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Uncertainty grips rental-car agencies


Rental-car companies, the industry's largest buyers and sellers of light vehicles, face a slew of challenges that threaten their earnings in the short term and their business model in the long term.

Like automakers, the rental industry has a business model that's been largely static for decades. It's ripe for disruption from the likes of ride-hailing services such as Uber and Lyft and from a potential future in which autonomous vehicle fleets could make the very idea of renting a vehicle to drive obsolete, analysts say.

As the rental companies begin to grapple with their futures, they must also deal with more immediate challenges. Namely, they must find a way to get more crossovers and SUVs into their fleets to meet shifting consumer demand. And it's a problem that could be difficult to address, according to analysts, because automakers, many of which are already cutting back on fleet sales, could be inclined to steer those vehicles toward more profitable retail channels.

For the publicly traded Hertz and Avis, that could spell bad news for earnings, which have been pummeled in recent quarters as they attempt to adjust their fleets, and for their share prices on Wall Street, which stand at a fraction of what they were just a few years ago.

While the rental companies are often looked down upon as places for automakers to dump vehicles unwanted in the marketplace, the fact remains they are easily the biggest players in the new- and used-vehicle markets, accounting for millions of sales each year. Last year, the seven largest automakers sold nearly 2.8 million vehicles to rental companies in the U.S. alone, according to the Automotive News Data Center.

How the rental companies, including the privately held Enterprise Holdings, address these challenges in the coming months and years will go a long way toward determining their roles in a future poised to transform the automotive industry, according to analysts.

"Over the past few years, most of these companies have put too much emphasis on the thought that things will keep going the way they've been going. That needs to change," said Arun Kumar, a director at ​ AlixPartners.

Following six months of sales declines, most analysts and industry observers expect to see annual industry sales dip this year for the first time since the depths of the Great Recession, though 2017 will likely still go down as one of the strongest sales years on record.

It is a decline driven in part by automakers cutting back on fleet sales following years of growth.