Auto Rental

# Executive Summary * Industry profitability is currently defined by the ability to manage soaring fleet acquisition costs and vehicle depreciation, creating a stark divergence between operators successfully normalizing costs and those facing margin pressure. * Digital transformation is a key competitive battleground, with investments in AI-powered pricing, mobile apps, and advanced fleet management tools separating leaders from laggards. * Long-term strategic bets are being placed on future mobility, with divergent approaches to vehicle electrification and early-stage partnerships in autonomous vehicle fleet management. * After a post-pandemic surge, overall travel demand is stabilizing, shifting the focus from capturing volume to operational efficiency and cost control. * The US market remains highly concentrated, but the basis of competition is shifting from price and availability to technological superiority and strategic fleet management. ## Key Trends & Outlook The most critical factor shaping profitability in the auto rental industry is the intense pressure from rising fleet costs and vehicle depreciation. This dynamic directly impacts margins through higher depreciation expenses and lower gains on vehicle resale, forcing companies to excel at the complex logistics of fleet acquisition, rotation, and remarketing. A clear performance gap has emerged, with Hertz Global Holdings, Inc. (HTZ) and Avis Budget Group, Inc. (CAR) successfully normalizing costs; Hertz saw vehicle depreciation and lease charges fall sharply to $457 million in Q3 2025 from $937 million in Q3 2024, while Avis Budget Group's per-unit fleet costs declined 17% to $303 in Q3 2025. In contrast, U-Haul Holding Company's (UHAL) net earnings declined 27.2% year-over-year in Q1 FY26 despite revenue growth, primarily due to a $154 million annual increase in fleet depreciation and a collapse in net gains from equipment disposals, which swung from a $154.0 million gain in FY24 to a $13.7 million gain in FY25. Competitive advantage is increasingly being defined by technology, with industry leaders leveraging AI and proprietary software for dynamic pricing, fleet optimization, and creating a seamless mobile-first customer experience. For example, Avis Budget Group is deploying a proprietary Demand Fleet Pricing System across Europe and the Pacific regions, while Hertz is using Palantir's Foundry platform to improve fleet management and workforce planning. However, companies must balance automation with service, as over-reliance on digital tools has been shown to decrease customer satisfaction by 12%. The shift towards autonomous vehicles presents a long-term opportunity for rental companies to evolve into "mega fleet managers," leveraging their core competencies to manage complex AV fleets for partners, as seen in the Avis Budget Group's multi-year partnership with Waymo to launch and scale a fully autonomous ride-hailing service in Dallas. The primary risk for the industry is the failure to control fleet costs, which can rapidly erode profitability even in a stable demand environment, as demonstrated by recent performance divergences among major players. ## Competitive Landscape The US auto rental market is a highly concentrated oligopoly, with Enterprise Holdings, Hertz Global Holdings, Inc., and Avis Budget Group, Inc. controlling the vast majority of the market, holding approximately 45-50%, 25-30%, and 18-22% market share, respectively. Some firms, like U-Haul Holding Company, compete by creating an integrated ecosystem for the DIY moving market. Its core strategy is to dominate this niche by providing an end-to-end solution that includes truck and trailer rentals, self-storage facilities, moving supplies, and related services, creating a sticky, one-stop-shop ecosystem. This model offers diversified revenue streams and an extensive, hard-to-replicate physical network of nearly 2,400 company-operated retail stores and over 21,600 independent dealers. However, it is highly capital-intensive due to real estate and fleet ownership, and currently struggles with the same fleet cost pressures as traditional rental companies. Other global players such as Avis Budget Group, Inc. focus on leveraging technology and a premium customer experience to lead in the broader mobility space, even partnering in emerging autonomous vehicle markets. Its core strategy is to compete as a global leader in vehicle mobility solutions by focusing on superior customer experience, operational excellence through technology, and strategic positioning in next-generation transportation. This approach is exemplified by its "Avis First" premium offering and its groundbreaking multi-year partnership with Waymo to manage a fully autonomous ride-hailing service in Dallas. While offering strong brand recognition and global scale, this strategy requires continuous technology investment and carries long-term execution risk for its AV initiatives. A third approach, exemplified by Hertz Global Holdings, Inc.'s recent turnaround, centers on rigorous operational discipline and a "back-to-basics" focus on fleet cost management. Hertz's core strategy is to drive profitability through relentless operational discipline, centered on rigorous fleet management ("Buy Right, Hold Right, Sell Right"), cost efficiency, and leveraging technology for tactical advantage in pricing and remarketing. This has led to improved profitability and enhanced resilience to cost pressures, as demonstrated by its accelerated fleet rotation and successful reduction of its electric vehicle fleet exposure to less than 10% of its total fleet. However, this approach can be perceived as less visionary than competitors focused on future mobility, and its success is highly dependent on consistent execution of core fleet management. The key competitive battleground is shifting from simple price competition to sophisticated fleet management and technological capability, as companies seek to differentiate through operational efficiency and enhanced customer experiences. ## Financial Performance Revenue trends differ based on end-market exposure, reflecting varied recovery trajectories and business models. U-Haul Holding Company stands out as a consistent leader, reporting a 5.3% year-over-year revenue growth in Q1 FY26, driven by its integrated DIY moving and self-storage segments. In contrast, Avis Budget Group, Inc. recently returned to modest growth, with revenues reaching $3.51 billion in Q3 2025, a 1% increase year-over-year, signaling stabilization in the broader travel market after post-pandemic moderation. {{chart_0}} Profitability in the auto rental industry is currently a story of dramatic bifurcation, driven almost entirely by the management of fleet costs. Hertz Global Holdings, Inc. exemplifies success in this area, reporting its first profit in two years in Q3 2025, with net income of $184 million. This turnaround was significantly aided by a sharp reduction in vehicle depreciation and lease charges, which fell to $457 million in Q3 2025 from $937 million in the same quarter last year, demonstrating the direct impact of disciplined fleet management on the bottom line. {{chart_1}} Conversely, U-Haul Holding Company's net earnings declined 27.2% year-over-year to $142.3 million in Q1 FY26, despite revenue growth. This decline was primarily attributed to a significant increase in depreciation expense on its rental fleet, which rose to $208.2 million in Q1 FY26 from $157.5 million in Q1 FY25, and a shift from net gains to net losses on the disposal of rental equipment. This highlights how a failure to control these core costs can severely impact earnings, even when top-line revenues are expanding. Capital allocation strategies reflect each company's current strategic position, balancing balance sheet strength, core asset investment, and shareholder returns. Hertz Global Holdings, Inc. exemplifies a post-turnaround strategy, with an active stock repurchase program recently increased by $50 million to an aggregate authorization of $200 million, expiring December 31, 2025. The company is also strategically managing its debt, having completed an offering of $425 million in Exchangeable Senior Notes due 2030 and extending its First Lien Revolving Credit Facility. In contrast, U-Haul Holding Company is in a heavy investment cycle, with net capital expenditures for Moving and Storage totaling $2.79 billion in FY25, primarily focused on expanding its fleet and self-storage real estate footprint. Balance sheets in this industry are defined by the high capital intensity of owning a massive vehicle fleet, leading all companies to carry significant debt. The key focus for management and investors is proactive liquidity and debt management. Hertz Global Holdings, Inc. demonstrates this approach, having successfully extended its $1.7 billion First Lien Revolving Credit Facility to March 2028 and raising $425 million in Exchangeable Senior Notes. The company reported $1,175 million in corporate liquidity as of March 31, 2025, excluding unused vehicle debt commitments, and expects to maintain over $1 billion in liquidity. U-Haul Holding Company also carries substantial debt, with total debt outstanding of $7.2851 billion as of June 30, 2025, up from $6.3117 billion a year prior, but maintains $988.8 million in cash and $475 million in available borrowing capacity. {{chart_2}} The Auto Rental industry is driven by stabilizing travel demand, but profitability is severely constrained by volatile fleet costs, making operational discipline and technological innovation the key differentiators for success.