The car rental sector has been shaken once again by financial instability, as Advantage Rent A Car has declared bankruptcy. This recent filing marks another chapter in the troubled history of the company, previously under the ownership of Hertz, and highlights the ongoing challenges within the car rental industry. The story of Advantage, intertwined with that of Hertz, reveals a narrative of financial missteps and market pressures that have ultimately led to this point.
Advantage Rent A Car, established in 1963, officially sought Chapter 11 protection on Wednesday, adding to the economic distress caused by the ongoing global situation. This announcement comes shortly after its former parent company, Hertz, also declared bankruptcy, burdened with approximately $19 billion in liabilities. While the current economic climate has exacerbated financial difficulties for numerous businesses, including major retailers like J.C. Penney and J. Crew, Advantage’s struggles predate recent events. This marks the third bankruptcy filing for Advantage since 2008, indicating deeper, long-term issues beyond the immediate economic downturn.
The intertwined history of Hertz and Advantage reveals a series of strategic errors that weakened both companies. In 2009, following Advantage’s bankruptcy during the global recession of 2008, Hertz acquired Advantage for $33 million. However, this acquisition proved to be short-lived. By 2013, Hertz set its sights on acquiring Dollar Thrifty Automotive Group, then the fourth-largest car rental firm in the US. In a move that would later be viewed as a misstep, Hertz decided to divest its stake in Advantage to facilitate the Dollar Thrifty acquisition, fearing regulatory hurdles. The Dollar Thrifty deal, pursued at a cost of $2.3 billion, may not have delivered the anticipated benefits for Hertz. Following this major purchase, Hertz opted to raise capital by securitizing assets, specifically its vehicle fleet, further complicating its financial structure.
Just a few years later, Advantage faced bankruptcy again in December 2013. This second filing was partly attributed to its operational structure of leasing vehicles from Hertz, creating financial dependencies. In 2014, Catalyst Capital, a private equity firm specializing in distressed assets, acquired Advantage. Hertz reportedly paid Catalyst $2.75 million to relinquish control of Advantage, and Catalyst agreed to absorb around $46 million of Advantage’s debt.
Despite this restructuring, Advantage’s financial health did not improve. Six years later, the company’s debt has ballooned to over $500 million, culminating in the current bankruptcy filing. Industry analysts point to the broader downturn in the travel sector as a significant factor. Michelle Krebs, an executive analyst at Autotrader, noted that “The rental car industry is a disaster right now because of the whole travel industry,” highlighting the systemic challenges facing car rental businesses. The future of Advantage Rent A Car remains uncertain as it navigates this latest bankruptcy and the ongoing economic headwinds impacting the entire car rental industry.
