But another group dependent on Detroit's Big Three also could be quietly headed for a major round of restructuring, some say — rental car companies.

Indeed, as two of the Big Three motor through bankruptcy protection, the nation's leading rental car providers — Avis Budget Group Inc., Dollar Thrifty Automotive Group Inc. and Hertz Global Holdings Inc. — face an environment that has rapidly changed how they do business and may ultimately have to revamp things if they are to survive in a post-GM/Chrysler Chapter 11 world.

The storm has yet to hit. Chrysler and GM have affirmed their commitment to rental car programs despite their Chapter 11 proceedings, easing Wall Street's angst over the future of Avis, Dollar Thrifty and Hertz. Both Dollar Thrifty and Avis' stock prices have more than doubled since April 30, while Hertz's shares have remained fairly stable. But the operating performance for all three has been less than stellar, a reflection of the perils of today's auto sector.

Avis posted a $70 million pretax loss for the first quarter — a 17% decrease from the same period a year earlier — after posting a $164 million loss for the fourth quarter of 2008.

Hertz's car rental revenue plummeted from $1.6 billion for the three months ended March 31, 2008, to $1.26 billion for the quarter ended March 31. Hertz lost $80 million during the first quarter.

Dollar Thrifty, meanwhile, beat the expectations of Wall Street and posted the best numbers of the three. In the first quarter, Dollar Thrifty lost $8.9 million, compared with a $297.9 million loss a year earlier.

Of the three, one source warns that Avis may have the biggest risk of being caught in the middle of the credit crunch. Avis bought itself some time near the end of 2008 by extending its $1.1 billion fleet financing facility by one year. That financing, however, matures in November following 25% reductions in borrowing capacity in both September and October. The source says Avis may essentially be "back where [it was]" before the extension when the facility runs out, leaving it at risk for a potential restructuring.

Hertz must deal with a mountain of debt. Though the company has taken significant measures to refinance debt and bolster liquidity — it raised $949 million through a debt and equity offering in May — the company has close to $5 billion in debt maturing by the end of 2010. Standard & Poor's analyst Betsy Snyder warns in a note downgrading the company's corporate credit rating to B that further downgrades may come if Hertz doesn't keep slashing debt. Hertz chairman and CEO Mark Frissora, however, said on a first-quarter earnings conference call that there would be "more than enough liquidity" to cover 2009 debt maturities.

The sea change for rental car companies primarily stems from a shift in sources for fleet financing — something that had been a far less costly exercise before the credit market freeze. As Martin Young of Loughlin Meghji + Co. explains, through the "phenomena of securitization" — pooling cash-flow-producing assets, repackaging them and then selling them to investors as securities — rental car companies were given access to "very cheap credit" to finance their vehicle fleets.

"Basically, they create a bankruptcy-remote entity [also known as a special purpose entity or special purpose vehicle] which would obtain all the rental cars that was layered in various tiers of protection," he explains. "By doing so, they got some really cheap financing."

Young estimates by using securitization, rental car companies were able to obtain debt — typically insured by bond insurers — priced at an inexpensive 4% and 5%.

No more. With the economic meltdown that began with the subprime mortgage crisis in 2006 bleeding into a credit crunch among lenders, financing has dried up.

Young says the credit crunch has affected rental car companies in two ways: First, the heyday of cheap securitization financing is over, and even some of the bond insurers are at risk (should one go into rehabilitation, for example, mass portions of rental car fleets could be subject to liquidation). Second, it is harder to liquidate rental cars. Consumers have been spending less, lowering demand for car rentals. But they also have had problems accessing cheap credit to help buy used cars — constricting that market.

"These factors have created an industrywide de-fleeting problem," Young says. Rental car companies "are all trying to rationalize their fleet to generate cash and pare down debt."

Despite the difficulties, they are finding ways to trim their fleets. Avis, for example, reduced its fleet by 14% during the first quarter after slashing its fleet by 5% in the fourth quarter of 2008. Dollar Thrifty has cut its fleet by 10% since last year, while Hertz has shed 15% of its fleet.

Still, in addition to the problems wrought by the credit market, car rental companies must deal with the effects of GM's sweeping restructuring. The Detroit icon has already said that it will try to sell, phase out or obliterate altogether all but four of its brands — Chevrolet, GMC, Cadillac and Buick. That leaves a number of branded vehicles in the hands of rental car companies that could essentially end up as dead weight. As brands are discontinued, their residual value plummets, making their models harder and harder to liquidate and ultimately leaving rental car companies in a lurch.

A second source, for example, notes the fallout of GM's past decision to discontinue the Oldsmobile brand. Oldsmobiles "lost 10% [of their] value [the] day" the announcement came, every dealer went out of business within 12 months, and the cars were worth scrap within three to four years. The source believes that the same phenomenon could occur with the Pontiac brand, which GM announced on April 27 would be completely phased out by 2010.

"If you have Pontiacs in your fleet, you're very concerned," the source says.

So with securitization drying up and GM slashing brands, what are rental car companies to do?

In the short term, Young suggests that they look to bailout money under the federal government's Term Asset-Backed Securities Loan Facility, or TALF. Avis, for one, has already noted in regulatory filings that it is "actively investigating the possible issuance of asset-backed securities" under TALF.

But TALF funds would be part of a greater overall strategy to move away from securitizations — which Young believes "may not come back for a very long time" — to asset-based lending, through which a lender would assign a liquidation value to a vehicle and advance cash based on that figure. Such loans could come from a traditional bank lender, private equity firms or hedge funds. Hertz, for example, leaned on private equity stockholders Carlyle Group and Clayton, Dubilier & Rice Inc. for its stock and note sale.

Just how much time the rental car giants are able to buy through such moves, and how much debt they will be able to refinance, remains to be seen. Young, for one, doesn't see any of them parading into Chapter 11 any time soon. But their debt-chopping efforts bear watching as the automotive sector scrambles to right itself.

"I don't think anything is that imminent today," he says. "But this industry is definitely under pressure. Some of these guys have pretty large amounts of debts coming due." — Ben Fidler