Since the rise of ride-sharing services such as Uber and Lyft, the landscape of the transportation industry has been changed dramatically. While the taxi industry where ride-sharing services are allowed to operate have seen a major downfall in revenue, the car rental industry has not been left unscathed. And while taxis may eventually be replaced by such services because they target the same market, the car rental industry may not see their own collapse since they occupy different markets where the ride-sharing services may not be able to replace such a replacement rentals. But it doesn't mean the car rental industry is out of the blue. Hertz and Avis, the two largest car rental companies in North America, both reported weakening second quarter results this week. Many industry experts are on high alert concerning the future of the market. The losses car rental companies have faced recently has been driven by increased vehicle depreciation. The larger the fleet a car rental company had in possession before the increased depreciation hit, the larger the losses.
Hertz reported total revenue for the quarter at $2.2 billion. A sharp two percent decline from the same period as of last year. "We have made significant progress in the first half of the year, executing on our operating turnaround plan. Of course, the hard work always comes before the pay off as reflected in our second quarter results, where increased spending to fix areas of weakness and invest in areas of opportunity were exacerbated by a challenging vehicle residual environment in the US," said Kathryn V. Marinello, the President and CEO of Hertz. She continues, "admittedly, we still have a lot of work to do, but these early wins are evidence that we have the right plan in place to ultimately achieve best-in-class outcomes."
The CEO explains their strategy of focusing on downsizing their fleet of depreciating cars by increasing spending to complete its transformation. Shares of the car rental company soared nearly 20 percent after the comments made by Marinello. The company reported that their net depreciation per vehicle per month was 27 per cent higher than its net depreciation in the second quarter of last year. Hertz has had a nightmare-ish summer for stockholders, with their stocks plunging 21 per cent in late July after Barclays downgraded the stock to underweight. The stock is down 20 per cent year-to-date and has fallen more than 61 per cent in the last 12 months.