(Bloomberg Opinion) -- From the customer’s perspective, car rental is a straightforward business. The only uncertainty is whether the hire company will charge you for the scratch they discover when you hand back the vehicle. Hertz Global Holdings Inc.’s bankruptcy protection filing on Friday was a reminder that today even the simplest business models are underpinned by a lot more financial complexity than meets the eye. Rather than make the rental giant more robust, financial engineering seems to have made Hertz more brittle.  The proximate cause of Hertz’s demise was of course the sudden collapse in bookings caused by coronavirus travel restrictions. The company’s monthly revenue  fell 73% year-on-year in April, a shortfall that even the most resilient companies would struggle to withstand for long.But Hertz’s complicated financial plumbing contributed to it becoming one of the most high-profile companies to seek protection from creditors during the corona crisis. This byzantine organizational chart from the bankruptcy filing gives you just a taste of what lies underneath the company’s hood:In the decade preceding its collapse, Hertz took on too much debt, participated in overpriced M&A and was accused of playing accounting games to pad its earnings. (For more, read this colorful account from Bloomberg’s David Welch.)So when disaster struck and a request for a government bailout was rejected (rightly in my view considering top shareholder Carl Icahn is worth some $18 billion), Hertz was already standing far too close to the precipice. Regrettably Covid-19 will probably expose more of this type of corporate frailty, both in America and around the world.Hertz’s debt binge began when it was acquired by private equity firms from Ford Motor Co. in 2005; the new owners quickly took out a $1 billion dividend. Piling on debt juiced the potential returns for the owners and helped pay the inflated $2.3 billion price tag for the Dollar and Thrifty brands in 2012, which Hertz struggled to integrate.Hertz was only able to amass an eye-watering total of $19 billion in borrowings thanks to a massive program of asset-backed lending, which became its primary source of capital.(2)Special-purpose financial entities purchase cars on Hertz’s behalf, and investors in the asset-backed securities make a return via the lease payments that Hertz is obliged to stump up. Put another way, Hertz leases cars long term from the financing subsidiary — typically for about 18 months in the U.S. — and then rents them out to customers for shorter periods.In theory, this is a stable and low-cost way for a risky borrower such as Hertz to fund the large capital outlays needed to keep its fleet looking fresh. Hertz’s corporate credit has been rated junk for the past decade but many of the asset-backed securities it issued were triple-A rated, at least until recently. However, economic shutdowns stemming from efforts to curb the new coronavirus suddenly threw a lot of sand in Hertz’s gears: The resale value of its vehicles fleet fell sharply, requiring the company to inject more cash into the financing structure.With only about $1 billion of cash on its books, Hertz was ill-placed to fund that collateral call, and the pandemic meant it wasn’t able to sell vehicles to generate cash because potential buyers were confined to their homes and auctions and dealerships were closed. (Hertz’s chief financial officer describes these acute pressures in this filing.) Asset-backed securities holders appear to have decided that allowing Hertz to fall into bankruptcy will prove no impediment to them getting most of their money back, at least for those holding the better-rated tranches of debt. The same can’t be said, however, for Hertz’s unsecured lenders, or its shareholders. Building a 39% stake since 2014 probably cost Icahn about $1.6 billion, based on a Bloomberg average share-cost estimate, but he now risks being wiped out.   Hertz’s predicament was made more severe because in the U.S. it couldn’t hand back most of its surplus vehicles to the manufacturer, as is common practice in Europe. Instead it faced the task of selling them itself and bore the risk of any unexpected depreciation. The company is one of the 10 largest sellers of used vehicles in the U.S.The preponderance of these so-called “risk vehicles” in its half-a-million strong U.S. car fleet has increased since 2014 because it was more profitable than paying a premium to the manufacturer to guarantee a fixed repurchase price. There’s no reward without risk, though, as Hertz’s bankruptcy filing made abundantly clear. Having lost money in three of the past four years, Hertz did seem to have turned a corner lately: It raised capital to pay down debt last year and was ranked No. 1 for customer satisfaction in J.D. Power’s North American car rental rankings. Not that customers have much choice. Consolidation has given just three groups — Hertz, Enterprise Holdings Inc. (owner of the National and Alamo brands) and Avis Budget Group Inc. — control of almost the entire U.S. market for airport car rentals in the U.S.New competition from ride-hailing companies and a litany of management missteps meant Hertz never achieved the pricing power that Icahn and other recent investors probably assumed would come from all that merger activity. Because the industry’s fortunes are so closely tied to air and business travel, car rental demand is likely to remain weak for a while.  Still, Hertz remains open for business and thanks to the more lenient Chapter 11 process it should get another chance to make a success of that oligopoly, albeit as a smaller company with different shareholders and a new capital structure. Next time you return a rental car, expect the attendant to check even more thoroughly for dents and scratches.  (1) $14.7 billion of Hertz's debt relates to vehicle financingThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

On Tuesday, shares of rental car company Hertz fell more than 14% after it disclosed that it received approval from its lenders to continue negotiations through May 22 to “develop a financing strategy and structure that better reflects the economic impact" of COVID-19.

It's good to see businesses emerge from the worst of the COVID-19

Today we'll evaluate Avis Budget Group, Inc. (NASDAQ:CAR) to determine whether it could have potential as an...

Investors need to pay close attention to Avis Budget Group (CAR) stock based on the movements in the options market lately.

Avis Budget Group (CAR) first-quarter 2020 revenues decrease year over year.

A bullish pronouncement from JPMorgan's CEO just helped double the share price of bankrupt Hertz.

Shares of vehicle-rental company Avis Budget Group (NASDAQ: CAR) declined 10% Wednesday as markets continued to digest news for the hard-hit auto industry and gloomy economic data. First, taking a look at broader economic data that sent the Dow roughly 200 points lower toward the end of Wednesday's trading session, the U.S. private sector cut a record 20.2 million jobs in April, the latest sign of how devastating the COVID-19 coronavirus pandemic has hit the economy. One of the hardest-hit industries has been the automotive sector, especially the car rental business that has sent shares of Avis and rival Hertz Global Holdings (NYSE: HTZ) spiraling compared to the S&P 500.

Shares of Avis Budget Group (NASDAQ: CAR), one of the nation's largest vehicle rental companies, are jumping 11% higher Tuesday morning after a bear pulled its rating, investors digested a Hertz (NYSE: HTZ) bankruptcy, and the market cheered a potential vaccine for COVID-19. In the immediate term, as an essential business, Hertz will remain operating and has about $1 billion in cash to support operations.

(Bloomberg) -- The short version of Hertz Global Holdings Inc.’s bankruptcy story goes something like this: Global pandemic obliterates the travel business and lands an iconic 102-year-old company in court to seek protection from creditors.The long version is a fable about what happens when a company relies on accounting and consolidation to keep shareholders happy. It’s a tale of lurching from one CEO to another and management teams failing to stay attuned to consumer tastes.Enterprise Holdings Inc. and Avis Budget Group Inc. are suffering through the same Covid-19 drought, but Hertz’s own bad decisions and hard luck made it vulnerable at the worst time. One former top executive summed up its plight as a slow-moving train wreck.On its Chapter 11 petition, Hertz listed $25.8 billion in assets. It has over $1 billion in cash and $24.4 billion of debt. A company that began with a dozen Ford Model Ts and was taken for a spin by General Motors, Ford Motor and a group of private equity firms as parents over the decades now faces an uncertain fate that will be decided in a Delaware court.O.J., EnterpriseNo telling of Hertz’s history is complete without mention of perhaps the most disastrous end to a major celebrity-endorsement deal of all time.Hertz was owned by Ford in the summer of 1994 when police pursued O.J. Simpson in a white Bronco SUV for the murder of his ex-wife, Nicole Brown Simpson, and her friend Ron Goldman. As a Buffalo Bills running back two decades earlier, Simpson raced through airports and past children screaming “Go, O.J., go!” on his way into the company’s rental cars.The television ads were effective at emphasizing speedy service and boosted business. While the relationship was less beneficial to the company as their 19-year link wore on, Hertz stood by Simpson’s side even after a January 1989 charge for assaulting his wife. She personally convinced then-Chairman Frank Olson to stick with the star, the Washington Post reported.Hertz had some good years after the so-called trial of the century that ended in Simpson’s acquittal. But in November 1994, the same month that the jury was sworn in, the trade publication Auto Rental News ranked Enterprise its new No. 1 by fleet size and number of offices.Private Equity EraWhile Hertz was by some measures slipping in the rental industry pecking order, it was still earning tidy profits for an otherwise struggling Ford. The automaker sold the company in 2005 to two private equity firms and Merrill Lynch & Co.’s buyout unit for about $15 billion.The following year, Hertz poached the top executive at auto-parts maker Tenneco Inc., Mark Frissora, to be CEO and lead the company through a re-listing. Frissora cut costs, eliminated thousands of jobs and was paid handsomely. His $19.2 million compensation package in 2006 was more than Ford awarded its CEO last year.After weathering the global financial crisis, Hertz started pursuing a costly and drawn-out deal for Dollar Thrifty Automotive Group Inc. It tried buying the company for $1.2 billion in 2010 but ultimately paid $2.6 billion after a two-year bidding war with its rival Avis.The deal boosted Hertz’s market share by rounding out its business-traveler stronghold with a greater presence in the budget-minded leisure segment. But the acquisition also added to Hertz’s debt pile, which already was substantial thanks to the earlier leveraged buyout. The company ended 2012 with $20.8 billion in total liabilities.Dollar ShortProblems abounded with integrating the two companies, according to Maryann Keller, a longtime auto-industry consultant who was on Dollar Thrifty’s board at the time of the acquisition.The two had different computer systems that couldn’t talk to each other. Frissora lost some talented executives by moving the two companies, which had been based in New Jersey and Oklahoma, to a new headquarters in Florida.Hertz hoped to combine airport lots for the three brands to save money, but wasn’t able to do so at many locations. The company also found that Dollar Thrifty had let the tires on its cars get thinner than Hertz allowed, and many had to be replaced at a cost of $30 million. Neither problem surfaced during due diligence.In the end, a merger that was supposed to save Hertz about $100 million in the first year ended up costing it another $70 million, two people familiar with the matter said.Accounting IssuesAs expenses related to the acquisition dragged on earnings, Frissora sought other ways to keep profit up.To tamp down on vehicle depreciation, the biggest source of costs for rental companies, Frissora tried keeping cars longer, some for as many as 50,000 miles, long past the industry norm of about 30,000, former executives told Bloomberg News. His plan was to put older vehicles into the fleets of the company’s budget brands: Dollar, Thrifty and Firefly.Because cars depreciate most in their first year, holding on to them longer would slow the rate the company had to show on its books. But not enough of the older models made it out of Hertz’s fleet, and business travelers were turned off by the aging selection of rides to choose from, Keller said.And according to the Securities and Exchange Commission, the company committed fraud. The regulator said that from February 2012 through March 2014, Hertz materially misstated pretax income due to accounting errors. Investors including billionaire Carl Icahn pushed for Frissora’s ouster in September 2014, and the company restated results the following year.Hertz settled with the SEC for $16 million and Frissora wasn’t charged. A spokesman for the former CEO said he presided over operational improvements during his eight-year tenure. Hertz’s 2015 earnings restatements have no bearing on the company’s current financial situation and Frissora didn’t direct any improper accounting or engage in any wrongdoing, the spokesman said.Still, Hertz sued Frissora and three other ex-senior managers last year, seeking to claw back $70 million in bonuses over the executives’ roles in the accounting scandal. Frissora and the other executives filed their own suits in Delaware Chancery Court seeking to force the company to cover their legal bills in the clawback fight. Judge Kathaleen S. McCormick granted those requests last year. One executive reached a settlement for undisclosed terms.In an amended complaint filed in federal court in New Jersey this month, Hertz demanded that Frissora and former general counsel Jeffrey Zimmerman hand over $56 million in incentive pay because of their involvement in accounting errors that overstated Hertz’s pre-tax income. That led to the $200 million restatement and the duo’s ouster, according to court filings.Icahn EntersIcahn entered the picture after a 2014 dinner in New York that an industry analyst had with Dan Ninivaggi, who was then CEO of Icahn Enterprises. Ninivaggi was told Hertz had a good brand and solid foundation but needed discipline and better management. Icahn was swayed and bought up shares. By year-end, his holding was worth more than $1.13 billion, according to data compiled by Bloomberg.The head of Hertz’s equipment-rental business took over the company for a few months before a fateful decision. Rather than hire former Dollar Thrifty CEO Scott Thompson to run the company, Icahn went with John Tague, an ex-COO of United Airlines.Icahn “didn’t put the best people in place” and “had a revolving door of managers,” said Keller, who believes Hertz would not be in the position it’s in today if it had hired Thompson. Icahn didn’t respond to requests for comment.Tague updated Hertz’s fleet but did so with passenger cars just as U.S. consumers began fleeing sedans for sport-utility vehicles. Consumers went looking to other rental counters for SUVs, and depreciation costs mounted as sedans retained less of their value. He also tried raising prices, figuring the industry’s oligopoly would follow suit. But Enterprise and Avis didn’t and instead picked off more of Hertz’s customers.In an interview Saturday, Tague said growth wasn’t his priority. He started tilting the fleet mix toward SUVs, but had a lot else on his plate: finishing the accounting investigation and restating earnings, integrating Dollar Thrifty, rebuilding the management team hollowed out by the Florida move and spinning off the equipment-rental business.“Upon my arrival, it was clear that many things had to be addressed with a sense of urgency,” he said in a phone interview. “That’s what I undertook.”Future JourneysTague retired at the beginning of 2017 and was replaced by Kathryn Marinello, who had been on the board of GM and truckmaker Volvo AB. The results of her early efforts to shrink the fleet and further the shift toward SUVs were undercut by the emergence of Uber Technologies Inc. and Lyft Inc.Marinello did make progress. Hertz reported nine consecutive quarters of earnings growth and expanded revenue in 10 straight.But when the pandemic decimated the rental industry, Hertz still had too little cash and a mountain of debt. Marinello resigned May 16, less than a week before the bankruptcy filing.“With the severity of the Covid-19 impact on our business and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery,” Hertz’s new CEO Paul Stone said in a statement announcing the company’s bankruptcy. “Our loyal customers have made us one of the world’s most iconic brands, and we look forward to serving them now and on their future journeys.”The main bankruptcy case is In RE: The Hertz Corporation, 20-111218, U.S. Bankruptcy Court for the District of Delaware (Wilmington)(Updates with clawback lawsuits against former executives starting in 21st paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

Morgan Stanley analyst Adam Jonas upgraded Avis from underweight to equal weight and bumped the price target from $7 to $15. You can see a clear difference between Avis and its rival Hertz Global Holdings (NYSE: HTZ) over the past month.

Shares of Avis Budget Group (NASDAQ: CAR) and Hertz Global Holdings (NYSE: HTZ), well-known vehicle rental companies, and the nation's largest auto retailer AutoNation (NYSE: AN) declined 10% early Wednesday after concerns that plunging used car prices could be exacerbated by a possible Hertz bankruptcy -- a development that would send ripple effects across the auto industry. As you can see in the graph above, Avis and Hertz have been decimated by the COVID-19 coronavirus pandemic and the economic and travel restrictions it brought. In fact, Avis expects April and May to post a crippling 80% decline in revenues, which is one reason the company tapped the junk bond market for $500 million to help weather the COVID-19-driven economic downturn.

There are a number of developments that could be sending auto stocks higher, including an upcoming holiday.

Shares of Planet Fitness (NYSE: PLNT), Hertz Global Holdings (NYSE: HTZ), and Avis Budget Group (NASDAQ: CAR), three companies that would greatly benefit from a rebounding economy, were jumping over 10% Monday morning as a number of positive developments give investors hope. Powell also noted that the Fed could unleash new lending programs and adjust the pace of its asset purchases. The news that the Fed has more ammunition to offset COVID-19 impacts, and that Moderna is seeing promise in a vaccine, are huge developments for companies like Planet Fitness, Hertz, and Avis, which have been hit hard by social distancing and travel restrictions.

At a time when people desire the safety and reliability of a private vehicle, Zipcar has improved the speed and ease for drivers to sign up and book a Zipcar, allowing members to affordably access a car without the financial burden and hassles of owning one. Zipcar, the world’s leading car-sharing network, today announced the national launch of Instant Access, which enables new members to access a car with a smartphone and drive within minutes of joining, providing on-demand flexibility for essential trips. With Instant Access, new members joining Zipcar online will have their identity confirmed by matching a valid driver’s license with a “selfie” submitted by the member.

Companies like Hertz have seen their revenues dry up as customers cut back on travel because of the global coronavirus pandemic. Here are details on other travel companies that are rated in the lowest five tiers of the junk-bond market before default.

Its arch-rival fell well short of expectations in its latest quarter, highlighting the perilous state of the car rental industry as a whole.

(Bloomberg) -- Rental-car companies struggling to survive the coronavirus pandemic’s catastrophic blow to their business have been working with automakers to call off purchases, in some cases even redirecting vehicles in transit to their now largely neglected parking lots.General Motors Co. is taking back cars it agreed to sell that were on their way to Hertz Global Holdings Inc., Avis Budget Group Inc. and closely held Enterprise Holdings Inc., a spokesman said. Hyundai Motor Co. also confirmed it has redirected some vehicles to its retailers that it was planning to produce for fleet customers.Early last month, Fiat Chrysler Automobiles NV compiled a list of almost 30,000 vehicles the rental-car companies had purchased and circulated it to other prospective fleet customers, according to a person who shared the document with Bloomberg News. The attempt to transfer any of the cars to other customers ultimately fell through for logistical reasons, a Fiat Chrysler spokesman said.The effort by the automakers to help the companies shrink their fleets captures just how dire the rental business is amid shutdown orders that have clobbered the travel industry. Hertz’s lenders granted an eleventh-hour reprieve from a potential bankruptcy on Tuesday, while Avis sold $500 million of high-interest junk bonds to weather what it expects to be back-to-back months of revenue plummeting 80%.Carmakers -- some of which have struggled to find space for an unprecedented glut of cars at U.S. ports -- won’t be able to count on the rental-car companies to help buoy sales for the foreseeable future. Deliveries to all fleet customers are about 20% of their business in the U.S., and the vast majority of those go to the rental channel.Hertz, Avis and Enterprise have canceled all orders of GM vehicles for May, June and into July, according to a person familiar with its operations who asked not to be identified because the information is private. Hertz said in a filing Tuesday that it doesn’t expect to acquire new vehicles for the remainder of this year.A spokeswoman for Hertz declined to comment beyond the filing, and representatives for Avis and Enterprise didn’t immediately comment.U.S. rental-car sales plummeted 77% to 32,944 vehicles in April, according to Cox Automotive. The next-lowest monthly total in data compiled over the last seven years was almost double that figure.Fiat Chrysler saw the largest decline in total fleet sales among major automakers, Cox said, without providing figures by company.‘No Business’Jim Cain, a GM spokesman, confirmed that the automaker took back some cars from rental companies and sent them to dealers who need inventory. In some states -- particularly in southern and western markets that are less affected by Covid-19 -- dealers are seeing “robust business,” he said.There was “virtually no business” last month in the fleet industry, about 80% of which usually goes to rental-car companies, according to Bob Carter, executive vice president of sales at Toyota Motor Corp.’s North American unit.“As we transitioned to people not traveling, the rental-car demand dropped precipitously,” Carter said in an interview last week.Business should start to pick back up over time, Randy Parker, sales vice president at Hyundai’s U.S. subsidiary, said in a May 1 interview.“As governments start to lift restrictions and people start to travel,” Parker said, “fleet will rebound.”(Updates with April fleet sales data in the eighth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

On the call with me are Joe Ferraro, our interim chief executive officer; and John North, our chief financial officer. Before we begin, I would like to remind everyone that we will be discussing forward-looking information that involves risks, uncertainties and assumptions that could cause actual results to differ materially from such forward-looking statements and information.

Q1 2020 Avis Budget Group Inc Earnings Call