Why car rental is such a bad business

The rental car business has margins as low as airlines in good years and as thin as grocery stores in bad ones — and in their best years the companies make more money selling cars than renting them.

Rental companies are closer to hedge funds that specialize in cars: they buy below retail, borrow 70–90% of the purchase price against the fleet, rent in the narrow window before the depreciation curve catches up, then sell. Everything rides on utilization and residual value.

Every major brand was passed around as a strategic asset rather than run as a standalone business — Hertz through NBC, United Airlines and Volvo; Avis through Sheraton, Hunt’s and Tropicana’s parent; National between Boeing and HSBC — and every conglomerate offloaded it within years.

Detroit’s program cars guaranteed buyback prices so rental fleets carried zero depreciation risk, but overproduction — propped up by union Jobs Banks paying laid-off workers 95% of wages to stay home — flooded the used market with identical vehicles and destroyed the residual values the whole system depended on.

The scheme ended in 2008, when fuel prices sent SUV resale values into free fall, Ford lost more than $1 billion on leases, Chrysler shut its leasing division, and GM and Chrysler went bankrupt the following year.

The EV bet repeated the same mistake: Hertz ordered 100,000 Teslas and committed to hundreds of thousands more, then every Tesla price cut destroyed the residual value of the used ones. Hertz booked $245 million and $195 million of losses dumping 20,000 then 100,000 EVs, and Avis lost $518 million doing the same.

Airports are the industry’s only genuinely good venue — captive, price-blind, expense-account customers behind real barriers to entry — but operators hand the airport roughly a tenth of revenue plus minimum annual guarantees. Outside the airport, it is open price war.

Asset-light did not work either: Getaround was delisted from the NYSE within two years of its 2022 IPO, Zoomcar was booted off the Nasdaq within 18 months, and Turo withdrew its own IPO. Turo is closer to an insurer than a rental company, and insurance costs rise with every additional trip.

Hertz ended up with private equity because nobody else wanted it. Ford offloaded it in the early 2000s to the only kind of buyer willing to touch a perennially distressed asset, and the transaction is what finally exposed how unattractive the underlying business was.

The resale market is narrower than the fleet. Demand concentrates on one- to two-year-old cars with 30,000 to 40,000 miles, which dictates how long a rental company can hold a vehicle regardless of whether it is still earning.

Detroit paid people not to work in order to keep building. Jobs Banks paid laid-off workers 95% of wages plus full health benefits to stay home, so factories kept producing cars nobody needed — and those cars flooded the used market that rental residuals depended on.

Growth was the only metric that counted, decades before Silicon Valley made that fashionable. Through the 1980s, 1990s and 2000s the fleets of Hertz, Avis, National and Alamo were overwhelmingly program cars, which made the businesses look stable right up until the guarantees disappeared.

The EV bet was made on a narrative, not a spreadsheet. The industry accepted the early-2020s consensus that electric vehicles would get cheaper, go further and hold value better than gas cars — and every Tesla price cut destroyed the residual value of the ones already on the lot.

Used-car prices are the whole business and they are wildly unstable. The 2021 chip shortage sent them to record highs and the correction through 2024 took them back down, which is the swing a rental company's entire profit sits inside.

Even a perfect vehicle would not fix it. A car that was cheap, reliable, easy to repair and held its value would still leave the operator exposed to a used market it does not control — the asset is the problem, not the model of car.

The urban disruption story is older than the app era. Zipcar was hyped in the late 2000s as the company that would pull rental out of contested airports into neighborhoods, and the airports remained the only genuinely profitable venue in the industry.