Car rental companies struggle in the Uber age as Avis share price plummets

By Pouyan Broukhim

Avis Budget Group Inc. saw its share price drop 9.1% after the company slashed its profit forecast for the year, missing its second quarter earnings estimate.

The rental car industry has plummeted during 2017, with Hertz Global Holdings Inc. also encountering share value struggles, dropping as much as 29% this year.

The fall in used vehicle prices has not helped this, as companies have seen their fleets depleting in value more quickly. However, the emergence of ride hailing firms has been the key contributor to this downturn in the rental industry.

With a ride available at the touch of a button, consumers are realising that they seldom need to rent a car when travelling if ride hailing services are readily available. Instead of navigating new areas and going through the rental hassle with deposits, returns and other paperwork and restrictions, Uber and Lyft have been replacing car rental services for many travellers.

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Both Uber and Lyft are experiencing an increase in market share. According to Certify’s latest spending report, both firms’ grasp on total ground transport spending rose by 2%, giving Uber 55% and Lyft 9% of the market respectively.

Meanwhile, the same report shows that the rental car industry is regressing, with its market share down 2% to 29%.

The result of this falling demand has seen the likes of Avis and Hertz selling its excess supply of vehicles. Although this highlights that the rentals industry is regressing, the silver lining for the likes of Avis and Hertz is that they can pre-emptively reduce their fleets in accordance with this, and so costs will drop. In this sense, rental car companies should stabilise. 

Furthermore, Ride hailing services are not a direct competitor with the likes of Uber and Lyft not being a viable option for many in terms of long distance travel. For both of these reasons, the Uber age will not kill off the car rentals industry entirely, even if it is invading portions of its traditional sphere.

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