---
title: "Why car rental is such a bad business"
url: https://modern-mba.com/case/car-rental
sector: "Travel"
sector_url: https://modern-mba.com/sector/travel
aired: 2026-07-19
published: 2026-08-23
updated: 2026-08-28
reading_time_minutes: 10
charts: 10
video: https://www.youtube.com/watch?v=AM1HJUC7YNg
author: "Yishan Lin"
author_url: https://www.linkedin.com/in/yishanlin/
publisher: Modern MBA
license: "© Modern MBA, all rights reserved. Quote and cite with credit and a link; republishing needs written permission."
---

# Why car rental is such a bad business

Car rental has never been a good business, with margins as thin as airlines and companies that make more money selling cars than renting them. This case study traces the industry from the conglomerates that dumped it, through Detroit’s program-car era, to the EV writedowns and the asset-light startups that failed three times in a row — and explains why the rotten unit economics survive every attempt to disrupt them.

## Key figures

- **99% → 10%** — Fleet under manufacturer guarantee, 1999 → now
- **70–90%** — Of every fleet purchase funded by debt
- **2.5 vs 7.2** — Years a rental CEO lasts vs the S&P

## The argument

Car rental is not a badly run industry — it is a structurally unprofitable one, and no operator, conglomerate, automaker, or startup has ever changed that. Every ugly part of the customer experience, from the counter upsell to the phantom damage charge, is the visible end of an unfixable balance sheet.

Avis, Hertz, and Enterprise are not really in the business of renting cars. They are leveraged traders of depreciating assets: they borrow against fleets, earn what rent they can in the narrow window between purchase and resale, and live or die on two numbers — utilization and residual value — set by four cyclical markets none of them control.

And the fleet everyone calls the industry’s weakness is the only thing keeping it alive. It is a liquid, financeable, sellable asset. The asset-light disruptors who proudly avoided it discovered they had swapped a used-car bet for an insurance bet, and had nothing on the balance sheet when the money ran out.

## Charts

### The carousel

Average tenure of rental company chief executives, in years, against the S&P index average. Nobody survives running one of these businesses for long.

|  | Durations |
| --- | --- |
| Avis 2006–2026 | 2.5 |
| Hertz 2006–2026 | 2.5 |
| Dollar Thrifty 1997–2012 | 5 |
| S&P average | 7.2 |

Source: Modern MBA, “Why car rental is such a bad business”, aired July 2026. Chart: https://modern-mba.com/case/car-rental#chart-1 · Sources: https://modern-mba.com/case/car-rental#sources

### The leverage

Avis fleet value by funding source, in billions. The borrowed share has grown from $4B to $18B while the company’s own cash contribution fell to zero.

|  | Own cash | Borrowed |
| --- | --- | --- |
| 2009 | $2B | $4B |
| 2012 | $2B | $7B |
| 2015 | $2B | $9B |
| 2018 | $1B | $10B |
| 2021 | $2B | $11B |
| 2024 | $0B | $18B |

Source: Modern MBA, “Why car rental is such a bad business”, aired July 2026. Chart: https://modern-mba.com/case/car-rental#chart-2 · Sources: https://modern-mba.com/case/car-rental#sources

### The backstop vanishes

Share of fleet carrying a manufacturer buyback guarantee. Detroit's program cars absorbed nearly all residual risk in 1999; by 2023 it had gone.

|  | Hertz | Avis |
| --- | --- | --- |
| 1999 | 82% | 99% |
| 2000 | 80% | 82% |
| 2007 | 57% | 73% |
| 2008 | 42% | 58% |
| 2009 | 33% | 55% |
| 2010 | 26% | 47% |
| 2023 | 1% | 10% |
| 2024 | 15% | 10% |

Source: Modern MBA, “Why car rental is such a bad business”, aired July 2026. Chart: https://modern-mba.com/case/car-rental#chart-3 · Sources: https://modern-mba.com/case/car-rental#sources

### The liquidity cliff

Share of original value a car retains by age and mileage. Demand collapses after two years, so fleets sell long before the cars wear out.

|  | Percentages |
| --- | --- |
| 1–2 yrs <40k mi | 72% |
| 3–6 yrs <80k mi | 53% |
| 6–10 yrs <120k mi | 36% |
| 10+ yrs 120k+ mi | 13% |

Source: Modern MBA, “Why car rental is such a bad business”, aired July 2026. Chart: https://modern-mba.com/case/car-rental#chart-4 · Sources: https://modern-mba.com/case/car-rental#sources

### The volatility

Annual swing in the used car market. The market that decides whether a rental company makes or loses money moved 37% in a single year, then reversed.

|  | Percentages |
| --- | --- |
| 2017 | −1% |
| 2018 | 2% |
| 2019 | 0% |
| 2020 H1 | −4% |
| 2020 H2 | 15% |
| 2021 | 37% |
| 2022 | −9% |
| 2023 | −1% |
| 2024 | −5% |
| 2025 | 2% |

Source: Modern MBA, “Why car rental is such a bad business”, aired July 2026. Chart: https://modern-mba.com/case/car-rental#chart-5 · Sources: https://modern-mba.com/case/car-rental#sources

### Devalued from above

Base Tesla Model 3 sticker price while Hertz held 100,000 used ones. Every cut by the manufacturer destroyed the residual value of the fleet beneath it.

|  | US dollars |
| --- | --- |
| Oct 2021 Hertz orders | $43,990 |
| Jan 2023 | $46,990 |
| Mid-Jan 2024 | $43,990 |
| Mid-Apr 2024 | $40,990 |
| Mid-Oct 2024 | $38,990 |

Source: Modern MBA, “Why car rental is such a bad business”, aired July 2026. Chart: https://modern-mba.com/case/car-rental#chart-6 · Sources: https://modern-mba.com/case/car-rental#sources

### The EV disaster

Money lost on the falling used value of electric vehicles as the fleets were dumped.

|  | US dollars |
| --- | --- |
| 2023 Q4 Hertz dumps 20k | -$245M |
| 2024 Q1 Hertz dumps 100k | -$195M |
| 2025 Q4 Avis dumps EVs | -$518M |

Source: Modern MBA, “Why car rental is such a bad business”, aired July 2026. Chart: https://modern-mba.com/case/car-rental#chart-7 · Sources: https://modern-mba.com/case/car-rental#sources

### The airport moat

Share of annual rental revenue grossed at airports. Two thirds of the money comes from the one venue where customers are captive.

|  | Hertz | Avis |
| --- | --- | --- |
| 2009 | 67% | 81% |
| 2012 | 70% | 71% |
| 2015 | 70% | 70% |
| 2018 | 66% | 65% |
| 2021 | 68% | 67% |
| 2024 | 66% | 67% |

Source: Modern MBA, “Why car rental is such a bad business”, aired July 2026. Chart: https://modern-mba.com/case/car-rental#chart-8 · Sources: https://modern-mba.com/case/car-rental#sources

### Unscalable

Turo revenue per day against gross profit per car per day, after acquisition and insurance. Both fall every year as the platform grows.

|  | Revenue per day | Gross profit per car/day |
| --- | --- | --- |
| 2021 | $42.96 | $24.64 |
| 2022 | $38.99 | $21.16 |
| 2023 | $36.05 | $18.54 |
| 2024 | $35.88 | $16.6 |

Source: Modern MBA, “Why car rental is such a bad business”, aired July 2026. Chart: https://modern-mba.com/case/car-rental#chart-9 · Sources: https://modern-mba.com/case/car-rental#sources

### Asset-light, still unprofitable

Turo revenue against operating income, in millions. Revenue grew six-fold without a profit — owning no fleet did not fix the economics.

|  | Revenue | Operating income |
| --- | --- | --- |
| 2019 | $142M | −$105M |
| 2020 | $150M | −$56M |
| 2021 | $469M | $46M |
| 2022 | $747M | $34M |
| 2023 | $880M | $14M |
| 2024 | $772M | −$10M |

Source: Modern MBA, “Why car rental is such a bad business”, aired July 2026. Chart: https://modern-mba.com/case/car-rental#chart-10 · Sources: https://modern-mba.com/case/car-rental#sources


## Takeaways

1. 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**.
2. 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**.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.

## Common questions

### Why is the car rental business so bad?

Because it is a leveraged bet on used-car prices wearing a service business as a costume. Operators borrow 70–90% of a fleet's cost against the cars themselves, earn what rent they can in the narrow window before depreciation catches up, and then have to sell into a used market they do not control. Margins run as low as airlines in good years and thinner than grocery stores in bad ones.

### How do rental car companies make money?

Chiefly on the resale, not the rental. They buy below retail, finance 70–90% of the purchase with debt secured against the fleet, rent the cars during the period when used-market demand is strongest — roughly one to two years and 30,000 to 40,000 miles — and sell them. In their best years the majors make more money selling cars than renting them, which tells you where the business actually is.

### What are program cars?

Vehicles sold to rental fleets with a guaranteed manufacturer buyback price, which removed depreciation risk entirely and made the industry look stable through the 1980s, 1990s, and 2000s. Detroit used them to keep factories running — propped up further by Jobs Banks that paid laid-off workers 95% of wages to stay home — and the resulting flood of identical used vehicles destroyed the residual values the whole arrangement depended on.

### Why did Hertz lose money on Teslas?

Because it bought into a forecast rather than a price. Hertz ordered 100,000 Teslas, committed to hundreds of thousands more EVs from GM, and invested in charging, on the widely shared early-2020s view that electric vehicles would hold value better than gas cars. Every subsequent Tesla price cut cut the resale value of the used ones. Hertz booked around $200 million of losses dumping EVs and Avis roughly half a billion.

### Why are rental cars so expensive at airports?

Because the airport is the only genuinely good venue in the industry — captive customers, limited alternatives, and a high proportion of expense-account travelers who do not compare prices. Operators pay the airport roughly a tenth of revenue plus minimum annual guarantees for that position. Outside the airport, it is an open price war between companies with nearly identical fleets.

### Did Turo and Getaround disrupt car rental?

No, and the failures were fast. Getaround was delisted from the New York Stock Exchange within two years of its 2022 IPO, Zoomcar was removed from the Nasdaq inside 18 months, and Turo withdrew its own IPO. Going asset-light swapped a used-car bet for an insurance bet — costs rise with every additional trip — and left nothing on the balance sheet to borrow against when the money ran out.

### Why do rental car companies keep going bankrupt?

Because the fleet is financed with debt and valued by a market nobody controls. When used-car prices fall, the collateral behind the borrowing falls with them while the debt does not — which is what happened in 2008 when SUV resale values collapsed, Ford lost more than $1 billion on leases, and GM and Chrysler filed the following year. The 2021 chip shortage produced the same volatility in the opposite direction.

### Is the rental car fleet an asset or a liability?

Both, and that is the trap. It is the only thing that makes the business financeable — liquid, salable, and acceptable as collateral — which is why the asset-light disruptors who avoided it had nothing to borrow against. It is also a depreciating inventory priced by four cyclical markets the operator has no influence over. Every strategy in the industry is an attempt to hold one side of that without the other.

## Discussion

- The case argues that every unpleasant part of renting a car — the counter upsell, the phantom damage charge — is the visible end of an unfixable balance sheet. Where else have you met a customer experience that was really a financing problem in disguise?
- Avis, Hertz, and Enterprise live or die on utilization and residual value, both set by cyclical markets none of them control. What are you actually hiring a CEO to do in a business like that?
- The asset-light disruptors proudly avoided the fleet and discovered they had swapped a used-car bet for a different one. What did they misunderstand about why the fleet existed in the first place?
- If an industry has never been profitable under any owner, structure, or era, what justifies capital continuing to flow into it?
- You are handed Hertz tomorrow. Is there a version of this business you would genuinely want to run, and what would you have to give up to get there?

## Sources

Figures from company 10-K and 10-Q filings for Avis Budget Group, Hertz Global Holdings, Turo, Getaround, and Zoomcar, with used-vehicle data from Manheim and KBB

---

From [Modern MBA](https://modern-mba.com/). Read this case in full at [https://modern-mba.com/case/car-rental](https://modern-mba.com/case/car-rental), or watch the episode at https://www.youtube.com/watch?v=AM1HJUC7YNg.