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May 12, 2020

Hertz canceled most new-car orders as pandemic shuts down travel

Customer checks in at a Hertz car rental counter,  Hartsfield-Jackson Atlanta International Airport.

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As Hertz Global Holdings Inc. works to stay out of bankruptcy, the company has canceled 90 per cent of its new-car purchases for the 2020 model year, a move likely to further depress fleet sales by major automakers.

Chief Executive Officer Kathy Marinello revealed the cost-cutting move in a short 20-minute conference call Tuesday, one day after the company reported a larger-than-expected first-quarter net loss and said it may have difficulty continuing as a going concern.

That signaled the company’s management doesn’t expecting a quick rebound in demand for rental cars over the next 12 months.

“The coronavirus created a major disruption as global travel market and the used-car market effectively shut down,” Marinello said. “We have to be pragmatic about the timing of an economic rebound including a second wave of the virus in the fall. So we are focused on safeguarding liquidity.”

Hertz is tightening its corporate belt as it negotiates with lenders ahead of a May 22 deadline. The company risks bankruptcy if a solution is not reached to restructure lease payments with bondholders, but Marinello gave no update on the status of those talks.

The rental-car giant’s decision to curtail orders underscores the ripple effects the Covid-19 crisis is having on the travel business and auto industry. Automakers rely on rental companies to buy about 1.7 million vehicles a year, or about 10 per cent of U.S. auto sales.

Shares of the company pared a declined of as much as 5.6 per cent in early trading Tuesday, falling 3.8 per cent to US$3.06 as of 10:32 a.m. in New York.