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Hertz, Avis Ask to Be Included in Rescue of Travel Industry

They described their industry as critical to U.S. transportation infrastructure and warned they will “sustain grave harm”

Hertz, Avis Ask to Be Included in Rescue of Travel Industry
Signage directs motorists to car return locations at a Hertz Global Holdings Inc. rental lot at Louisville International Airport in Louisville, Kentucky, U.S. (Photographer: Luke Sharrett/Bloomberg)

(Bloomberg) -- Hertz Global Holdings Inc., Avis Budget Group Inc. and Enterprise Holdings Inc. have asked the Treasury Department to include their industry in federal plans to rescue U.S. travel companies ravaged by the coronavirus.

The three companies’ chief executive officers made the request in a letter addressed to Treasury Secretary Steven Mnuchin on Wednesday. They described their industry as critical to U.S. transportation infrastructure and warned they will “sustain grave harm” as airlines pare back service amid efforts to contain the spread of Covid-19.

“We are being hit by this as hard as airlines, maybe harder,” Hertz CEO Kathy Marinello said in a phone interview. “The volume just went away. We have had the same kind of drop-off that the airlines have had.”

The rental companies made a case in their letter that without assistance, the 160,000 people they collectively employ will be at risk of layoffs just as airline and hospitality employees are.

In early trading Friday, shares of Avis and Hertz soared on the news late Thursday about the federal relief request. Avis rose as much as 18% to $11.40 and Hertz climbed as much as 25% to $5.17 as of 9:59 a.m. in New York.

Assistance Measures

Hours after the U.S. airline industry said it needed $58 billion in aid to weather the collapse in travel demand, President Donald Trump said earlier this week the government would back them. Efforts are afoot in Washington to follow through on that pledge, with Senate Republicans proposing $50 billion in loans and loan guarantees for passenger carriers, while cargo haulers would be eligible for $8 billion.

Marinello, Enterprise CEO Chrissy Taylor and Avis Interim CEO Joe Ferraro asked Treasury for grants to help address liquidity issues. They also asked for the Federal Reserve to set up a facility that would purchase term loans and other financial instruments, or for the central bank to provide zero-interest loans or loan guarantees.

The companies also asked for temporary relief from the rent and the minimum-revenue sharing they pay to airports. And they called for a two-year deferment on taxes they would normally pay on income from the rental cars they sold over the past two years and requested a temporary deferment on payroll taxes.

A Treasury spokesman declined to comment.

Hamzah Mazari, analyst with Jefferies LLC, expects car rental volumes to fall 30% in the second quarter and as much as 20% in the third quarter. The leading rental companies already are drawing down credit lines and other sources of liquidity and may need to renegotiate their debt covenants with lenders, he said.

“The volume has fallen so quickly they won’t have the opportunity to reduce their fleets,” Mazari said.

‘Dramatic’ Decline

Rental companies usually have 80% of their cars rented out. But with business down, they are running out of places to park them and certainly don’t need to buy any more from carmakers, said Maryann Keller, an independent auto industry consultant and former board member of Dollar Thrifty Automotive Group Inc., which Hertz acquired in 2012.

Avis, Enterprise and Hertz control 95% of the rental business, not counting ride-hailing companies such as Uber Technologies Inc. and Lyft Inc. The three companies buy 10% of the new cars manufactured in the country annually, which comes to about 1.7 million vehicles a year.

Hertz CEO Marinello said the industry had a strong January, February and even first week of March. But when the coronavirus started spreading and businessess and countries began to curtail or ban travel, the rental companies saw “a dramatic, steep decline.”

While she said Hertz isn’t in danger of bankruptcy, layoffs are inevitable if the companies don’t get assistance and they won’t be able to renew their fleets -- removing a key source of demand for many automakers.

“We will have to cut things,” she said. “We would have to reduce the workforce. It is something we are in the process of considering.”

©2020 Bloomberg L.P.