Hurt by coronavirus, Hertz implements furloughs, takes other steps to control costs
Laura Layden Fort Myers News-Press March 26, 2020
Hertz is hurting.
Just as it appeared the Estero-based car rental giant had turned the corner on its ambitious turnaround plan, the coronavirus stopped the company in its tracks.
In a news release late Thursday, Hertz Global Holdings, parent of The Hertz Corp., announced it is "aggressively managing costs and substantially reducing capital expenditures."
Like many other companies in the tourism industry, Hertz Global said it has been hit hard by the "significant, adverse impact on travel demand from the coronavirus."
"Like the rest of the global travel sector, COVID-19's impact on Hertz arrived swiftly, and the reversal in customer demand has been significant," said Kathryn V. Marinello, the global company's president and CEO. "We are aggressively taking actions to sustain operations and preserve liquidity, while confronting the issues raised by some of the most difficult economic conditions we have experienced."
In January and February, Hertz experienced strong revenue and productivity, with global revenue increasing 6% on 8% higher U.S. car rental revenue, compared to the previous year.
Then came the coronavirus.
More: Hertz Global reports record revenue for Q4, but wider losses
In March, cities, counties and towns around the world rapidly began shutting down and airline travel dropped dramatically, fueling car rental cancellations and putting the brakes on new rental bookings.
As a result, Hertz Global said it "immediately began adjusting fleet levels in response to the reduced travel demand, working with its suppliers to "defer new fleet deliveries or modify previously placed orders."
The company said it has switched gears by prioritizing sales and marketing strategies to be more in line with the current economic environment.
Hertz has also consolidated local rental locations in the United States and Europe, offering customers alternative pick up points, as necessary.
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The company said it recently implemented employee furloughs, which have affected workers across its North American field operations and at U.S. corporate locations to "align staffing levels with the slowdown in demand."
Implementing furloughs, Hertz said, was "a very difficult decision and was not easily made, knowing that many good people would be affected."
Once travel rebounds globally, the company said it "hopes to bring back as many team members as possible."
In an email, a Hertz spokeswoman said the company isn't disclosing more specific details about the furloughs, such as the total number of employees impacted.
"We’re continuing to pay the full premium cost of employees’ health benefits throughout the duration of the furloughs," she said. "We’re also actively partnering with other companies that have open positions to match them with interested Hertz employees."
Bloomberg reported that Hertz started furloughs at midnight on March 21 based on an internal memo it obtained written by Paul Stone, the company's chief operations officer for North American operations, to his employees.
Hertz confirmed the authenticity of Stone’s memo, in which he wrote: “We haven’t experienced anything of this magnitude before, with such profound impact on our business. You are seeing firsthand as travel demand has dropped off dramatically.”
Along with the furloughs, senior leaders at Hertz are taking a "significant reduction in pay," with Marinello giving up 100% of her base salary.
According to a regulatory filing with the U.S. Securities and Exchange Commission, Marinello earned more than $8 million in total compensation in 2018. That included a base salary of $1.45 million, which remains the same under a new employment agreement she signed in November.
Her other compensation in 2018 included a more than $1.6 million bonus, along with stock and stock options tied to the company's financial performance.
Last year, Marinello earned a bonus of $1.35 million.
As for Hertz's financial health, the company said it has access to roughly $1 billion in "liquidity," with no significant corporate debt due until June 2021.
In February, Hertz increased its U.S. vehicle debt capacity by $750 million and the company "does not anticipate any vehicle debt financing requirements for its global car rental business for the remainder of the year."
Ultimately, the company stated its available liquidity will depend on the "duration and magnitude of the travel slowdown, as well as other factors, including trends in used-car values."
Along with other car rental companies, Hertz said it's working with governments in the U.S. and Europe to get financial help through this crisis.
"This situation is unprecedented," Marinello said. "Events are unfolding rapidly and the picture changes daily. But Hertz is a resilient company, with resilient brands and resilient people."
Earlier this week, Bloomberg reported that Hertz and its peers Avis and Enterprise Holdings have asked the U.S. Treasury Department to include them in an aid package for airlines and other businesses hard hit by a dramatic drop in travel across the globe.
According to Bloomberg, the car rental giants are "seeking grants to help address liquidity issues and for support from the Federal Reserve, among other measures."
In a statement Monday, Joe Ferraro, interim president and CEO of Avis, said, “Consistent with other integral components of the global travel industry, we are seeing significant impacts in our business around the world as a result of the coronavirus. Our team is united in facing the current unprecedented health crisis, and we are committed to taking the necessary steps to protect the health and safety of our customers, our employees, and to navigate through this disruptive global event.”
Like Hertz, Avis said it saw strong rental demand in January and February, but it fell off in March as travel restrictions became widespread.
In a business update, Avis said it's also taking "numerous steps to proactively manage declining reservations and revenue," from aggressively reducing vehicles to pairing back its staff.
Avis also plans to reduce pay for senior employees. Overall, the company said it's "targeting more than $400 million in annualized cost reduction and mitigation."
"These savings will serve us well even after the emergency passes," the company stated.
Meanwhile, with the aggressive actions Hertz Global is taking, Marinello said the company should be able to "navigate the current environment and emerge an even stronger business as world travel recovers."
"Our proactive position ensures we are here to support our customers now — providing critical transportation needs for government, healthcare, delivery and front-line relief workers — and over the long-term."
The Hertz Corp., a subsidiary of Hertz Global Holdings, operates the Hertz, Dollar and Thrifty rental brands in about 10,200 corporate and franchise locations throughout the country, as well as abroad from Europe to the Middle East to Australia. It's one of the world's largest vehicle rental companies and it sells its used vehicles through Hertz Car Sales.
In an email, Andrew Hill, of Andrew Hill Investment Advisors in Naples, said Hertz is "heavily leveraged with their capital structure consisting of 90% debt and 10% equity according to current market values sourced from Bloomberg."
On top of that, he said, Hertz earns a low return on its assets.
"Heavily indebted businesses are handicapped to invest for the future," Hill said. "Just like the COVID-19 is most deadly towards the weak, companies with highly leveraged capital structures are also at a greater risk to downturns that they may not survive financially."
As a Hertz customer and #1 club member, he said he hopes the company can "find opportunities in the current economic challenges to bridge until the travel business recovers."
