Filing for bankruptcy allows the business to continue operating while designing a plan to pay its creditors and change the business.
Hertz Global Holdings, a US car rental company, filed for bankruptcy this Friday after extensive travel restrictions due to the COVID-19 pandemic and the global economic collapse that destroyed demand for its rental vehicles.
While all travel-related companies have been affected by the COVID-19 pandemic, part of the problem weighing on Hertz is its strategy.
The car rental company of the United States, Hertz, declared bankruptcy this Friday due to the low demand for its cars from all over the country due to the travel restrictions imposed in that country by the SARS COVID-19 according to Bloomberg.
“However, uncertainty remains as to when revenue will return and when the used car market will fully reopen for sales, which required action today,” statement added.
On April 21, Hertz had announced the cut of 10000 jobs in North America, 26.3% of its global workforce, to save money after the confinement by the coronavirus paralyzed travel and the economy.
The group said on Friday that it finally lay off 20000 people, half of its global workforce.
The company turned to Chapter 11 bankruptcy law in the United States, a mechanism that allows a company that can no longer pay its debt to restructure without pressure from creditors.
Hertz did not mention the amount of its debt, but the Wall Street Journal reported on Friday that it amounted to about $19 billion.
Hertz: Victim Of The Crisis
The coronavirus pandemic led many countries to impose containment measures that paralyzed economic activities.
Hertz’s management fears that the return to normality will be considerably delayed, and the generalization of teleworking during the pandemic raises doubts about whether the company will be able to recover its business clientele once the crisis ends.
The Florida-based company employed 38000 people in late December, including 29000 in the United States.
For a few years now, Hertz suffered from competition from chauffeured transportation services like Uber.
The company recorded a net annual loss in 2019, for the fourth consecutive time. But 2020 had started well with an increase in turnover of 6% in January and 8% in February, compared to the same months last year.
The bankruptcy illustrates the magnitude of the crisis the United States is undergoing as a result of the anti-coronavirus measures, which have devastated entire sectors of the economy such as transportation and tourism.
Since mid-March, 38.6 million people have applied for unemployment benefits in United States.