Hertz Goes Bankrupt As Non-Essential Consumer Demand Disappears

The US Federal Reserve has now spent $7tn bailing out Wall Street. But it couldn’t save the 102-year old Hertz (HTZ) rental company from filing for Chapter 11 bankruptcy protection for its US business on Friday night.

Sadly, Hertz won’t be the only casualty. Its collapse instead marks the moment when the problems created by two decades of doomed central bank stimulus measures began to become obvious:

  • All along, the central banks have confused liquidity with solvency
  • They have provided $tns of liquidity – but they can’t create business models that deliver profit
  • Instead. they have created a host of “zombie companies” – who make no money, but never die

And this isn’t just my view, but also the view of the central bankers’ bank, the Bank for International Settlements. It says the number of zombies has risen from just 2% of all companies in the 1980s to 10% of European firms and >15% of US companies due to:

“Their reliance on rolling over loans as their interest bill exceeds their Earnings Before Interest & Taxes.”

Hertz’s problems are also not new, as the New York Times notes:

“Hertz has also had a debt problem that can be traced back to a 2005 leveraged buyout by private-equity firms.”

2005, of course, was the peak of the subprime bubble – when the Fed abandoned its core role of ensuring financial stability, and instead began encouraging companies and individuals to take on more and more debt. I warned here and in the Financial Times at the time that this would end in tears, but the Fed naturally took no notice till the crisis was already well underway.

Today, as the Wall Street Journal has confirmed:

  • “Hertz has $19bn of debt and nearly 700,000 vehicles that have been largely idled because of the coronavirus.
  • It has spent years trying to restructure its business, and has blown through four chief executives in less than a decade.
  • The company lost some $58m last year, its fourth consecutive annual net loss”
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Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this ...

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Edward Simon 9 months ago Member's comment

So no government bail-out for Hertz? They are not too big to fail?

Adam Reynolds 8 months ago Member's comment

Apparently not.