TRUMPERNOMICS - HERE'S WHAT HERTZ BANKRUPTCY WILL DO TO THE CAR BIZ

Hertz Is Bankrupt, and the Effects Will Flow Throughout the Car Business

By Josh Barro

Coming soon to a used-car lot near you. Photo: ETIENNE LAURENT/EPA-EFE/Shutters

Like a lot of the companies that have gone bankrupt during the coronavirus crisis, rental-car giant Hertz had preexisting conditions. The company had gone through four CEOs since 2014, made questionable decisions about which cars to buy, and taken on too much debt. The interaction of a collapse in rental-car demand and a fragile debt structure is what finally did the company in. Hertz financed itself mostly by taking out loans secured by its fleet of cars, and if the cars fell in value, Hertz’s lenders had the right to demand an immediate payment reducing the amount of the loan, so it was still comfortably covered by the cars’ now-lower value. Because of the crisis, used-car values and sales volumes fell right as Hertz lost most of its customers, and Hertz had no good way to come up with the payment its lenders were entitled to. Thus, Hertz filed for bankruptcy.

The bankruptcy filing has started a 60-day clock, during which Hertz’s secured lenders must wait before they can foreclose on the 400,000 U.S. cars that were financed through such arrangements. It is possible that during the 60 days, Hertz and its creditors will work out a deal that forestalls that foreclosure. Hertz has unsecured lenders who depend on Hertz’s future revenues to be repaid, and who will be screwed if the secured lenders liquidate so much of the company’s vehicle fleet, so there will be a complex negotiation. But such a deal is still likely to involve the liquidation of a substantial portion of those 400,000 vehicles, as Hertz prepares to continue doing business amid an extended decline in leisure travel and a possibly permanent reduction in business travel. So, however the Hertz bankruptcy works out, you can expect a lot of extra Ford Focuses and Chevrolet Malibus on used-car lots over the next year.

That should mean used cars will be cheap to buy, right? Well, that depends. The disruption at Hertz — and the broader disruption in rental-car demand, which may cause Hertz’s non-bankrupt competitors to shrink their own fleets — is just one of many unusual things happening in car-related businesses right now. And some of the other things that are happening could tend to push new- and used-car prices up.

Most important, auto-manufacturing plants throughout North America were closed for much of March and all of April, and many of them remain closed today. There are ongoing risks to production as the year continues: Resurgent outbreaks could force reclosure of auto plants, and even plants that face no barriers to operation themselves may be disrupted by the lack of available parts due to production difficulties in other countries, including Canada and Mexico. So, while the troubles at Hertz could make hundreds of thousands used cars and light trucks prematurely available for retail sale in the U.S., auto-manufacturing disruptions are likely to reduce the number of new vehicles available for sale in the U.S. this year by millions.

“If we don’t have new cars to sell, it boosts used-car values,” said Anthony Pordon, an executive at Penske Automotive Group, at a Center for Automotive Research presentation earlier this month. (Penske owns dealerships that sell new and used cars.) Pordon noted that young used cars, under four years old, are especially close substitutes for new cars, because they typically represent an improvement in technology compared to the older car a customer may be trading in. In general, vehicles sold off from rental-car fleets will be in this age bracket. Reduced fleet sales of new cars and light trucks — whether to rental-car firms that are shrinking, or to governments that are cutting budgets — may also help make more new vehicles available to retail consumers, helping to offset the supply crunch from factory closures. Ordinarily, fleet sales make up nearly 20 percent of total new light-vehicle sales in the U.S.

The other big question is how consumer demand for cars will be affected by the crisis. In March and April, sales of new and used cars fell sharply as consumers stayed home and some states ordered car dealerships to close at least their sales departments, but sales volumes have already begun to rebound sharply. Cox Automotive, an industry-research firm, estimates that sales volume in the first 20 days of May was down 32 percent for new vehicles and 6 percent for used vehicles compared to the same period a year earlier. In April, those declines had been 47 percent and 34 percent, respectively. And as customers have returned to buying cars, the value pressure on used cars appears to have abated somewhat. Manheim, which runs wholesale auctions where dealers get used cars and trucks to sell, says wholesale prices for used vehicles fell sharply in April, but bounced back in the first half of May, and are now down only 5 percent from a year ago.

It’s not hard to think of ways the coronavirus crisis could boost demand for autos. You hear anecdotal stories about people who have decided they need a car (or an additional car) for their households because the epidemic has made them reluctant to use ride-sharing services or public transportation. (“A lot of our members say they will take as many sub-$10,000 vehicles as they can get,” said Patrick Manzi, the chief economist for the National Association of Auto Dealers, at that Center for Automotive Research event, referencing the demand from households that have decided they need an extra car.) Stimulus checks and enhanced unemployment benefits have softened the blow of the economic crisis and even left some households more cash rich than they were before. And the effective unavailability of certain categories of consumption — for instance, restaurants, vacations, and live entertainment — could encourage more spending on what is available, like vehicles.

On the other hand, there are obvious reasons demand for cars would fall. Foremost, tens of millions of people have been put out of work by the crisis, and unemployment is usually not a great time to make a major capital purchase. Even people who remain employed have been driving a lot less over the last few months, and many workers are likely to continue working from home for the rest of the year. People who aren’t using their cars so much might not feel any urgency to buy something newer. And the longer that severe disruptions to the economy persist, the more damage there should be to consumer demand overall, especially if the federal government’s commitment to fiscal stimulus wanes.

In this environment of severe uncertainty, it’s striking how stable the retail prices consumers are paying for vehicles have remained. Inflation data that showed sharp drops in prices for gasoline and airfares in April showed new-car prices unchanged and used-car prices down less than one percent. Those figures may be obscuring a modest drop in effective prices for new vehicles: Auto manufacturers have been incentivizing purchases by offering zero-interest financing to buyers with good credit, and the implicit discount from the zero-interest financing does not show up in the auto price as tracked by the Bureau of Labor Statistics. In any case, what consumers are finding are attractive terms to buy cars, not fire-sale terms. Whether this remains a good time to buy a car will depend on whether supply-creating events like the Hertz bankruptcy are more than offset by supply-reducing events like auto plant closures, and on how many households feel good enough about their finances to go out and buy a car.

Car rental giant Hertz files for bankruptcy protection with $19BILLION of debt after share prices plummet and 10,000 staff are laid off amid the coronavirus pandemic

 

·         Hertz filed for bankruptcy protection Friday after skipping car-lease payments last month

·         The coronavirus pandemic has crippled the Florida-based company, which was already struggling with billions of dollars in debt

·         The company laid off around 10,000 North American workers amid the coronavirus crisis and their share price has plummeted more than 80% this year 

Car rental company Hertz filed for Chapter 11 on Friday after failing to reach a standstill agreement with its top lenders.  

The Wall Street Journal reports that Hertz has roughly $19 billion of debt. 

That staggering amount is made up of '$4.3billion in corporate bonds and loans and $14.4 billion in vehicle-backed debt held at special financing subsidiaries'.

Florida-based Hertz began bankruptcy protection proceedings in the U.S. Bankruptcy Court in Wilmington,

Delaware, in an attempt to avoid a forced liquidation of its vehicle fleet after bookings dropped off overnight due to the coronavirus pandemic.

'Today's action will protect the value of our business, allow us to continue our operations and serve our customers, and provide the time to put in place a new, stronger financial foundation to move successfully through this pandemic and to better position us for the future,' Chief Executive Paul E. Stone said.

Amazon CEO Jeff Bezos, who is rescinding a $2-an-hour hazard pay increase for his warehouse workers at the end of the month, led the pack, increasing his personal wealth by $34.6 billion since the onset of the pandemic. Facebook CEO Mark Zuckerberg was close behind, adding $25 billion to his fortune. Tesla CEO Elon Musk, who reopened his California auto plant in defiance of state regulators and with the support of President Trump, saw a 48 percent increase in his wealth to $36 billion in just eight weeks as the stock market rebounded from its collapse. All told, the nation’s 620 billionaires now control $3.382 trillion, a 15 percent increase in two months.

US unemployment claims approach 40 million since March

22 May 2020

The United States Department of Labor reported on Thursday that more than 2.4 million Americans applied for unemployment insurance last week, bringing the total number of new claims to 38.6 million since mid-March, when social distancing measures and statewide stay-at-home orders were first implemented in an effort to slow the spread of the coronavirus.

Even with the push by the Trump administration since then to reopen the economy and the easing of lockdown orders in all 50 states—despite a continued rise in COVID-19 infections and deaths—the US marked its ninth straight week in which more than 2 million workers filed for unemployment. While this is down from the peak at the end of March when 6.8 million applied for unemployment insurance, it still dwarfs the worst weeks of the Great Recession in 2008.

It is expected that the official unemployment rate for May, which is to be reported by the federal government in the first week of June, will approach 20 percent, up from 14.7 percent last month. This is a significant undercount, with millions of unemployed immigrants unable to apply for benefits, and many other workers who are not currently looking for work and therefore are not counted as unemployed.

A man looks at signs of a closed store due to COVID-19 in Niles, Ill., Thursday, May 21, 2020. (AP Photo/Nam Y. Huh)

Fortune magazine estimates that real unemployment has already hit 22.5 percent, which is nearing the peak of unemployment reached during the Great Depression in 1933, when the rate rose above 25 percent. Millions more are expected to apply in the coming weeks, pushing the numbers beyond those seen during the country’s worst economic crisis.

But even these figures do not capture the extent of the crisis now unfolding across the country. Millions have been blocked for weeks from applying for unemployment compensation because of antiquated computer systems, and a significant share of those who have applied have been denied any payments. On top of this there are significant delays in processing applications in multiple states, including Indiana, Missouri, Wyoming and Hawaii. Meanwhile, Florida, which has some of the most stringent restrictions, has refused to extend its paltry three-month limit on payments for the few who manage to qualify.

Sparked by the pandemic, the greatest economic crisis since the 1930s is already having a devastating impact on the millions who have seen their jobs suddenly disappear, while millions more will see wages, benefits and hours dramatically curtailed whenever they are able to return to work. Optimistic projections that the US economy would quickly bounce back once stay-at-home orders were lifted are now becoming much gloomier.

A University of Chicago analysis from earlier this month projects that 42 percent of lost jobs will be permanently eliminated. At the current record number, this will mean a destruction of 16.2 million jobs, nearly double the number of jobs which were lost during the Great Recession just over a decade ago.

“I hate to say it, but this is going to take longer and look grimmer than we thought,” Nicholas Bloom, a Stanford University economist and one of the co-authors of the study, told the New York Times.

A survey by the Census Bureau carried out at the end of April and beginning of this month found that 47 percent of adults had lost employment since March 13 or had someone in their household do so, and 39 percent expected that they or someone else in the home would lose their job in the next month. Nearly 11 percent reported that they had not paid their rent or mortgage on time and more than 21 percent had slight or no confidence that they would do so next month.

With millions missing their rent or mortgage payments, tens of thousands of families will be thrown out on the street in the coming weeks and months, leading to a dramatic rise in homelessness even as the coronavirus continues to spread. While many states took steps in March to place a moratorium on evictions, and eviction notices were unable to be filed due to court closures, those measures are now expiring and courts are reopening.

The Oklahoma County Sheriff announced Tuesday via their Twitter page that the department would resume enforcing evictions on May 26. Nearly 300 eviction cases were filed in Oklahoma City between Monday and Tuesday. This process is being repeated in cities and counties across the country. Evictions are also set to resume in Texas next week, where many families were ineligible for aid due to the undocumented status of one or another parent. The CARES Act provision, which blocks evictions from properties with federally subsidized mortgages, expires on July 25; in Texas this only accounts for one-third of homes.

Meanwhile, another wave of layoffs and furloughs is expected by the Congressional Budget Office at the end of June, when the multi-billion-dollar Payment Protection Program (PPP) expires. Sold as a bailout which would help small businesses keep workers on their payroll in the course of necessary shutdowns, the PPP was in fact a boondoggle for large corporations, their subsidiaries and those with connections to the Trump administration. Many small business owners have not seen any aid, and many do not qualify for loan forgiveness.

Amid historic levels of social misery in the working class, times have never been better for those at the heights of society, with America’s billionaires adding $434 billion to their total net worth since state lockdowns began. Financial markets have soared, underwritten by $80 billion per day from the Federal Reserve.

Amazon CEO Jeff Bezos, who is rescinding a $2-an-hour hazard pay increase for his warehouse workers at the end of the month, led the pack, increasing his personal wealth by $34.6 billion since the onset of the pandemic. Facebook CEO Mark Zuckerberg was close behind, adding $25 billion to his fortune. Tesla CEO Elon Musk, who reopened his California auto plant in defiance of state regulators and with the support of President Trump, saw a 48 percent increase in his wealth to $36 billion in just eight weeks as the stock market rebounded from its collapse. All told, the nation’s 620 billionaires now control $3.382 trillion, a 15 percent increase in two months.

US unemployment claims approach 40 million since March

22 May 2020

The United States Department of Labor reported on Thursday that more than 2.4 million Americans applied for unemployment insurance last week, bringing the total number of new claims to 38.6 million since mid-March, when social distancing measures and statewide stay-at-home orders were first implemented in an effort to slow the spread of the coronavirus.

Even with the push by the Trump administration since then to reopen the economy and the easing of lockdown orders in all 50 states—despite a continued rise in COVID-19 infections and deaths—the US marked its ninth straight week in which more than 2 million workers filed for unemployment. While this is down from the peak at the end of March when 6.8 million applied for unemployment insurance, it still dwarfs the worst weeks of the Great Recession in 2008.

It is expected that the official unemployment rate for May, which is to be reported by the federal government in the first week of June, will approach 20 percent, up from 14.7 percent last month. This is a significant undercount, with millions of unemployed immigrants unable to apply for benefits, and many other workers who are not currently looking for work and therefore are not counted as unemployed.

A man looks at signs of a closed store due to COVID-19 in Niles, Ill., Thursday, May 21, 2020. (AP Photo/Nam Y. Huh)

Fortune magazine estimates that real unemployment has already hit 22.5 percent, which is nearing the peak of unemployment reached during the Great Depression in 1933, when the rate rose above 25 percent. Millions more are expected to apply in the coming weeks, pushing the numbers beyond those seen during the country’s worst economic crisis.

But even these figures do not capture the extent of the crisis now unfolding across the country. Millions have been blocked for weeks from applying for unemployment compensation because of antiquated computer systems, and a significant share of those who have applied have been denied any payments. On top of this there are significant delays in processing applications in multiple states, including Indiana, Missouri, Wyoming and Hawaii. Meanwhile, Florida, which has some of the most stringent restrictions, has refused to extend its paltry three-month limit on payments for the few who manage to qualify.

Sparked by the pandemic, the greatest economic crisis since the 1930s is already having a devastating impact on the millions who have seen their jobs suddenly disappear, while millions more will see wages, benefits and hours dramatically curtailed whenever they are able to return to work. Optimistic projections that the US economy would quickly bounce back once stay-at-home orders were lifted are now becoming much gloomier.

A University of Chicago analysis from earlier this month projects that 42 percent of lost jobs will be permanently eliminated. At the current record number, this will mean a destruction of 16.2 million jobs, nearly double the number of jobs which were lost during the Great Recession just over a decade ago.

“I hate to say it, but this is going to take longer and look grimmer than we thought,” Nicholas Bloom, a Stanford University economist and one of the co-authors of the study, told the New York Times.

A survey by the Census Bureau carried out at the end of April and beginning of this month found that 47 percent of adults had lost employment since March 13 or had someone in their household do so, and 39 percent expected that they or someone else in the home would lose their job in the next month. Nearly 11 percent reported that they had not paid their rent or mortgage on time and more than 21 percent had slight or no confidence that they would do so next month.

With millions missing their rent or mortgage payments, tens of thousands of families will be thrown out on the street in the coming weeks and months, leading to a dramatic rise in homelessness even as the coronavirus continues to spread. While many states took steps in March to place a moratorium on evictions, and eviction notices were unable to be filed due to court closures, those measures are now expiring and courts are reopening.

The Oklahoma County Sheriff announced Tuesday via their Twitter page that the department would resume enforcing evictions on May 26. Nearly 300 eviction cases were filed in Oklahoma City between Monday and Tuesday. This process is being repeated in cities and counties across the country. Evictions are also set to resume in Texas next week, where many families were ineligible for aid due to the undocumented status of one or another parent. The CARES Act provision, which blocks evictions from properties with federally subsidized mortgages, expires on July 25; in Texas this only accounts for one-third of homes.

Meanwhile, another wave of layoffs and furloughs is expected by the Congressional Budget Office at the end of June, when the multi-billion-dollar Payment Protection Program (PPP) expires. Sold as a bailout which would help small businesses keep workers on their payroll in the course of necessary shutdowns, the PPP was in fact a boondoggle for large corporations, their subsidiaries and those with connections to the Trump administration. Many small business owners have not seen any aid, and many do not qualify for loan forgiveness.

Amid historic levels of social misery in the working class, times have never been better for those at the heights of society, with America’s billionaires adding $434 billion to their total net worth since state lockdowns began. Financial markets have soared, underwritten by $80 billion per day from the Federal Reserve.