Hertz Bankruptcy & Fleet Liquidation Threaten to Make Mess of Used-Vehicle Prices with Burst of “Pent-Up Supply”

Here come the “bankruptcy-remote special-purpose subsidiaries” and $14.5 billion in rental-vehicle-backed securities. The stock market – other than Carl Icahn – smelled a rat for years.

By Wolf Richter for WOLF STREET.

The Chapter 11 bankruptcy filing of Hertz Corporation and its US and Canadian subsidiaries Hertz, Dollar, Thrifty, Firefly, Hertz Car Sales, and Donlen – but not its subsidiaries in Europe, Australia, and New Zealand – on Friday May 22 threatens to make a royal mess of used-vehicle wholesale prices, as creditors may take possession of their collateral and dump hundreds of thousands of vehicles on the wholesale market starting in late July, pushing down wholesale prices further and creating further valuation pressures and bigger losses for Hertz creditors, the entire rental car industry, and leasing companies that also have to dispose of their vehicles.

This is the scenario the industry has been dreading for the past 10 weeks or so, when the distant likelihood of a Hertz bankruptcy suddenly became front and center. Hertz has already laid off about 20,000 people, or about half of its global workforce, it said in its bankruptcy press release.

On April 29, Hertz disclosed that it had missed a lease payment on part of its fleet. And this is where it gets interesting, in terms of financial engineering and corporate complexity.

Hertz, which runs the second-largest rental fleet in the US behind Enterprise, owns its fleet in two types of setups: as “program vehicles” and “non-program” (or at-risk) vehicles.

Program vehicles are purchased from automakers under repurchase or guaranteed depreciation programs, where automakers agree to repurchase the vehicles at a set price; or they guarantee the depreciation rate until the vehicle is repurchased or sold at auction. These program cars are more expensive for Hertz. But they have two benefits for Hertz that would now be sorely needed: They shift the risk of the vehicle’s value to automakers; and they allow Hertz to get out of units at preset prices, giving Hertz flexibility in cutting its fleet when it needs to without taking losses.

If Hertz decides to shed some of those vehicles, they’ll show up at the auctions, adding to the supply of used vehicles. But it’s the automakers that will have to take the losses.

However, only 29% of its fleet in the US, or about 164,000 vehicles, were program vehicles as of Dec 31, according to its 10-K filing.

The remaining 71%, or 400,000 vehicles, were non-program at-risk vehicles. They’re owned outright by the company, and it carries all the risks.

But wait… here come the “bankruptcy-remote special-purpose subsidiaries” and $14.5 billion in rental-vehicle-backed securities.

Hertz leased these 400,000 vehicles from entities it created and owns – such as Hertz Vehicle Financing II LP, a “bankruptcy remote” wholly-owned special-purpose subsidiary of Hertz. These special-purpose subsidiaries are not part of the bankruptcy filing. But they have securitized these leases of the at-risk fleet into $14.5 billion of asset-backed securities (ABS) as of March 31.

These $14.5 billion in ABS, which are also not part of the bankruptcy filing, are held everywhere, from pension funds to hedge funds and bond mutual funds. The 400,000 vehicles are the collateral.

On April 29, Hertz announced that it missed making the payment on its vehicle operating lease to its special-purpose subsidiary. Thus, the cash flow to the special-purpose subsidiary collapsed, which then cannot pay the holders of the ABS. Hertz was able to negotiate “short-term relief” with the holders of the ABS at the time, it said, but was “unable to secure longer-term agreements” to reduce the payments.

The ABS holders now have a right to foreclose on the vehicles and sell them at auction. But they have to wait for 60 days. So this scenario would commence toward the end of July.

Hertz will likely try to work out a deal to where only part of the fleet is liquidated that would downsize the fleet to a large extent, but leave enough vehicles in the fleet to meet the collapsed travel demand.

But working out a deal with these disparate holders of those ABS is going to be complicated – if it can be done at all. If no deal can be worked out, the ABS holders can liquidate all 400,000 vehicles. If a deal can be worked out, they might liquidate only part of that.

Vehicles lose value constantly, even when they’re parked, and dragging this out means even bigger losses for the ABS holders. And they know that too. When those vehicles are suddenly being run through the auctions starting in late July, they will put downward pressure on wholesale prices, further increasing the losses.

And there’s more debt.

Hertz also owed $4.3 billion in non-vehicle, deep-junk-rated corporate bonds and leveraged loans. According to Trepp, the $700 million term loan has been packaged into Collateralized Loan Obligations (CLO).

And this eight-year 6% unsecured note, issued in November 2019 at around 100 cents on the dollar, and that traded at 104.5 cents on the dollar on February 21, closed at 12 cents on the dollar on Friday, before the bankruptcy announcement (chart via Finra-Morningstar):

The bankruptcy petition listed $24.4 billion in total debts, including trade accounts payables, and $25.8 billion in assets as of March 31. Much of the asset book values are based on vehicle values. But wholesale vehicle prices dropped 12% in April, according to Manheim, the largest auto auction house in the US. There has been somewhat of a partial recovery of prices in early May, but those Hertz vehicles are hanging dreadfully over the market that is just now starting to unfreeze.

Hertz listed numerous unsecured creditors in its bankruptcy petition, such as lenders, vendors and suppliers. These are the largest five:

  • Wells Fargo, unsecured notes totaling $2.7 billion
  • Goldman Sachs, lender, administrative agent for Alternative Letter of Credit: $200 million.
  • US Bank, unsecured notes, $28 million
  • IBM, trade accounts payable, $23 million
  • Lyft, trade accounts payable, $19 million.

The pandemic was what knocked Hertz over the cliff. But it had been teetering near the cliff for years, burdened by its enormous debts and lousy operations.

It lost money in three of the last four years, totaling $447 million. But that profitable year, 2017, was only profitable due to a $902 million income tax benefit, while it had an operating loss that year of $575 million.

The stock market – other than Carl Icahn – has smelled a rat for years.

Competition in the rental car market is huge, not only from other rental car companies but also from rideshare companies. I have been reporting on Hertz’s travails and desperate actions since 2016.

Hertz has been a shitty deal for Carl Icahn from get-go. In August 2014, Hertz shares rose to $109 a share after he disclosed a big stake. And that was the peak. Shares have zigzagged lower, interrupted by huge plunges, each a buying opportunity. And Icahn, through his various entities, kept buying. In the bankruptcy petition, Hertz said that Icahn now owns a 38.89% stake, having bought at ever greater discounts all the way down.

On Friday, shares closed at $2.84. When Hertz disclosed its bankruptcy filing after hours, shares plunged another 36% to $1.82.

It is likely that Hertz will be successfully restructured in bankruptcy court while continuing to operate. But much of its fleet will be liquidated, some creditors will take sizeable losses, and existing shareholders will likely get wiped out.

Immense corporate complexity and the fifth CEO in six years.

On May 18, Hertz announced that it replaced its CEO, the fifth CEO since 2014. The company has made many efforts to restructure its operations but couldn’t pull it off. But it was able to create an immensely complex corporate structure.

The bankruptcy proceedings are going to be very complicated with many potential pitfalls along the way, given the company’s labyrinthine structure of subsidiaries, including those that are not part of the bankruptcy, such as the special-purpose subsidiaries that hold most of the collateral and issued $14.5 billion in ABS.

Below is a chart of Hertz’s corporate structure, as shown in the bankruptcy petition; the blue boxes denote the entities that are included in the bankruptcy; the other boxes are the entities that are not included (click to enlarge):

Automakers not amused.

Hertz is a huge customer of various automakers, particularly GM, Ford, and Fiat Chrysler Automobiles. Before the bankruptcy filing, Hertz canceled any still cancellable orders to reduce the influx of new units. Non-cancellable orders may be cancelled in bankruptcy court. For automakers, fleet sales are going to suck this year – not just because of Hertz.

Hertz was ripe and ready when the pandemic hit.

Hertz’s debt problem goes back to its leveraged buyout in 2005, when ML Global Private Equity Fund (an affiliate of Merrill Lynch) and private equity firms Carlyle Group and Clayton, Dubilier & Rice acquired the company from Ford. In November 2006, while the getting was still good, they sold the heavily indebted Hertz via IPO to the public.

But 14 years is a long time, and if the company had tried to reduce its debt load, it could have, including by raising new equity capital by selling shares in follow-on offerings when its share price was still high. But it waited to raise equity capital until June 2019, via a rights offering of $750 million, by which time its shares had already collapsed to the $16-range. Icahn loaded up.

Hertz said that it has tried to obtain a bailout from the US government and from European governments, but that such bailout for the rental car industry “did not become available.”

So Hertz was ripe and ready, and when the pandemic crushed travel in general and demand for rental cars, Hertz popped.

In its bankruptcy press release, the company said that it had “more than $1 billion in cash on hand to support its ongoing operations.” But “depending upon the length of the COVID-19 induced crisis and its impact on revenue,” it may also need to raise additional cash via a Debtor-in-Possession (DIP) loan.

In its letter to suppliers, Hertz said that suppliers and vendors will be paid “for all goods delivered and services rendered after our filing date of May 22, 2020 (post-petition).” But for all goods delivered and services rendered before May 22 (pre-petition), suppliers and vendors will have to get in line in bankruptcy court.

For retail buyers of used vehicles, this flood of pent-up supply suddenly hitting the market may mean that there will be some deals available. A Hertz fire sale will impact the entire market. Many of these units may go through auctions to be sold to dealers around the country. Hertz also sells its cars to used-vehicle dealers, brokers, and wholesalers. And it sells its cars directly to the public in its many retail stores, and it may try to stimulate sales by offering deals.

Now at least, price discovery can take place amid a more ample flow of vehicles. But the entire industry dreads a Hertz bankruptcy could cause lenders to liquidate its fleet. Read… Used-Vehicle Market Starts to Unfreeze, “Pent-up Supply” Looms

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  172 comments for “Hertz Bankruptcy & Fleet Liquidation Threaten to Make Mess of Used-Vehicle Prices with Burst of “Pent-Up Supply”

  1. HD says:

    Having read through the article, am I correct to assume that modern day business boils down to crafty debt management? Where is the time a company actually had to make a profit to stay afloat? And if it didn’t, it simply went bust, without being zombified.

    • Joan of Arc says:

      “If you owe the bank 1,000 pounds, you have a problem. If you owe the bank 1 million pounds, the bank has a problem.” – John Maynard Keynes

      • Thomas Roberts says:

        In that case, the real question is, how do I get the bank to loan me a million pounds. Will I have an app? How much money do I have to lose each quarter to justify a million maybe a billion pound loan?

        • Jp says:

          So Wells Fargo is the biggest bagholder. Any chance of this showing up in their stock price? They’re already facing a wave of impairments from mortgage forbearances.

        • Wolf Richter says:


          It is highly likely that Wells Fargo securitized those notes and sold them to investors either as leveraged loans or packaged into CLOs, and that the risk is spread over many investors.

    • Suzie Alcatrez says:

      Anything private equity touches dies.

      • VintageVNvet says:

        Exactly correct SA!
        Now, if somehow, we could get PE to touch this virus, we would likely see it die, but a long lingering death of a thousand cuts of its budget followed by a depletion of any real value,,, of course after that it would be ”sold on” to the retail public to take the continuing losses, eh?
        Unfortunately, with this latest crony capitalism corruption stimulus program putting Trillions into the hands of PE and the hedgies, it is much more likely they will take over even more of the residential markets, from SFR to multi multi family, and make it even more expensive for average Jane and Joe families.

      • Javert Chip says:

        Not quite accurate, but close enough.

        Here is a pretty credible research paper from Cal Poly, documenting 20% of large companies taken thru private equity go bankrupt within 10 years, a bankruptcy rate that is 10-times higher than the control group.


        The coup de grace in most deals is the act of loading up the target company with a huge bank loan, most(all) of which is then paid to the private equity firm as a huge “management fee”. The bank loan is quickly securitized and sold to people managing other people’s money (read: pension funds), followed by an IPO of the target company. Note: done perfectly, at this point, neither the bank or Private Equity company have any residual risk in the target company.

        I’ve contended for years that the huge “management fee” should be illegal: this is no more than a scheme run by sophisticated parties (private equity & pension fund managers) to knowingly loot unsuspecting & unsophisticated people of their pension funds.

        I’m a strong capitalist, but I understand meaningful regulation is required to protect the integrity of the system; I especially support regulation to protecting unsophisticated parties from sophisticated financial predators. Private equity is the poster boy for predation. Correcting this is easy; the only thing missing is the political will.

        • Dan Romig says:

          Thank you! Well explained and a strong argument for “… meaningful regulation is required to protect the integrity of the system; …” I will not hold my breath waiting for the political will to do so.

          Our system, as guided by the Fed and central banks, has twisted things to where capital has no value or cost. The part of Wolf’s piece that stood out to me was, “… if the company had tried to reduce its debt load, it could have, …”

        • Iapetus says:

          Huge “management fees” and similar forms of looting are a natural result of the relationship that is permitted between a Private Equity firm and its portfolio companies. A Private Equity firm is simultaneously an investor-owner of a private company, and a seller of vendor services to it, and a supervisor of its management. This allows them to stand on both sides of many potentially valuable transactions by this private company.

          So technically a Private Equity firm can influence or authorize the payment of an extraordinarily high dividend in their capacity as management, which is then paid to themselves in their capacity as investor-owners. Or as management they can influence or authorize the sale of valuable company assets to a private equity related entity (asset stripping) at very attractive or below market prices. Or as management they can influence or authorize the payment of extraordinarily high fees to themselves, as compensation for services of considerably less or nonexistent economic value. Or as vendors they can submit an inflated invoice to the private company, and then influence or authorize its payment to themselves in their capacity as company management. Or as management they can influence or authorize the sale-leaseback of company real estate to themselves which gives them both a below market price asset, and a creditor position in the event of this companies bankruptcy. Or as management they can influence or authorize heavy company borrowing in order to pay for all the above, but only this private company is responsible for the repayment of these debts.

          In this way a Private Equity firm can siphon away the valuable assets of a private company, leaving its employees and creditors to contend with the liabilities that remain. Since Private Equity firms will only invest in private companies, which are not required to report their financial actives to the Securities and Exchange Commission (SEC), this means details of these conflicted activities require less disclosure and can be hidden from the public eye.

        • Candyman says:

          Well done, and thank you for easy learning, including multi facet angles of viewing the problem . And the solution, political will, you have my vote!

        • Noelck says:

          Strongly agree. There are also tax advantages and loopholes that these private equity companies abuse.

        • ers says:

          So they company that sold to the PE has no responsibility? Are the owners just as greedy?

        • VintageVNvet says:

          Wonderful, thorough, and yet as succinct as possible summary of the facts of the situation that took me every bit of 20+ years to be able to ”glean” from the available at the time information.
          Thank you!!
          While I am and have been for the last 70 years or so a devotee of capitalism,, the example of ”crony” and corrupt capitalism you summarize so well leads me to just hope we are able to correct this and similar kinds of very out there corruption before we go down just another sewer of what is usually referred to as socialism, and is usually just dictatorship by some more palatable to the masses name.

      • Nala says:

        @Suzie – So very true!

    • Engin-ear says:

      Will we see temporary negative prices for used vehicles because of Hertz’s debt owners dreading the physical inflow of reposessed vehicles?

      • Engin-ear says:

        “Boom times for the auto business is just around the corner”

        I wish it will happen as you say.
        It is reasonable to expect shifts in vehicle usage.

        Less business travel, probably less public transport. More remote work.

        Yet you still may keep usages like seeing a doctor, buy things that are still impractical with ecommerce or just doing some local sight seeing.

        So having a personal vehicle is still a need. But I am afraid that the current pool of used vehicles is sufficient to satisfy the global need for a couple of years.

        The question is how big the solvent demand for new cars will be.

    • sierra7 says:

      This is truly a good representation of “markets” that are no longer markets but just plain casino operations.
      Great description, Mr. Richter!
      A true nightmare but a good proffer of how badly our “markets” have deteriorated; who knows who owes what unless you really dig, dig, dig!
      “Trust” is out the door (has been for many decades).
      The description of that “….deep junk related corporate bonds” should give everyone pause.

    • Brad Mill says:

      Is this good for a stock like CAR or bad? I would think more market share but they probably are looking to sell a big fleet?

    • Jessy S says:

      Don’t forget buybacks. They are a complete must for pumping up the market to kingdom come.

    • M says:

      I do not know about “modern day business,” because that implies that we are in normal times. We are not, albeit even in normal times any economic catastrophe was going to result in these many, over-leveraged companies going bankrupt when they could not meet their debt payments.

      When I went to business school and leverage was discussed, we were never taught that it should be used to such a level that the company would go bankrupt if there was any economic problem. I guess that current CEOs went to the Las Vegas school of economics.

      There is a row of dominoes that are about to fall as to the used, and new, auto business. I predict automakers will again need bailouts ultimately, later this year or in 2021.

      Most people do not see it yet while they happily gather together this Memorial Day. People are now operating on the normalcy bias again: hoping that things will be normal again and everything will be just fine as promoted by certain politicans.

      However, any more panics will cause the public’s actions to boomerang. The same mistakes made earlier this year are being made again, so we can expect the same problems to recur economically later this year.

    • Morty Mc Mort says:

      Ohhhhh my god… we start a new Unicorn – Yooo Ber – Hertz creates a special purpose vehicle for your next Veehickle.. You get paid to take a car off of Hertz’s hands, then you recruit friends and family to drive for various “Delivery Platforms” – During this time… Negative interest rates accrue toward your purchase of a home….Our “Burn Rate” is beyond any wet dream of any other Unicorn Startup…

  2. RB says:

    Great article, are there any other rental car companies out there that may also have to file bankruptcy?

  3. Tick says:

    We certainly have a country, well a world really, where the governments and bankers pick the winners and losers.

    OK, Hertz was probably going under anyway. Debt out the wazoo is the phrase I think we are looking for. But, it is interesting how decisions made at US Treasury and at the Fed Rsrv to not include Hertz in the big corporate crony bailouts are interesting. The winners and losers were picked, and Hertz was one of the losers.

    Not really sure why. I’d have thought the auto companies had enough clout to keep the afloat to avoid the crash of auto prices. Those cheap used cars won’t do any good for new car sales. I suppose this will be the worst new model year roll out ever with all those cheap used cars available. But apparently the auto companies don’t have that clout. I guess they didn’t make their bribe payments on time. So, Hertz joins all the small businesses that couldn’t bribe their way into the crony recovery plans.

    • Wisdom Seeker says:

      Government keeps the automakers because they’re essential for defense production. Car rentals, not so much.

      • KGC says:

        The idea that car manufacturers could switch over to defense productions is a joke. Modern manufacturing is much to specific. It would take years to make the switch, and the time for wars of attrition are long past. No one can afford them, plus the idea of huge numbers of voters children dying in combat is politically unpalatable.

        If you look at Europe they have pretty much abandoned the “defense industry” line of reasoning and headed towards the “National Pride” train of thought (which is almost as useless) or they’ve allowed the car companies to become so integral to the national workforce that they can’t bear the political burden of culling and so they use the “Bury heads in sand” defense like they did with Dieselgate.

        There are enough cars in the USA to last 20 years without building another. The only reason new vehicle sales continue is marketing. Shutting down the current production lines may be the only way to bring new technology to the forefront, and we can afford that.

        • RD Blakeslee says:

          “The idea that car manufacturers could switch over to defense productions is a joke.”



          I remember 1942

        • Suzie Alcatrez says:

          GM assembles automobiles. They stopped being a manufacturer years ago.

        • KGC says:

          RD Blakeslee –

          You, Sir, are seriously out of touch.

          Modern warfare and defense manufacturing have evolved more in the past 80 years than the automobile has from the horse drawn cart.

      • Cas127 says:


        “essential for defense production”

        This – though too rarely talked openly about.

        That said, a lot of corrupt players know this too and become (very) ancillary appendages to the more indispensable core functions – making the manufacturers less viable in free mkt terms…making a gvt emergency backstop into an almost inevitable guarantee.

        A similar corrupt encrusting of core gvt functions occurs in the public bureaucracies…everybody knows that the G won’t let school districts/police/fire dpts/etc ad infinitum go under, so over time an array of essentially irrelevant ancillary functions/personnel engraft themselves on to the valuable core functions.

        Then one day, a decade or two later, you wake up and California somehow can’t survive without a 15% income tax rate on the upper end – something it managed to survive over 100 years without.

    • sierra7 says:

      Good solution:
      Jam all those “surplus” cars into couple of those monstrous sea-going container ships; sail to middle of any of the oceans; pull the sea-cocks and let it all….”go to heck in a straight line”!
      The really “flooded” market problem solved….

      • Cas127 says:

        God forbid consumers get a break…better to sink the “extra” cars in the sea…why not just label them “clunkers” and print more G money to buy and destroy them (again).

  4. timbers says:

    Bankruptcy…that’s sssssso last century.

    Hertz should have spent money on proper lobbyists in Washington and gotten a bailout like everyone else with proper lobbyist. No need to make money, do business, or actually rent cars…not if you have proper lobbyist. That’s all you need to stay in “business”.

    Why, even lobbyists are getting a bailout, so had they chosen the right ones maybe it would be free to them…as in on our dime, not Hertz’s.

    • MonkeyBusiness says:

      Or turn itself into a startup that burns money like Uber.

      Trying to make money is simply not allowed.

    • Nicko2 says:

      Beltway political lobbyists are being laid off in record numbers as well. It turns out a pandemic isn’t good for grifting either. We are truly entering a global depression.

      • Stuart says:

        You can’t have grifters without suckers. The best grifters are masquerading as Members of the House of Representatives, the Senate and Federal Judges. Woe to them when the suckers, I mean the Working Class, wakes up and find their pitchforks.

  5. Willy Winky says:

    Breaking News!

    The Fed announced that it will buy the entire Hertz inventory of vehicles at above market prices —- and incinerate them.

    • MonkeyBusiness says:

      You think that’s funny? The Fed’s got the last laugh!!! The JNK ETF owns about 50 million of Hertz’s bonds. Small amount, but the Fed poured some money into the ETF, so we essentially own some of Hertz’s steaming pile of ****.

      • Memento mori says:

        Lol, now that should make the USD stronger as it will be backed by some real stuff.

      • Joe in LA says:

        Do you have a source for that? Is Black Rock required to disclose what it’s buying? I do see the Hertz holdings in JNK and HYG. Thanks!

    • Scott says:

      No, that was Obama. LOL.

    • Endeavor says:

      Not incinerate, but withhold them from the market to ‘maintain asset price’. For the next 5 years you will be able to buy dusty used cars with nearly flat tires out of storage. As new car sales crater, Goldman will take care of you.

      • polecat says:

        But they’ll have to make for some storage room amoungst all those jets!

        Things might get a bit cramped.

    • timbers says:

      Well there is a headline claiming the Fed is an owner of Hertz junk securities. I’ll wait a bit before filing it as “fact” however.

      • Wolf Richter says:

        The only way the Fed would own any Hertz securities is indirectly if they’re in the junk ETFs that the Fed may have bought small amounts of. So the amount the Fed might hold indirectly would be minuscule. Hertz itself does not quality under the Fed’s guidelines for Fed purchases of its bonds — it’s deep junk, not a “fallen angel.”

  6. Andy says:

    “The bankruptcy petition listed $24.4 billion in total debts, including trade accounts payables, and $25.8 billion in assets as of March 31”

    Deduct intangible assets and Hertz is worth maybe fifty bucks at a big stretch.

    When the tide goes out….

    • Kenny Logouts says:


      The tide reveals all.

      In this case a decade of QE and stimulus driven malinvestment.

      It’s going to be a very rude beach in a few months.

      “When will they leaarrrnnnn.!”

    • Cas127 says:

      As Wolf points out elsewhere, subtracting out the intangibles (whose true worth is usually very dubious), is often the key step in revealing the Potemkin villages of corporate finance.

      Despite all the possible convolutions of financial accounting and GAAP, things sometimes boil down to a simple equation – corporations that pay $1 million in cash for “assets” really only worth $250k over time…tend to end up screwed (even if the financials “say” the asset is still worth $1 million).

      GAAP has rules for periodic valuation adjustments, but they leave far too much discretion to insider mgt and, like the ratings agencies, tend to get triggered only on the eve of destruction.

  7. BuySome says:

    Can’t they handle this like Los Angeles did with those nasty streetcars….offshore reefs?!! Wasn’t it good for NYC’s old subway fleet too? Guess Carl’s gettin his come-uppence for Western Airlines….and all via air mail (bugs on planes).

  8. MontanaMel says:

    You think this is wild…?
    Wait until you see how things/companies shake out in the AIRLINES…

    Try shrinking the “air fleet” over the next 4 to 8 months, by 70% or so…

    The “Used airliner” market is going to look like that starwars set….

    • MC01 says:

      Most major airlines (Lufthansa Group, Wizz Air, Air Canada etc) have already announced the re-start of many routes over June and July and in some cases (Qatar Airways, Emirates and Air France) have already started this process.
      Air Canada and Wizz seem to far to be more optimistic as they both expect to operate over 50% of pre-crisis flights by the end of the Summer already.
      Personally I don’t know where this optimism comes from: until borders start to be at least partially re-opened the demand is just not there, and right now politicians worldwide are having so much fun blaming the foreigner. Let’s see how funny it is in a month when they’ll completely miss those sweet tourist dollars and euro.

      Anyway the main form of fleet shrinkage we’ve seen so far are that airlines are taking the occasion to get rid of less profitable and unwanted types. For example Air France took the occasion to get rid of their Airbus A380 fleet: they never liked nor needed the type and were more or less forced to buy it by the French government to pad production numbers. These aircraft won’t be put on the market but will be scrapped: the process has already started at Tarbes. Qatar Airways will probably get rid of their A380 as well, plus their aging Boeing 777-200LR, and Lufthansa is getting rid of most of the high hours airframes. Many have already been sent to Teruel for storage and eventual disposal and I suspect the A330 won’t last long in service as well: the newer airframes have already been stripped of all interiors and are being used as improvised charter freighters to allow the dedicated freighters (MD11F and 777F) to be put back in scheduled service.

      One aircraft that will remain in white hot demand is the 737NG: the cargo conversion has been a smashing hit on Asian markets and thanks to Amazon Air and West Atlantic it’s become popular in Europe and the US as well. The feedstock is still rather limited right now but it’s expected the former Norwegian Air Shuttle fleet will hit the market over the next 10 months together with an unknown number of aircraft from Indian airlines.

    • Iapetus says:

      In April, a Cowen analyst estimated that US airlines will retire between 800 and 1,000 aircraft this year:


      Not sure what ‘retire’ means.

      • MC01 says:

        It’s willingly vague: airlines worldwide have come to realize their original catastrophic predictions may have to be reviewed. For example Turkish Airlines originally predicted their operations would return to normal in Q2 2023. Now they are eyeing Q4 2021/Q1 2022 for a full return to normal.
        Emirates has just made similar corrections.

        However the problem is many airlines are taking the occasion to get rid of their older/less profitable airframes, meaning their capacity will be much reduced until they get delivery of new types, deliveries that may take many years as right now everybody is scrambling to post-pone to save cash.
        US airlines in particular have announced sweeping plans to retire hundreds of aircraft: for example JetBlue has announced plans to retire their whole Embraer E190 fleet, 60 aircraft. This fleet will be wholly replaced by Airbus A220 but deliveries have been post-poned and should be completed in Q4 2025/Q1 2026… meaning JetBlue will have a massive gap in capacity even in the worst case scenario.

        I don’t know if these plans are merely a product of panic (understandable) or a desperate attempt to goose share price (stock markets love when companies close factories, fire workers etc) but such sweeping plans will backfire spectacularly when airlines will need the capacity and that capacity will be mothballed in the desert.
        Lufthansa opted for a wiser approach: put the higher hour airframes in cold storage. These aircraft would be the last to be put back in service anyway so the German group can just sit tight and watch the situation evolve. If they need the capacity, those aircraft can be pulled out of mothballs in a matter of weeks, if not they can just be scrapped: no need to commit to an expensive strategy in a moment of uncertainty.

  9. lenert says:

    Is that the org chart for a money-laundering operation?

  10. Jay says:

    Don’t expect any great deals from Hertz for their cars. I offered 25% less, cash for a vehicle and the guy took it like an insult at Hertz. Maybe he doesn’t know his company filed for bankruptcy.

    • Wolf Richter says:

      25% is way too huge of a discount for an advertised used vehicle unless something is wrong with the vehicle (flood car, etc.)

      • MCH says:

        Took a look at the numbers on the Hertz site, do these actually reflect the fact that Hertz just went bankrupt, or do you think this will happen in two months?

        By reading of your note above, my guess is that the stuff that is at risk, 400K cars or so, the portion that is going to go to auction there doesn’t seem like they’ll show up on the Hertz website, is that an accurate assessment?

        Or is there an actual process whereby Hertz try to offload the cars on their website first before sending it to the auction block?

        • Wolf Richter says:

          There is a 60 waiting period before the 400,000 cars can be foreclosed on. That’s why I said that this won’t start until the end of July at at the earliest.

      • R Hughes says:

        Do you have any numbers on the total number of rental vehicles of all the rental companies? Also any thoughts on other rental co’s in danger of BK.

        • Wolf Richter says:

          The total number is in the 2.5-3 million range in the US. I think every major company in the travel industry — airlines, hotels, rental car companies, etc. — are at risk of bk unless they get Fed or Gov bailouts.

      • wkevinw says:

        The discounts I saw on the website were in the 5-10% range. Pretty good, but not 25% for sure.

    • R. Seckler says:

      Sell the vehicles thru Penneys for a two-fer.

    • LeClerc says:

      Every sale at a dealer is a cash deal.

      Yours, or someone else’s.

    • fajensen says:

      Of course. Nobody wants cash, it’s tacky and bad form to even offer it :)

      The salespeople makes their numbers on selling the financing, thus, if one wants a discount, one has to help the salespeople along a bit and take the damn financing. One can always pay it out in full the next week or whatever, doesn’t matter then because now its securitised and Gone.

      Last time I bough some appliances, a large LG fridge-freezer with ice cube machine and a Miele vacuum cleaner, they wanted 1600 EUR for that lot, plus 100 EUR delivery. But, merely by buying a useless & stupid 2 year ‘extended insurance’ for the 250 EUR vacuum cleaner costing 50 EUR (which also came with box with a years worth of bags!?), the total was suddenly negotiable down to 1100 EUR for the goods, and no delivery fee.

      The sales guy was very direct about it, one asks: “So, what can we do with this number?” And he replies: “If you take the extended warranty option on the vacuum, which comes with a box of bags costing about the same in the shops, then we can do 1100”. “This is total?”. “Yes!”.

      The Game is no longer about selling goods, it is to originate derivatives!

  11. Prof. Emeritus says:

    Wow, what a beautiful network of legal entities! I’m pretty sure they’ve spent a lot on business consultants and tax advisors over the years to realize this monstrous company-chain for the immensely complicated task of renting out cars. A pity it turned out to be useless.
    It’s a good thing though they filed for bankruptcy and shows that capitalism actually works when business transparency is in order! Imagine how many other Hertz-scale zombies are out there that are still hiding their debt in hope of an economic boom.

    • borderdenizen. says:

      Would somebody make an O.J. joke, please? Like, can’t they pawn off the cars as collectables… they didn’t get a bailout because if the loan doesn’t fit, you can’t remit. Naaw, I aint got nothin.

  12. Willy2 says:

    – No “reverse factoring” ??? And how much did Hertz spend on buybacks in the last years ?

  13. Rajan Sood says:

    Auctions are the best place for discounts.
    I picked up a brand new van with delivery mileage for a conversion in to Camper van.
    This was 12 years ago in UK leading auction house.
    Van retail price £23,000.
    Van failed to make the reserve at auction.
    I approached the auctioneer after auction – phone call to van rental company (the seller ) the van purchase completed for £10,500.

  14. Marc 60 says:

    Hmm I’m guessing Boeing and few other big companies have very similar looking structures to the doozy that was Hertz.

    Big business no longer needs to make stinking profits they just need more and more debt.

    Hell if it’s good enough for the Governments of the world it must be good enough for Big Business just not us little folks that you know end up paying for it all.

    • RD Blakeslee says:

      The little folks really don’t end up “paying for it all”. A systemwide financial collapse means the debt (and the underlying fiat money) just disappears.

      Actually, little folks can have better flexibility to protect the real value of their assets than the “financial system casino” players do, IMO.

      Keep your enterprise personal – sole proprietor, no debt.

      Take advantage of every gov’mint handout you can legally get your hands on and convert it to hard assets.

      E.G. take that $1200 Wootan virus emergency payout and buy some gold coinage at AMPEX, or elsewhere …

  15. Debt Deflation says:

    “Speaking of those assets, it’s interesting to note that Hertz actually listed more assets than debts on its bankruptcy petition, which would seem to indicate that it’s not actually bankrupt, but actually suggests that the real total value of its assets are less than recorded.”

    • Wolf Richter says:

      Debt Deflation,

      The passage you quoted is one of the most clueless statements I have read in a while, for many reasons. I’ll just address three of them (and I deleted the link because I don’t want this kind of clueless garbage to be promoted on my site).

      1. Hertz carried $1 billion in “goodwill” and $3.2 billion in other intangible assets on its balance sheet. These are expenses that have been parked temporarily on the balance sheet as an asset (Accounting 101, third day), and they will be expensed at some time (written off). So this combined $4.2 billion is worthless in a bankruptcy. There is nothing there. Everyone involved knows that. So right off the top, subtract the $4.2 billion from the assets of $25.8 billion, and you get $21.6 billion in assets. The debt is still $24.4 billion. So the hole right off the top is $2.8 billion, more in debts than assets.

      2. The biggest asset Hertz has is the fleet of vehicles. They’re listed in the bankruptcy petition at Hertz’s book value = $14.3 billion. But the book value is irrelevant when you have to liquidate a fleet. What matters is what you actually get when you sell the units. The wholesale price of vehicles, even in good times, drops all the time. But in April it dropped about 12% faster than normal.

      In addition, there is the price shock that comes with the transition from new to used. Hertz took in lots of vehicles in the months before the crisis, in the normal course of business. Those vehicles are nearly new, and Hertz put them on its books at its cost (whatever it paid the manufacturer). And it depreciates them. But depreciation is a lot slower than the price shock that comes in the transition from new to used vehicle.

      To try this out: buy a new Ford or GM vehicle, drive it 500 miles, and then sell it to a dealer two months later. It’s still nearly new. But you’ll be in for a shock! What you get for the vehicle may be 20% or 25% lower than what you paid. Why? Because it went from new to used vehicle, and because you’re selling somewhere near wholesale price, because the dealer has to make money retailing the vehicle, and it will have to retail for several thousand bucks less than the equivalent new vehicle, because it’s used.

      Hertz’s book value in good times might approach wholesale value after 18 months or two years. But over the early part of the vehicle’s life, there is a huge gap. Even in good times, Hertz will take a big loss if it sells vehicles in six months. But now wholesale prices have come down hard, and the old assumptions are no longer valid.

      So if Hertz dumps its fleet at current wholesale prices (which are already down), it’s going to get hit by a double whammy: the lower wholesale prices and the fact that the vehicles haven’t been depreciated enough. So the book value of those vehicles could easily be 20% higher than actual value (what Hertz gets when it sells them). This could easily amount to an overstatement of the value of its fleet by $2 billion to $3 billion.

      So selling the fleet and turning it into cash to pay off creditors will lower Hertz’s assets by, say, $2 billion, to $19.6 billion ($21.6 billion from #1 above – $2 billion). The debt is still $24.4 billion. So by now, the hole is $4.8 billion, more in debts than assets.

      3. Hertz is burning a huge amount of cash (an asset) right now. It said it may burn over $1 billion during the bankruptcy proceedings. Which cuts its assets another $1 billion, to $18.6 billion ($19.6 from #2 above – $1 billion), but the debt remains at $24.4 billion. So now, the hole is $5.8 billion, more in debts than assets.

      In other worse, creditors are going to face a shortage of assets amounting to $5.8 billion and will get a huge haircut and stock holders are toast.

      • LeClerc says:

        Goodwill is an intangible asset. It gets written off on acquisition because it has no resale value.

        Brand value is also intangible, but it is real, and companies are sold and acquired for the value of a brand all the time.

        Maybe Hertz upper management is stupid, but they might not be. Hertz is selling thousands of high-mileage beaters (85K Toyota Yaris and similar Nissans) first. Are you in line to buy one of these?

        The availability of these rent-a-wrecks will have no effect on the value of more desirable vehicles, such as 3-yr. old low mileage RAV4s or Rogues.

        As a car business veteran, Wolf, you know that if auction prices on nice vehicles from the Hertz fleet decline, franchise dealers and armies of Persian pot-lot proprietors will snap them up and resell them profitably. What a great time to be a UCM at the local Toyota mega-store.

        All that to the side, Carl Icahn can afford his loss on Hertz common, and probably holds senior secured debt through some complex hedge.

        For him, and all the other holders of Hertz unsecured debt, we’ll shed no tears.

        • Cas127 says:

          “unsecured debt…no tears”

          I hear what you are saying but…

          1) I wonder how many retail investors get bamboozled by their “advisers” into holding bonds (ie, unsecured debt 95% of the time) because they are safer than stock/equity.

          They are…but that only means they “win” by recouping 20 cents on the dollar in BK to equity’s 0 cents.

          2) That same army of newbies also probably doesn’t know about the multi-tiered stadium of various creditors standing in line to claim the very limited assets of a corp in BK. 20 cents on the dollar may turn out to be 2 to 4 times more than this generation of bondholders ends up with.

          3) Finally, everyone should appreciate the role that 20 years of gvt ZIRP has played in filling that stadium with yield starved creditors – really being the only reason that rattle trap, highly over leveraged corporations have been able to stagger on, sucking in more and more creditors who will ultimately, inevitably be wrung out in BK.

          But ZIRP allows the G to keep an illusion of economic normalcy alive for another handful of years…avoiding the pain of broad political and economic reform…at the cost of increased private sector ruin.

  16. David Hall says:

    Janet Yellin warned excessive corporate borrowing might create risks to the economy.

    In the event of a downturn, some corporations will not be able to repay.

    • Charles Brown says:

      It doesn’t take a genius to figure that out! lol

    • historicus Johnson says:

      Did Janet admit the excessive corporate borrowings were a result of Fed dictated and fake interest rates?
      These central bankers NEVER see the flip side effects of their policies.

      • The Rage says:

        The Fed doesn’t dictate, they follow the market. The market must change. They are to blame.

        • Cas127 says:


          Nope…Fed money printing has been setting phonied up interest rates for well over a decade.

          Multiple rounds of QE were fired off by the Fed precisely because the G was unhappy with the interest rates demanded by the private sector to lend to the collection of over-levered, under-competitive companies that mostly make up the contemporary US economy.

          The Fed didn’t print money like a mad master forger because the private sector was leaping at the chance to lend.

  17. Tim says:

    Well, so holders of the lease-backed securities are screwed.

    In other news, last week a Chinese court apparently decided to label certain bonds raised 2012 onwards from foreign investors, by the now bankrupt ‘Peking University Founders Group’, as ‘Pending Recognition’. Bonds with ‘sleep well’ clauses.

    What other wheezes are out there to get out from under unmanageable debt?

  18. R2D2 says:

    Hertz has been a beautiful short in recent months. Like shooting fish in a barrel.

    Whenever you see a VC firm loading up a famous brand with debt, you know it’s headed for the gurgler. Even if it takes 10-20 years to play out. Aston Martin is another one, for example.

  19. Michael Engel says:

    1) Every check paid by Hertz to suppliers, within 90 days prior to
    declaring BK, belong to the estate lawyers.
    2) Suppliers have to negotiate and sign a “contract” with
    the estate lawyers.
    3) Many suppliers stall. If the first supplier tell the lawyers that business is bad and they might go BK themselves, but they are ready to sign, the lawyers will be very flexible, especially if they get check right away.
    4) 164,000 vehicles are under “program vehicles”. If the “program vehicles” plan is 50% return for credit/ 50% stay with Hertz, GM & Ford will get bad items and leftovers.
    5) Great article. A lot of work. Thanks.
    6) Amazon probably have a similar “program vehicles” with Ford.

    • doug says:

      1) ‘clawbacks’ A word I wish I had never heard. But all true, and potentially painful.

  20. Michael Engel says:

    Where is IamWolf ?

    • Wolf Richter says:

      I don’t know. He was mentioning major health problems in the comments that he’d barely survived after stints in intensive care. Maybe he had another issue. I’m worried.

    • Zantetsu says:

      And what about Unamused? Haven’t heard from that previously prolific poster in some time.

  21. lisa2020 says:

    Along with GOOGLE and other CEO’s, the saga keeps dumping everything of their scams into the new-non-inheritance funds of the present 18years of age and up workers. Just imagine what fun their subsistence will level out to. Look out below!

    Unbelievable that, that court case is just the typical run-of-the-mill example of the class struggles between the members of the 10%. There’s no struggle between the 90%, since the 1% have anything and everything that counts as any real assets.


  22. Brant Lee says:

    Was it more profitable to acquire vehicles that hold less resale value? If we’re honest Toyota and Honda hold value longer but then I suppose Hertz simply wore off the new then dumped. I won’t be looking for Ford or GM when the used car prices bottom.

    • VintageVNvet says:

      Good point BL.
      We are in the market for a good used vehicle in spite of wife thinking her 12 year old cobalt (bought used off lease ) is going to last forever, so we too took a good look at the hurts retail sales website as soon as the BK was announced; not at all impressive on the lower end where we will be buying; too many high mileage low value brands, etc., at too high prices.
      Prices there will definitely have to come down quite a bit to be competitive with what is floating around our area on CL and similar.
      I usually wouldn’t bother with anything used, as I was trained by US Navy and the other ”gods of preventative maintenance” which seems to be lacking even in these rental companies that should know better.
      However, Wolf has pointed out on here that 1 or 2 year old vehicles can usually be considered reliable, so willing to try again soon, before wasting the $$ to buy new.

    • MiTurn says:

      I haven’t bought a new car in years. I always buy used domestic, as they’re cheaper to buy, but I am meticulous about maintenance. Any brand is reliable if you take care of it (oh, and I used to be a car mechanic in a previous life). And domestic parts are cheaper. I let them go around 200K miles before looking for another. Got 300k out of my last Ford pickup! Hertz’ bankruptcy is good for people like me.

      • BuySome says:

        What kind of mechanic forgets to say, “Ashes to ashes, dust to dust, if it wasn’t for Ford, my tools would rust”.

        • KGC says:

          The one who buys Fiat.

        • VintageVNvet says:

          Found On Road Dead ,,, Fix Or Repair Daily,,, can’t remember the rest that came up when my brother ran ford pick ups and I was a total chevy guy, and the ”received wisdom” was you could pay more for chev in the beginning, or more for the ford down the road! ,,,not so sure this is correct these days??
          Fix It Again Tony! Well known by any older Fiat driver, eh?
          I would guess every vehicle manufacturer has something similar by someone, likely the folks who have had to put up with lemons.
          OTOH, I have heard of vehicles where it was necessary to have a separate special wrench for each of six spark plugs, plus another set for every other bolt and nut in the transmissions.
          Now a days, they just make the diagnostic computer cost so much not many folks can get anywhere near fixing their own to accomplish the same purpose.

  23. historicus Johnson says:

    Wells Fargo, unsecured notes totaling $2.7 billion
    Goldman Sachs, lender, administrative agent for Alternative Letter of Credit: $200 million.

    Their connections with the Fed and Treasury will likely mitigate their losses.

    • HR01 says:

      historicus Johnson,

      The banks likely own CDS as protection, if they have any remaining exposure to Hertz debt. Who’s to say they also didn’t just short the common outright or sell low strike naked calls?

  24. DR DOOM says:

    If their is no rescue to frig up the creative destruction of bankruptcy a great window of ride share evolution and opportunity may have opened up. Let’s see if the golden fingers of captailsum can caress value out of this for the CUSTOMER .

  25. SocalJim says:

    Boom times for the auto business is just around the corner. The virus is causing people to change their ways. Many people who rely on ride sharing will stop that and purchase a private vehicle. Cars are being driven and worn out each day but new vehicles are barely being produced. New car production is struggling with part shortages and coronavirus work distancing rules. According to autonews, Dealer retail pricing has remained relatively strong. Inflation is in the cards here.

    • MiTurn says:

      I wonder if there will be an increase in private ownership if and when people leave the city centers and move to suburbia, as some news sites are suggesting? I imagine that this trend would generate some new car sales.

    • Tim says:


      But Wolf has done more than one article illustrating the inflation of car prices over the past 30 years as an example of the falling purchasing power of the dollar. I believe the example he has used is that of a new Toyota Camry.

      There may well be a shortage of new vehicles after for a while after any temporary gluts work through, but price inflation has already happened.

      How many are going to be able to afford or feel they can afford, the finance required to buy new or nearly-new vehicles at the already inflated prices in, say 6-12 months’ time? What states is the autoloan market going to be in and, so, who are they going to lend to?

      Can the automanufacturers and dealers survive on cash buyers only?

    • Wolf Richter says:

      We’ve now had many reports here that it’s boom time for the bicycle industry.

      • SocalJim says:

        I just had a tough time getting repair parts for my Bianchi San Jose Fixie. Everything bicycle is in short supply. In about six months, there will be lots of near-new bikes for sale on craigslist.

        • Lisa_Hooker says:

          In about six months, there will be lots of near-new SoCal homes for sale on craigslist.

        • RE:LH Depends on how effective their asymmetrical mortgage credit freeze will be. Closing credit access to new buyers (low and no down) while pumping up REFI, puts a lot more collateral on the lenders balance sheet. REFI borrowers keep these things in perpetuity to the point it may become a legacy only program. To my wife I leave the Lamborghini, to my mistress I leave the REFI. New home buyers push rates up, and inflation helps. Should be buying MBS with both hands, for the stream of income, and equity, but other things to consider.

        • VintageVNvet says:

          good one Lisa!!
          burn baby socal, burned is what it looks like now, and will most likely get worse, a ton worse before it gets better
          Lived in SM, WLA, etc., for a couple years in mid to late 1960 era, and NOBODY had AC in apts, cars, or even fancy houses,, because ya didn’t need it
          107 degrees F in the shade in western Ventura County in fall of 17,,, and just in case that’s not hot enough for ya,,, look forward to this year, when that might be low by 10 or more degrees..

        • Seneca's cliff says:

          What kind of parts did you have trouble getting for a fixie? Almost anything on one of these is interchangeable. I built mine from scratch starting with True Temper Tubing. I managed to source every single part on it from the U.S. except for the tires.

        • SocalJim says:

          My bike has a 1/8 chain, and the rear sprocket for the 1/8th chain was very hard to find. Mine was skipping because the teeth on the rear sprocket were worn out. A few bike stores were advising me to switch to a 3/32 chain which would have meant a new 3/32 chain ring as well as a 3/32 rear sprocket. However, the 3/32 chain is much weaker. I waited several weeks until a 1/8th rear sprocket became available. I was also told the brake pads are “old style” ( 2009 ) and would need to be ordered … backordered. I let that one go for now.

        • VintageVNvet says:

          Waayy too small, at least on the primary::
          Suggest at least a 1/4, and to hell with the minor weight added.
          Don’t have any idea why so many youngsters try to get away with the very most fragile possibility and then whine so much when it fails, as it, the most fragile and weight sensitive, almost always is going to do with any kind of ”hard pedals.”
          Hope y’all get better soon!!

      • RD Blakeslee says:

        Still disappointed that the mule trade still isn’t showing signs of resurrection in WV, though.

        • VintageVNvet says:

          As an ”older than boomer” old guy, and in spite of this boomer zoomer/remover virus, my main suggestion RD is to be patient.
          There was a time in my childhood, likely similar to yours, when our mule did most of the work to produce most of the food our family ate…
          And I have heard many similar stories from those older AND younger!
          Don’t give up!!

    • The Rage says:

      Nope, not happening. It’s a double whammy with the black suv subprime bubble popped as well. Talking about bodies washing up.

  26. Petunia says:

    OK, I’ll ask the obvious question: Why the hell does Hertz owe Lyft $19M?

    Please don’t tell me Hertz uses Lyft instead of their own cars.

  27. Gene says:

    With all this inventory coming on line (Hertz, repos on subprime auto loans) and with questionable demand due to high unemployment numbers, I’m surprised that used vehicle prices are as high as they are. I just checked, out of curiosity, prices on VW Passat TDIs. These are the diesels that were recalled and were sitting idle for years: asking prices above $10k for cars that are now several years old.

    • SocalJim says:

      Hybrids have taking a big hit because of super low gas prices. There are hybrid deals.

      • KGC says:

        Gas prices in Western Washington have not dropped. In fact, over the past 2 weeks they have been rising.

        Two years ago gas was under $2 for a short time due to “a drop in the cost of crude”. It has not come close to that here in the past 2 months despite the record low crude prices.

      • MiTurn says:

        I just paid 1.479 a gallon for regular. Cccrazy!

        • Just Some Random Guy says:

          Pre ‘Rona, it was in the $2.30-250 range here. It got down as low as $1.50. Now it’s back above $2 as things get back to normal.

          Traffic is definitely back to pre ‘Rona levels.

      • Gene says:

        Oh, I’m not in the market. If I were in the market, the Chief of Finance would veto any used car purchase. I have a seven year old Cruze that I don’t drive very much and, for that matter, nothing goes wrong with it. About a VW diesel, or used cars in general, I’m speaking hypothetically. If everyone were like me, the economy would have collapsed into depression a long time ago.

        • MiTurn says:

          I’m with you Gene. All brands of cars are so much better than they were 20 years ago. So easy to fix, and with Rock Auto, cheap to fix, too. Everything is under the purview of a computer, so if you can ‘pull a code’, it’s generally easy to isolate a problem and repair quickly. Granted, I am my own mechanic, which eases costs and I work on other people’s cars either as a favor or some pocket change. I respect no brand over another; hell’s fire, they all use the same suppliers! I only avoid German brands because they are expensive to get parts and finicky. Prefer domestics, but will consider Japanese or Korean.

  28. Total sales last year were 17M. (This year may be different) but 1/2M in sales (used cars) is not impactful, depending on the mix. Sales were roughly 2/3s trucks. Might guess Hertz has a lot of off brand inventory; sedans, and compacts? (send them to Cuba?) Nothing to fight over, incinerate the debt, and move on. I don’t get how owners of ABS can liquidate, while owners of MBS cannot? Their inventory has functional value in terms of tourism and business, but little consumer value, like liquidating a hotel chain as though it were housing. ABS can liquidate because no one wants it. If it works right no muni government should ever have problems with their transportation budget for a decade or more.

    • Cas127 says:

      Munis will *find* a way to have budget problems no matter how many savings windfalls get thrown in their laps.

      Actually, if you have ever tried donating something to a gvt entity, you will find out how quickly they push windfalls off their lap…it screws up their auto-upward-ratchet budget processes…if people gave the G used items, the G would have less rationale to spend more money next year (which is always the primary goal).

      • So sick and so true. Imagine if these cars find their way to nonprofits and the like who steal paying customers from LFYT. Then maybe a LFYT driver can make more taxiing seniors with free gov transportation.

    • Wolf Richter says:

      Fleet sales run around 20%+ a year (mostly rental fleets). Hertz is not the only rental fleet that cancelled orders. THEY ALL cancelled orders. They’re ALL in the same boat, in terms of business. 20% of 17 million is 3.4 million vehicles. That’s a huge business for automakers. There is a chance that total vehicle sales this year might have trouble squeaking over the 10 million unit line.

  29. sierra7 says:

    “Tick-Tock, Tick-Tock, Tick-Tock, Tick-Tock”!!!!

  30. RD Blakeslee says:

    As the depression deepens and plays out, us peons can have better flexibility to protect the real value of our assets than the “financial system casino” players do, IMO.

    Keep our enterprise personal – sole proprietor, no debt.

    Take advantage of every gov’mint handout we can legally get our hands on and convert it to hard assets.

    E.G. take that $1200 Wootan virus emergency payout and buy some gold coinage at AMPEX, or elsewhere …

  31. Robert says:

    Won’t Hertz be bought out by a competitor? So maybe these car sales won’t really happen.

    • Joe says:

      Some deep pocket hedge fund will scoop up all the hurting rental dealerships and car manufacturers into one big corporation…
      Still more money to suck out the system.
      This has been the norm for the last few decades.
      Too big to fail with governments terrified that they do, so keep pumping the cash to it.

    • Wolf Richter says:

      I doubt they’d buy the cars. No one wants the cars. EVERY rental fleet has way too many cars. They all have the same problem. There may be 1-2 million too many cars in the US rental fleets now, given the business they have. They’re all trying the skirt past a bankruptcy filing. They might buy the brands (the right to use the names) out of bankruptcy if Hertz gets totally liquidated, but I doubt that Hertz will get totally liquidated.

      • David Dawei says:

        Imagine how many used cars will be for sale when desperate governments institute mileage charges when a car is re-registered.
        Of course, there would be lots of politics involved in getting certain makes/models exempted.
        10 cents/mile x 15,000 miles/year might be tempting for some states/towns to make up for lost tax revenue

        • 0disseus says:


          DD makes a great point above about the possibility of “desperate governments institute mileage charges when a car is re-registered.” As EVs become more common, the petrol tax just won’t do the job anymore . . .

          Thank you for your coverage of Hertz – look forward to reading more as other companies need to restructure . . .

      • CZ says:

        The Fed can buy the cars.

        • Wolf Richter says:

          No. But the Fed can set up an SPV, and the US Treasury Dept can put in 10% of equity, and then the Fed lends to this SPV at a leverage of 10-1, and this SPV then buys the cars ?

    • MonkeyBusiness says:

      Uber will buy them and they’ll become a new division within Uber called UHertz!!! … Putting the Hertz in U!!

      Just like GrubHub will be UGrub!!!

      Hurting colleges, will be similarly absorbed and they’ll be called UNiversity!!!

      They’ll all lose a TON of money, but who cares?

  32. DR DOOM says:

    My wife and moi got our guberment checks. It’s now an M2 statistic without the velocity. Nothing but used vehicles in my past and future. If Hertz will maintain a car for me to drive at no cost I will let them park it in my field next to the hog lot.

    • VintageVNvet says:

      That ”might” be attractive DrD, except for the apparently very real possibility that your field ”might” burn along with everything in it, and then set the hog barn/lot on fire, etc…
      Not that there has been any public accusation of whom ”might” be responsible for the field with 2500 hurts cars burning in SW FL recently… of course not.
      Just told my brother he and I ”might” have to decide if our next ”investment” is a new pick up truck, or a house down the block that ”might” be less costly, and ”might” possibly return some ”real” ROI!
      ”Mighty” good possibilities ”might” be on the horizon for those of us with no debt and who ”might” have some serious savings, eh

  33. WES says:

    Since everyone knows about this, somehow it won’t happen!

  34. Duane says:

    Regarding Hertz’s leveraged buyout in 2005, was Fed Chair Jerome Powell involved in that? (Excerpt from Wikipedia page, “From 1997 to 2005, Powell was a partner at The Carlyle Group, where he founded and led the Industrial Group within the Carlyle U.S. Buyout Fund”.

    Either way, funny (in a sad way) that this Powell character who is now the Fed Chair.

  35. Bobber says:

    I predict they’ll have a hard time selling these $15-$30k rental autos into the market with only a 15% discount. People shopping in that price range already have reliable vehicles. To upgrade, you’d have to sell your existing vehicle at a large discount AND pay sales tax on the full purchase price of the upgraded vehicle. Hardly seems worth it for a 15% discount. If the discount were 25%, it might be worth considering.

    • Anthony A. says:

      The Hertz cars will be sold at the Dealer auction houses, like Mannheim. Then the cars will show up on used car lots, some of which will be labelled as CPO.

  36. Augusto says:

    Bankruptcy is a great restructuring tool, and will put pressure on other car rental outfits to do the same. Bankruptcy allows cancellation (reneging) and renegotiation on agreements that are detrimental to the borrower such as Hertz. Of course, the lenders and lessors to Hertz won’t be happy, and this could in turn cause them to go into bankruptcy as they loose lucrative agreements. This is a snowball moving downhill.

    • The Rage says:

      Then you have steep production losses. The larger GDP grows, the harder the fall. It’s always been that way.

    • Cas127 says:

      Agreed…major BKs often trigger a cascade of them, as the reneged agreements often give post BK corps a competitive advantage in their industries…almost compelling competitors to follow suit in certain circumstances.

      And if a corp wants to take a dive and force a BK, it may not be that hard to re value intangible assets downwards, leading to insolvency…honest accounting in the service of fraudulent bankruptcy filing…

  37. Wes says:

    Mr. Richter, great financial reporting. It looks like Wells Fargo (AKA Berkshire Hathaway) and Carl Icahn are in for some significant losses. The Hertz Global Corporate chart also looks more like a corporate shell game that was assembled by a fleet of lawyers. This nay be a good time to buy a used vehicle. If you’re right on the 10 million new US vehicle production number this year it will be less than the 10.5 million number during the Great Financial Crisis.

    • The Rage says:

      3/4 of my family works for Honda, very inconsistent production. Many workers having half days. Doesn’t look good for the rest of the year.

      My cousin told me June has a full schedule but then off for 2-3 weeks in July.

      Population growth wise only supported 15 million vehicles a month. 5 straight years of 17 million vehicles has paid a toll. Creditors, especially subprime creditors should be ashamed.

      • Cas127 says:

        Imagine what the prices of cars might be if the limited number of manufacturers kept their lines operating all the time…rather than greatly restricting output in order to goose their product sales mix, in the service of theoretical yield/revenue optimization (ie, fewer cars at higher prices).

        The very fact that lines are idle so much of the time tells us something about the weird economics of auto makers.

  38. Cas127 says:

    Another excellent, detailed backgrounder on Hertz, with more of an operational focus (ah, the dreaded computer system integration debacle…has one ever worked…can’t these IT guys just download/upload massive ASCII files across systems each day in a pinch….)

  39. Nicko2 says:

    Fascinating reading. I wonder who the next giant global bankruptcy will be?….we most likely won’t have to wait long to find out.

    • Tim SE says:

      Germany, France and Holland have bailed out their airlines – so much for EU rules about state aid!

      My guess is the ‘dog that hasn’t barked in the night’ (yet) is the banking sector.

      The voters are just going to love another round of banker bail-outs………….which would have helped the Dems, if they’d opted for Bernie.

    • MC01 says:

      LATAM Airlines Group has just filed for Chapter 11, albeit the Brazilian subsidiary has been excluded from proceedings.
      Delta Airlines owns 20% of LATAM Group, Qatar Airways 10% and AFP (the Chilean State pension fund) 17.6%.

      A lot of people are going to sing the Blues by Christmas.

  40. Tim SE says:

    About ten years ago, tour companies started including ‘free’ (sic) car hire with all-inclusive holidays to where I live.

    Unfortunately, this is an island, and they hadn’t checked that enough cars were available here – there weren’t. After they rectified this (presumably costly) mistake, flooding the island with cars, lots of local start-ups got in on the act. Their daily charges seem way too low to make a profit. With visitor numbers having collapsed, and resale prices presumably crushed, my guess is that half of them will go under, enabling the survivors to raise their prices.

    On the same principle, could the Hertz bust be a lifeline for its competitors?

    Market forces, after all…..

  41. Leo says:

    Thanks a lot for the best financial news site I know.
    I think a good article now would be about where all the trillions of the stimulus money went. What do we know about who got the money?

  42. Just Some Random Guy says:

    I suppose if you are in the market for a 4 door GM or Ford sedan, Hertz creditors will sell you one really cheap. Except who in the right mind wants a 4 door FM or Ford product?

    • Prof. Emeritus says:

      It looks like they’ve had a lot of Hyundai/KIA in stock as well, so there is a 4 door sedan for everybody on sale.
      Also huge lots of Chrysler/Dodge minivans, the families will love those.

  43. A says:

    I drive an 15 year old Beetle and had to get some major work done on it last year. So far it’s holding up for me (I don’t drive a ton), but at some point, I will need another (USED) vehicle. Not particular about make or model as long as it’s within my price range (LOW) and pretty safe to drive.

    Would this be a good year to start looking, or should I go ahead and make this vehicle last as long as I can? Will 2020 be the bottom of the used car market, when these things hit used car prices? Or might it go a little lower so my $$ can go further? I will probably be dipping into savings to buy anything, and will likely not go over 5-6k (cash) for it. Not taking on ANY debt right now.

    • Marc D. says:

      Wolf seemed to indicate the Hertz liquidation cars should be flooding the market around late July. So maybe around then would be rock-bottom for pricing.

      • Wolf Richter says:

        Marc D.

        What I said was that the creditors are bound to a 60-day waiting period, which ends at the end of July. It’s then that they can start foreclosing on the cars. So end of July is when it might start, going into summer and fall.

  44. MonkeyBusiness says:

    Wow, it appears retail investors are piling into Hertz. Today it’s the most heavily traded and prices even rallied a bit.

    Retail is dumb money. This can’t end well. Don’t think the Fed will bail out retail, although they might have no choice this time around.

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