expect to be defending Hertz's customer service, but I feel like I have to jump in here, Dan Roberts, you had to become a gold member. You don't have to wait in line. You just-- every service has this. Don't wait in line for any of these rental car companies. Honestly, you've got to-- you sign up for it through your credit card. This is a good tip for you.

DAN ROBERTS: The problem is if you're not renting enough for it to be worth it. You know, I'm an infrequent rental car renters.

JEN ROGERS: Yeah, I would say Hertz is like the gold standard, and I think for some people it's surprising that they're in trouble, but this all comes down to your balance sheet. People say like, what's the difference between Hertz and Avis? Well, Hertz went in with less cash on the balance sheet than Avis has. They figured Avis went and tapped the market earlier and in pandemic crisis, so trying to figure out the difference between these companies, because people think Avis might make it. Enterprise, which is privately owned, might make it. Again, it comes back to the same thing that we're seeing with J Crew, and even before the pandemic, it's what we saw with Toys R Us. You don't want to have a ton of debt, because it's really hard when things get tough to figure out how to make something work if it really hits your industry hard, and that's what's happening here.

MYLES UDLAND: I got to say, talking about the comparative benefits of different travel perk programs, it's very bull market kind of thing. I guess that's a good contrarian indicator for the state of mind of our panel here if we're discussing the relative benefits of being a Hertz gold member berth versus Avis, for example, something like that. But I think also, you know, Jen, to your point about Hertz's relative position. I think the entire suggestion that Hertz is going to be able to discuss with its lenders a plan for the next three weeks to get through this period I think also shows that there's a lot of capital that's available to a lot of companies, and if you look at what happened, which was revenue going to zero for some untold number of companies, I think you would have expected actually more bankruptcy filings by this point in the proceedings.

We're six, seven weeks into this thing, but there is a lot of money that is available to be dispersed. I think banks want to be involved in getting companies through this period rather than going into a very messy, and prolonged, and expensive bankruptcy proceedings, which you know, it's an option, and a lot of companies are going to use it, but it's kind of a pain in the butt to go through a whole bankruptcy and then continue your operations in the interim. So I think there are plenty of financing options for companies who can start to build a case maybe, maybe, maybe that things are turning around to some extent. I don't really want to hear about how TSA travel numbers are up like 15%, because it's from 90,000 to 105,000, but there is a small uptick in what we're seeing in terms of travel broadly around the country.