The car rental industry is taking a beating from reduced airline travel

A bill of about $400 million is due this month. The company is considering all options for how to service its debt. Hertz’s choices include getting creditors to sign off on laxer and longer terms of repayment, selling off a large part of its fleet of over 500,000 vehicles at fire sale prices, and even filing for different chapters of bankruptcy.

The Washington Examiner asked Hertz if it would try to recapitalize the business with money from billionaire activist investor Carl Icahn, who already owns a large stake in the company. Communications manager Lauren Luster provided a press release about the general financial picture of the company but said, “We are unable to provide any further comments.”

The Hertz statement pointed to some financial progress in the first few months of the year before “travel bans and shelter-in-place orders throughout the country severely impacted volume in March.”

Close competitors to Hertz, such as Avis and Enterprise, also suffered losses because of the disruptions caused by the coronavirus. Revenues and ridership of rental vehicles are down year-over-year by over 41%, according to business data website Statista.

One reason for that decline is that airports have become virtual ghost towns. Equipping air travelers with ready wheels was the precise need that a large part of the domestic rental car industry had been set up to meet.

With airports diminished as a source of ready customers and with many local shelter-in-place orders limiting travel, rental companies are hustling for business. This fierce new price competition has many consumers rejoicing.

Michael Giberson is an economist at Texas Tech University. In March, Giberson told the Washington Examiner that he “was able to get a midsized SUV for about the same price as an economy car, about $25 a day including all fees and taxes” on a reservation “just three days ahead.”

Greg Marsh works in the tugboat business. He rented a car through Budget to drive from Seattle to Bellingham, Washington, on April 24. “My company flies me to Bellingham, but flights did not work out to get me home the same day,” he explained.

“When I got off my next-to-empty flight, my time from baggage claim to on the road was 15 minutes,” Marsh said. As for the price, he judged that it “wasn’t bad. I only spent $79 on an economy car. Usually, it is about $150 for a one-way [rental to Bellingham].”

The airlines received tens of billions of bailout dollars from the federal government. Car rental companies were not able to persuade the Treasury to bail them out as well. That could mean more short-term pain, better prices for consumers, and a faster restructuring of the industry.

Hertz has announced 10,000 layoffs. Enterprise has laid off over 2,000 employees. Avis has done limited layoffs as well.

Some analysts have expressed concern that if Hertz opts to sell off part of its fleet, that will flood the used-car market and further depress values.

However, many of the used-car dealerships have been shut down along with everything else, meaning that they have less revenue with which to buy a large number of vehicles, which, in turn, would make that option less attractive to Hertz and its creditors.

Timothy Barnes is a self-described “hobbyist” who has dabbled in car sales in Tennessee. He thinks that even in the event of a large fleet reduction, a price “Carmageddon” is unlikely.

“There are 279 million cars in the U.S.,” Barnes told the Washington Examiner. “Assuming those 500,000 [in Hertz’s U.S. fleet] were evenly distributed across the country,” the effect on prices would be “not much.”

Barnes allowed that “a few auctioneers and smaller used-car lots might be able to take advantage of it and get them a reasonable price. But savvy buyers know to stay away from cars that were rentals. Rental cars are the fastest and most abused cars on the road. The drivers don’t own them, so they tend to push their limits.”