The Big Winner of Hertz's Bankruptcy

*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. I am neither a licensed or registered financial expert. Please see a financial advisor before making investment decisions. 

While the bankruptcy of Hertz is bad for the workers, the investors, the creditors, and anyone else connected to the company, other people like Hertz's competitors and those who had a bad experience with the company are happy with the bankruptcy. 

                                               

                                                             Photo by Haidan on Unsplash

Hertz is a big player in the car rental business. According to Auto Rental News, Hertz had the second largest market share in the car rental space. With the second largest player going bankrupt, many of the top leaders like Enterprise and Avis Budget Group (NASDAQ: CAR) get to take Hertz's customers. 

Because Enterprise, the largest car rental company, isn't publicly traded, I can't invest in it. The largest car rental that is publicly traded is the Avis Budget Group (NASDAQ: CAR). While it's trailing just behind Hertz, with Hertz gone, I believe that Avis Budget Group will gain a much larger market share of the car rental space. The increase in business Avis would experience would be a lot higher percentage-wise since it's starting at a much lower base compared to Enterprise. 

While there are still risks in investing in the car rental space, with the potential for the industry to recover, I believe that Avis Budget Group might be a decent stock to buy on the dip. 

With lower interest rates, $686 million in cash, and a history of having a positive net income, this company seems to be able to operate in the car rental business in a profitable manner. 

Looking at Hertz's financials, it's interesting to see that the company has been producing negative net income since 2018. 

Something may need to note is that the car rental business is a big customer to the big auto companies. They account for around 10% of new car sales overall. Some companies have a higher dependence on car rental companies than others. Since car rental companies hold their cars for a short period of time, they happen to become big customers for auto manufacturers. 

Because they hold their vehicles for a short period of time, car rental companies send their old cars to the used car market, flooding used car buyers with many options. Car rental companies either send their cars to wholesalers who then sell them on the used car market or they sell the cars on the used car market directly, depending on the company and its needs. 

With used car prices plunging, carmakers that are hoping to recoup the money they used to buy their cars will find that they'll be receiving less cash than usual when dumping the cars on the used car market. This is good for consumers looking to buy a used car and bad for the cash position of car rental companies and bad for automakers and car dealers looking to sell fleet deals to those car rental companies. 

If car rental companies do keep the cars for another year instead of selling them, not only will it allow them to potentially dump their cars at a better price but they can continue to reap in the depreciation benefits of holding the car. 

Overall, with the bankruptcy of Hertz allowing other car rental companies to increase their market share, Avis Budget Group looks to be one of the big winners from the crisis. With the overall car industry suffering, by seeing that the market shares of many companies have strengthened, this is a sign that when things do go back to normal, these companies will receive a lot more business overall both in the short term and in the long term. It is risky to invest in the car rental space overall but the rewards can be lucrative.