Rental Car Companies Have Inched Their Way Back From the Brink

It’s been a rough few years for the international car rental giants. Under pressure from shifting consumer trends and the global growth of ridesharing services, they bought too many cars at a time when car rental usage waned among vacationers and business travelers alike.

The companies have turned a corner by selling off their extraneous cars and offering better, and more profitable, products for consumers.

Both Hertz Global Holdings and Avis Budget Group have posted solid financial results for the first time in a year, the end result of a tough period realigning their fleet sizes with actual demand.

Hertz, in particular, more than doubled its net income from continuing operations year-over-year in the third quarter of 2017 to $93 million. While its earnings before interest, taxes, depreciation, and amortization slipped 17 percent year-over-year down to $166 million, the company seems to be more solidly on the path to profit.

Hertz Has Rideshare Revenue Stream

Hertz is also making the most of the surge in ridesharing by selling cars to Uber and Lyft drivers, as well as positioning itself as a partner to provide fleet management solutions.

“Autonomous, the OEMs [Original Equipment Manufacturers], Uber, Apple, Google —nobody manages large fleets other than the rental car companies, not dealers, nobody,” said Kathryn Marinello, CEO of Hertz Global Holdings on the company’s third quarter earnings call. “And if you look at what Hertz and the rental car companies have, we are getting better every day at managing large fleets of cars.

“And we have the distribution network, we have the people …. And if you look at the fact that we are the only car rental company that has a large corporate fleet company that has been managing large corporate fleets for well over 15 years, we are uniquely positioned both in the ride-hailing as well as in the autonomous world.”

Avis Budget Group, as well, posted a mostly successful quarter. Revenue grew 4 percent year-over-year to a record $2.8 billion for the company, while earnings before interest, taxes, depreciation, and amortization increased 3 percent to $482 million.

There are still headwinds, particularly in global markets, but Avis grew international revenue by 9 percent despite this.

“International pricing has been under pressure pretty much all year,” said Avis Budget Group CEO Larry DeShon. “And a lot of it has to do with the third-tier players that are in most of the markets who have been aggressive on fleeting this year and have been very aggressive on price. We’ve seen some higher registrations of new fleet in a number of our countries this year where we’ve seen the opposite impact in the U.S. And so I think that’s part of the problem.”

Besides the growing opportunity for ridesharing partnerships, there is also the potential to provide car rental options to the burgeoning middle-class in Asia-Pacific countries when they travel internationally. Whether these travelers choose car rentals over potentially more convenient ridesharing services remains to be seen.

“Looking forward, with the growing middle class in both China and India and a high propensity to travel internationally, and us being the only rental car company with a corporate presence in both markets, we are well-positioned for the future as these economies expand,” said DeShon. “Chinese tourists spent more in the U.S. than tourists from any other country in 2016 and inbound travelers from China into Australia are expected to overtake those from New Zealand for the first time next year.”