Hertz Implosion Could Cripple Ford and General Motors
It's easy for investors in Ford (NYSE: F) and General Motors (NYSE: GM), or other automakers, to brush off Hertz's (NYSE: HTZ) recent bankruptcy thinking it has no effect on the manufacturers. But that thinking could be wildly incorrect, and in fact Hertz's bankruptcy could actually cost Ford and General Motors billions of dollars. How can that possibly be, you ask? Let's dive into a possible Hertz bankruptcy outcome, what it could do to vehicle residual values, and how that could cripple the two automakers' financials.
It's been well documented that Hertz's financial struggles forced the company to file for bankruptcy protection. Making a long story short, Hertz gambled by financing its massive vehicle fleet, with the agreement that it would pay large sums of cash to the lenders if the values of those vehicles fell as they did during the COVID-19 pandemic. When residual vehicle values plummeted, Hertz wasn't able to pay its lenders the hefty cash sum to satisfy their agreement, and thus the company filed for bankruptcy protection.
Here's where things could get dangerous not only for Hertz investors, but for Ford and GM shareholders. One possible outcome of Hertz's bankruptcy is simply to liquidate some or all of its vehicle assets to help pay back part of its massive $19 billion debt pile. Currently, we can only speculate on how many vehicles it might negotiate to sell. But here's what we know -- flooding the used vehicle market with part or all of its vehicle fleet will put downward pressure on prices. And while investors might think the residual value of used cars shouldn't affect automotive manufacturers such as Ford and General Motors, you would be very wrong.
Source Fool.com
