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Car Rental Companies Turning Corner Or Driving To Disaster?

Are rental car companies turning the corner or driving towards extinction? To a large extent, the answer you’ll get to this question depends on whether you ask customers or stockholders.

Car rentals now represent just 28% of ground transportation for business travelers, versus 65% for ride share services Lyft and Uber, according to a recent analysis of 10 million receipts by expense management company Certify. And a substantial decline in the number of young people holding drivers licenses, in addition to the rise of the ride shares, is another ominous data point for the car rental companies, even before autonomous vehicles begin to make an impact.

But a study released this week by J.D. Power claims that airport rental car companies are experiencing an increase in overall satisfaction. J.D. Power, which uses a 1000-point scale to measure customer satisfaction, found that in 2017 rental car satisfaction improved by 22 index points to 826 over 2016. Satisfaction grew even though airport terminals are increasingly packed and roadways slowed by construction, with wait times to pick up a rental car increasing two minutes on average since 2013.

(Full disclosure: I own stock in Hertz Corporation.)

The main driver of this satisfaction boost? The average reported daily rental car price has dropped $11 per day in 2017. Because of the lower prices, “Rental car satisfaction is improving, but it’s not really the type of satisfaction increase rental car companies want to see,” said Michael Taylor, Travel Practice Lead at J.D. Power.

Investors in car rental companies have been reaching for the antacid for the last few years. Last week was no exception, as car rental leaders Hertz and Avis had a terrible week after reporting earnings. Avis Budget reported mixed results and lowered its guidance, while Hertz reported earnings that missed analyst expectations. (National/Enterprise, by many measures a leader in the field, is privately held.)

Hertz closed on Monday, November 6, at 25.39. It closed on Friday, November 10, at 19.56, a 5-day decline of 20%. Similarily, Avis began the week at 41.42 on November 6 and closed at 33.46 on November 10, also a 5-day decline of nearly 20%.

Unfortunately, such stock market performance is not new for the rental car companies. Hertz (HTZ), now trading at 19.56, traded at 100.53 on December 31, 2014, an 80% drop in less than three years. Avis (CAR), which closed at 66.33 on December 31, 2014, closed on November 10, 2017 at 33.64, a 48% drop.

Even billionaire investors like Carl Icahn have taken a beating. In May, Bloomberg estimated that Icahn, who at the time owned 29.3 million Hertz shares, had lost $179 million dollars on his investment.

Both companies have installed new CEOs relatively recently. Larry D. De Shon has been Chief Executive Officer of Avis/Budget since January 7, 2016. Kathryn V. Marinello, chief executive officer of Hertz Global Holdings, Inc, joined the company in January 2017.

Although the JD Power survey offers some positive signs for the rental companies, both CEOs clearly have their work cut out for them in convincing Wall Street and Main Street of the continuing viability of the rental car model.

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