High fixed costs bankrupted the Hertz car rental company.

High fixed costs bankrupted the Hertz car rental company.

Hertz Car Rental Company faced bankruptcy due to high fixed costs. When costs are divided into fixed and variable costs, fixed costs contribute more to bankruptcy than variable costs. Fixed costs do not change with the change in sales or production volume. On the other hand, variable costs change with a change in sales or production volume (Stoecker et al., 2020). When the COVID-19 crisis disrupted the car rental business and reduced sales volume, fixed costs remained high, unlike variable costs which declined with a decline in sales volume. One plan that could have helped the company from crushing to bankruptcy would entail reducing its fleet size. According to Klein et al. (2020), revenue is achieved through increasing revenue levels or reducing costs. In the case of Hertz Car Rental Company, reducing the fleet size could have played a role in reducing fixed costs and leaving the company afloat throughout the pandemic period.

References

Klein, R., Koch, S., Steinhardt, C., & Strauss, A. K. (2020). A review of revenue management: Recent generalizations and advances in industry applications. European Journal of Operational Research, 284(2), 397-412.

Stoecker, Z., Van Amber, B., Woster, C., Isenberger, K., Peterson, M., Rupp, P., … & Dries, D. (2021). Evaluation of fixed versus variable dosing of 4-factor prothrombin complex concentrate for emergent warfarin reversal. The American Journal of Emergency  Medicine, 48, 282-287.

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High fixed costs bankrupted the Hertz car rental company.

Identify the cause of the bankruptcy in terms of variable costs and fixed costs.

Utilize your knowledge of costs to suggest a plan that could have saved the Hertz car rental company.