Rental car woes worsen as used-auto values fall, ride-hailing rises
Full-year profit for Avis may be as low as $2.40 a share, down on its previous estimate of $3.50 a share, the car rental company said. The announcement comes as the rising popularity of ride-hailing companies and falling used-vehicle prices cut into revenues across the car-rental market. Rival car rental company Hertz posted its third straight quarterly loss of $158m.
One line item on Hertz Global Holdings Inc.’s second-quarter results may hold the key to understanding one of the main reasons for car-rental stocks’ deep, longstanding underperformance.

Hertz’s net depreciation per vehicle per month rose to $353 in the U.S. in the second quarter, or 27% higher than the $278 in net depreciation in the second quarter of 2016.

The company pinned that, in part, to declining residual values.

Companies such as Hertz HTZ, +3.39% and rival Avis Budget Group Inc. CAR, +2.56% , which reported late Monday, also missing expectations, have to offload thousands of cars they retire from their rental fleets every year.

The used-car market is oversupplied in the U.S., mostly due to an uptick of new-car leases, and those cars ending in the used-car market after their leases end.

Worse-than-expected first-quarter results in May brought Hertz shares to their lowest in seven years at the time, and at the heart of the share underperformance were concerns about the depreciation of its cars as well as broader worries about ride-hailing companies denting rental-car demand.

Hertz late Tuesday reported an adjusted net loss of $52 million, or 63 cents a share, in the second quarter, versus a net income of $35 million, or 41 cents a share, in the same period last year.

Revenues for the second quarter reached $2.2 billion, compared with $2.3 billion in the second quarter of 2016. Analysts polled by FactSet had expected an adjusted per-share loss of 20 cents on sales of $2.2 billion.

Hertz said in a statement it had made “significant progress” in the first half of 2017 with its turnaround plan, but “the hard work always comes before” a payoff as reflected on the quarterly results, which also showed increased spending.

Despite that decrease in residual values, Hertz said it “stayed on course with its fleet optimization plan, selling 35% more vehicles year-over-year and onboarding a richer mix of model year 2017 vehicles,” the company said in the statement.

Hertz shares rallied nearly 4% after hours Tuesday, after falling 6.3% during regular trading.