Hertz Cancels 90% Of New Car Purchases, Further Pressuring Already Desperate Automakers

Hertz Cancels 90% Of New Car Purchases, Further Pressuring Already Desperate Automakers

Tyler Durden

Thu, 05/14/2020 – 11:55

One harsh reality of the coronavirus lockdown has been the rental car industry, amid a broader travel industry, grinding to a total halt. This has led to several consequences that we have been documenting at length here on Zero Hedge.

The main consequence is that auto dealers are losing billions of dollars in fleet sales, which we documented just last week. Fleet sales account for 1.7 million vehicles per year, or about 10% of total U.S. auto sales. 

Another consequence is that rental car companies have nowhere to store their inventories. Parking lots across the U.S. are full of rental cars, forcing some rental car companies to even rent out the parking lots of unused sports stadiums to store their cars. 

This, combined with a massive demand drop off, has led to a massive inventory glut for auto dealers, who are being forced to consider major incentives across the board to try and sell vehicles when the consumer makes their way back to the showroom.

It’ll be difficult, as the price of used cars is also plunging and Americans are known for buying used cars, instead of new ones, in times of economic peril. 

Now, it looks as though the situation for the auto industry is getting even worse.

Hertz, which is currently in the fight of its life against bankruptcy, has cancelled 90% of its new car purchases for the 2020 model year, according to Bloomberg. The move will likely hit major automakers hard. 

General Motors, Fiat and Ford will be hit the hardest, as they made up 21%, 18% and 12% of Hertz’s vehicle supply, respectively

Chief Executive Officer Kathy Marinello disclosed the company’s plans (or lack thereof) in a conference call on Tuesday after the company reported a larger loss than expected and admitted it might not be able to continue as a going concern.

Management didn’t seem to expect a “V-shaped” recovery, to say the least. 

Marinello said: “The coronavirus created a major disruption as the global travel market and the used-car market effectively shut down. We have to be pragmatic about the timing of an economic rebound, including a second wave of the virus in the fall. So we are focused on safeguarding liquidity.”

Rental car sales fell 77% in April and Fiat was the hardest hit with loss of total fleet sales, according to Cox Automotive.

Hertz continues to try and negotiate with its lenders ahead of a May 22 debt deadline. Should the company not meet its obligations by then, it may risk bankruptcy. There was no status about the company’s bankruptcy talks on the conference call.

Usually, that’s not a good sign…

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