Auto Rental & Leasing

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 2,300 auto rental and leasing companies in the US provide vehicles for short-term or long-term use. Rentals and leases typically involve passenger cars or trucks. Companies may also provide the use of vans, sport utility vehicles, luxury cars, limousines, or hearses. Some companies lease used vehicles. While large rental companies own thousands of individual locations worldwide, they also license brand names to independent operators.

Dependence on the Travel Industry

Air travel is a key driver for car rental volume.

Resale Risk

Companies bear the risk of decreases in residual value for vehicles reaching the end of their rental or lease life.

Industry size & Structure

A typical auto rental company employs 50 workers and generates around $17-18 million annually, while a typical auto leasing company operates a single location and generates about $34 million annually.

    • The auto rental and leasing industry consists of 2,300 companies that employ 191,300 workers and generate $47 billion annually.
    • The auto rental and leasing industry is concentrated at the top, and fragmented at the bottom; the top eight firms account for 86% of total revenue. Most small companies operate out of a single location.
    • While large rental companies own thousands of individual locations worldwide, they also license brand names to independent operators.
    • Large auto rental companies include Enterprise Holdings (Alamo, Enterprise, National), Hertz, and Avis. Major companies that provide auto leasing services include Element (formerly GE Capital Fleet Services and PHH Arval), and Holman (formerly ARI Global Fleet Management).
                                    Industry Forecast
                                    Auto Rental & Leasing Industry Growth
                                    Source: Vertical IQ and Inforum

                                    Recent Developments

                                    Jan 19, 2024 - Labor Costs Rise, Prices Fall
                                    • Car rental and leasing firms’ producer prices have risen gradually through Q4 but were down moderately on a year-over-year basis. As of Q4, wages at car rental and leasing firms increased moderately. Industry employment has also risen sharply as car rental and leasing firms staff back up after demand returns to pre-pandemic norms. Profit margins could suffer if producer prices charged by car rental and leasing firms can’t keep pace with wage and other cost growth.
                                    • The US car rental market is returning to more normalized conditions after the lofty rental rates, high profit margins, and weak inventories of new cars seen during the pandemic, according to Auto Rental News. For 2024, car rental firms are still expected to see strong demand, but margins may take a hit as high vehicle prices and interest rates push up vehicle acquisition costs. While passenger vehicle inventory levels have returned to normal, fleet mix is more expensive as carmakers are not manufacturing many entry-level vehicles and most cars come with pricey trim packages. While the Federal Reserve is expected to cut interest rates in 2024, they are unlikely to reach the low levels last seen in 2022.
                                    • In a January interview, Hertz CEO Stephen Scherr said the company planned to sell about one-third of the electric vehicles (EVs) in its fleet because the cars have lost value more quickly than the company anticipated, according to The New York Times. Scherr said the value of Hertz’s electric fleet dropped in part due to price cuts by Tesla. In 2023, Tesla cut prices by about 30%. Lower prices on new vehicles push used car prices down as buyers can buy the new model for less. Scherr said the write-down of its electric fleet was a drag on Hertz’s profitability. Scherr noted the reduction of the Hertz EV fleet was also due to the relatively high costs of EV repairs, weaker than anticipated demand, and EVs being more likely to be involved in accidents. According to Scherr, a possible reason for its EVs being in more accidents was that rental customers often were unfamiliar with the technology, which includes faster acceleration and high vehicle weight compared to gasoline-powered vehicles.
                                    • The Inflation Reduction Act (IRA) provides tax credits of up to $7,500 to consumers for electric vehicle (EV) purchases, but few EVs sold in the US qualify for the credits because of where the vehicles and their components are manufactured. To qualify for the credit, cars must be assembled in the US and meet US-made mineral and battery content requirements. However, under the IRA, leasing is considered a commercial enterprise and is exempt from the US-made requirements, according to CNBC. The loophole allows carmakers to receive the tax credit and pass it on to consumers who lease, rather than buy, a new EV. The pass-through of the credits can significantly reduce monthly lease payments. South Korea-based Hyundai and Kia, which are owned by the same parent company, are leaning heavily into EV leasing, and Ford is developing EV leasing plans for its EVs that are assembled outside the US.
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