The Uber Effect: Avis Plunges On Huge Miss, Margin Collapse, Guidance Cut, "Over-Fleeting"

Tyler Durden's picture

While the growing woes facing the auto sector are well-known by now (see "Carmageddon: Ford & GM Sales Tank Despite Record July Incentive Spending") and boil down to excess capacity, insufficient demand and just a tiny - if one listens to the experts - subprime lending bubble, one key culprit has emerged as the biggest catalyst behind the chronic weakness among US carmakers: a moribund fleet, or rental, industry which has been devastated in recent years from Uber's juggernaut of disruption.

A painful reminder of that was presented moments ago when Avis Budget reported its Q2 earnings. The company reported Q2 revenue of $2.24 billion, just barely making the low end of the consensus range, while earnings were slashed in half, tumbling from $0.63 a year ago, to just $0.30 in Q2, a huge miss to the $0.52 expected. Also, that was non-GAAP: the company's GAAP EPS was barely positive at $0.04.

Making matters worse, while CAR reported a modest 2% decline in revenue in the Americas, adjusted EBITDA in the same region crashed by 41% to $96MM from $163MM a year ago, leading to a 31% drop in overall company EBITDA, from $204MM to $140MM.

In the company's discussion of Q2 results, the CEO did everything he could to sound upbeat, but he didn't quite get there. In a nutshell, everything that could go wrong for CAR did, excess capacity or "industry over-fleeting", surging costs i.e., "higher per-unit fleet costs", and a plunge in used-vehicle prices.

“Our second quarter results in the Americas reflected both a 4% reduction in pricing resulting from industry over-fleeting and higher per-unit fleet costs due to lower used-vehicle values. Consequently, we have identified $25 million of additional savings opportunities globally, bringing our total expected savings this year to $75 million, and have lowered our full-year earnings guidance to reflect the difficult first half,” said Larry De Shon, Avis Budget Group President and Chief Executive Officer. “Industry fleet levels in the Americas normalized to demand towards the end of the second quarter. This enabled us to transition to improved pricing, with revenue per day up more than 1% in July. Looking forward, I am now more optimistic that the industry issues we’ve been contending with should be behind us.”

 

Reported revenue of $2.2 billion was unchanged compared to the prior year, with an increase in overall rental days being offset by a decrease in pricing. Strong International revenue growth offset lower revenue in the Americas. The pricing environment together with higher per-unit fleet costs in the Americas, net of early benefits from the cost reduction initiatives, resulted in a $33 million decrease in net income to $3 million (or $0.04 per share). Adjusted EBITDA was $140 million compared to $204 million in the prior year, and adjusted net income was $25 million ($0.30 per diluted share) in the quarter.

 

“Our recently announced partnerships with both Waymo and RocketSpace are providing opportunities to pilot scalable new business models as we start to execute on our strategy to leverage our fleet management and logistics capabilities in the rapidly developing mobility space,” said Mr. De Shon.  “I'm also excited about all of the innovative growth initiatives we've announced this year, including enabling Avis customers to transact with us through Amazon Alexa and Google Home.”

If that's what Larry is excited about we would hate to ask him what he thinks about Uber, which has led to a dramatic collapse in Avis (and Hertz') pricing power as he himself admits. As much is evident from the company's downward revised guidance, which sees FY adjusted EPS $2.40 to $2.85, sharply down from $2.85 to $3.50, and below the consensus estimate of $2.78, despite keeping its revenue guidance flat at $8.80 billion - $8.95 billion, and above the consensus estimate of $8.78 billion.

Needless to say none of the above bodes well for the US OEM sector as the fleet segment will be focusing on "rationalizing", i.e., hacking and slashing, existing business for months if not years to come, removing virtually all fleet demand from US automakers for the foreseeable future.

And as the market digests the combination of collapsing margins, lack of pricing power, "over-fleeting", higher per-unit fleet costs, and tumbling used-vehicle values, it is not happy as the plunge in both CAR and HTZ stocks demonstrates.

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whackedinflorida's picture

Lets see.  Wait 3 to 15 minutes for the shuttle bus to the rental car counter.  Wait in line for 10 to 20 minutes while the clerks explain in excrutating detail all of the insurance and gas options to the five people ahead of me.  Walk to my car in some lot or garage.  Upon return, try to find some gas station to fill up the car so as to avoid the $10 per gallon charge.  Upon arrival, wait for the check out person (which to be fair has gotten way better than it used to be).

Or use Uber.

Not a hard decision.

JungleCat's picture

"Over-fleeting" is how we were able to drive 9,500 miles in a rental car this summer for 6+ weeks and only pay $1,155.

CoolClo's picture

I drove 6700 miles for  two weeks, over the July 4 weekend, with Enterprize for $501 with full insurance..Lets then 7.5 cents a mile on a 2017 Altima and got 40 miles to the gallon ..Coast to coast and stopped over in Yellowstone National Park...

The_Juggernaut's picture

Great news. I don't usually buy options but since they're so cheap now I bought January puts on Avis, Hertz, and GM. I love it when a good gamble pays. :)

Trogdor's picture

I once rented a car from National for a one-way trip.  I found out that I was RETURNING the car to it's originating location - but they still charged me more than double the going rate because it was a "one-way" trip.  When I pointed out that I was essentially doing them a favor, they said it didn't matter - still gonna screw ya (AND the guy who drove it one-way to where I was at).  Since then, I rent from small mom-and-pop rental shops if at all possible.

I don't have any beef with Avis or Hertz, but if National burns to the ground, I'll bring marshmallows.

Mile High Perv's picture

I thought they didn't let you cross the Mississippi. Has that rule changed now?

Angry White Guy's picture

That's a part of it.  I used to fly on businesss frequently, and used Hertz and the Gold program so I basically bypassed most of the check-out part of your description.  Right before I resigned, my Director was complaining Hertz was 'so expensive' and also capped my shuttle expenses to the airport from my house.

The GD businesses are still making more money than God, while they continue to extract EVERYTHING they can from the poor bastards that are salaried to actually do the work for the business.

Then said businesses turn around and wonder why they don't have customers.  No one has any fucking money left at the end of the month!

I think your Uber claim has more relevance to the tourist, but it does have relevance.

Antifaschistische's picture

HEY!!!   AVIS!!!!   Uhaul is getting 65 cents PER/MILE for a cheap pickup!!!    Maybe, if you'd throw a few of those into your fleet you could make up for all the unlimited mileage vehicles.

....by the way....how is it, that my Indian friends can rent a minivan, put 7 family members in it...and drive from Houston to California to Colorado and back in 9 days on a flat daily fee!!!   There is something fundamentally wrong with your pricing structure.

junction's picture

Las Vegas casinos on the Strip now charge $15 to $17 a day as a parking fee for guests and visitors unless you have a premium gambling card like the Platinum card for Caesar's casinos.  Valet parking seems to be charged whatever your card, which is jamming the parking attendants who used to routinely get tips.  So, visitors now have one more reason not to rent a car when visiting Las Vegas. 

Stan Smith's picture

+1  and many more.

Between business and pleasure, I hit Vegas usually 2-3 times per year,  and have done so at least the last 10-15 years.    I've NEVER rented a car there.    I never saw the point,  even before Uber/Lyft options were prevalent.    You can cab or limo from the airport to the Strip or Downtown.    When off the beaten path,  usually go with friends who live there who supply transportation.   

For work, when I have traveled I've hated having to rent a car, even if my employer was covering the cost.   Regardless of ones feelings about Uber/Lyft,  they have liberated the cost of temporary transportation out the Cab Co's/Regulators hands.   Other than one being a Cabbie,  I cant see who's not for this.

Déjà view's picture

O.J. has an October 'Lost Wages' Hertz reservation...

https://m.youtube.com/watch?v=Lo0MIUrrNpc

runnymede's picture

It's all about finding your pain point. That's the dynamic of employers, government, utilities. Institutionalized bullying of counterparties. 

Tick tock.....

Never One Roach's picture

Airbnb is wiping out the profits of many hotels here and there. My brother was in Spain and many village resorts there have outlawed airbnb or any way a person could rent out their bedroom or such. The same I read in Austin texas where there was/is a huge battle between landlords who build three story houses on a tiny property and then rent out the room for $$$$ udring events. Neighbors don't seem to like the beer-drinking visitors esp in neighborhoods like Tarrytown.

Larry Dallas's picture

I'd rather go long a bunch of Dindu's with Nissan Sentra's. The hell we've all been through with these rental car places is excruciating - not to mention the final bills seems to be at least a couple of hundred dollars more than you thought it would be.

Angry White Guy's picture

Which is why I quit.  The hassle and being treated so poorly eventually wasn't worth the paycheck.

They initially hired two new clowns to do my job...I hear two years later they can't keep anyone longer than 6 months or so.  Idiots simply can't understand when you treat people like shit AND don't pay them right they tend to move on....

Moving and Grooving's picture

Sounds exactly the same as the shitty NV casino corps. They're making a mess of their businesses by hiring management from out of state and who have no industry experience. They're cheaper to employ! And they in turn, ignorant of face-to-face customer service, reduce labor costs until no one is around to help.

evoila's picture

Exactly. What did the rental car companies in was putting the "rental center" a bus ride away. I used to rent cars in Seattle all the time. Once they made me ride a bus....it was game over for me. Not dealing with that extra non-sense.... same goes in San Diego. I will only rent a car if there is an in-airport counter and pickup.

GUS100CORRINA's picture

Is AVIS the canary in the coal mine?

Information below appears to confirm AVIS poor business results. The pressure is mounting as the PROGRESSIVE LIBERAL attacks continue on the POTUS. When the HELL are these DEMOCRATS going to WAKE UP and realize their side show antics are hurting the nation?

=============

The latest from John Williams’ www.shadowstats.com 

Analysis Behind and Beyond Government Economic Reporting

“No. 903: Labor Conditions, Construction Spending, Trade Deficit, Money Supply M3 ”

Posted August 7th, 2017

Mr. Williams again shares with us:

– Unemployment Remained Well Shy of Common Experience; U.3 at 4.3% in 2017 Is Not the Same as the 4.3% Circumstance in 2001

– July 2017 Unemployment Rates Effectively Were Unchanged: U.3 Eased to 4.35% (4.3497% Rounds to 4.3%) from 4.36% (Rounds to 4.4%), U.6 Eased to 8.57% from 8.59%, and the ShadowStats-Alternate Held at 22.1%

– Annual Payroll Growth Notched Lower to 1.50%, a Level Common at the Onset of Recessions

Private Jobs Surveying Showed Renewed Collapse in July 2017

Headline Annual Growth in Inflation-Adjusted, Real Take-Home Pay, Formally Per Capita Real Disposable Income, Revised Sharply Lower

– Real Annual Growth in June 2017 Construction Spending Turned Negative in a Manner Last Seen During the Housing Collapse of 2006

– Shy of Recovering Its Pre-Recession Peak by 23.1% (-23.1%), Real Construction Spending Has Shifted to Down-Trending from Low-Level Stagnation

– Second-Quarter 2017 Real Merchandise Trade Deficit Widened versus First-Quarter; Most-Recent Four Quarters of Real Deficit Were Worst Since 2007

– Money Supply M3 Annual Growth Rose to 3.2% in July from 3.1% in June

Never One Roach's picture

Not only is it a loooong bus ride to the so-clled rental center, but the employees there are usually worse then McDs employees. Slow and slighty retarded and not always very polite.

 

Screw them!

any_mouse's picture

Moron. It's the FED and the (((owners))).

Blaming the puppets for a lame show.

End the FED. ASAP. PDQ.

I have a feeling the reality that follows will help people sort out the rest of the issues.

any_mouse's picture

Where is a major airport that has "in-airport counter and pickup"?

HarryKallahan's picture

.

New Orleans Louis Armstrong.

A 100-yard walk to car rentals. Counters and cars. Pickup and returns.

It's an entire massive parking garage dedicated to car rentals.

It's a very excellent setup.

Stan Smith's picture

Of course, those "off site centers" are entirely so by government regulations.    The cost to have a counter at the airport has traditionally been prohibitive.    Blame your local governments airport authority for those shuttles back and forth from the check in center.

takeaction's picture

I learned the hard way last Vegas trip.  Always go to CES and did a quick search for a ar Rental Company online for a week. I have never really had a bad rental experience until this.  First off the shuttle took forever...took us to what looked like a car repair shop.  Rented the car.......My flight a week later was at 4AM and they were not going to be open.  So they told me to put the keys in the glove box.  I figured okay...then I will call Uber to go to the airport.  We put a thousand miles on the car...all was good.  Dropped the car off...I put the key in the glove box and locked the doors.  Uber picked us up.  $10 ride to the airport.  The total for a week was just a little over $120.  Well 30 days later, I get a charge on my American express from this shit company.  I called...and they said "You locked the keys in the car"....I said ahh...yeah as I was told.  They said "We told you to put the keys in the car...we never said to lock it.."  "So we had to make a new key and it was $600".........and they said there was nothing more they could do.  This is the power of a good card like American Express....I immediatley called Amex....explained the situation, they reversed the charges instantly.  I will NEVER rent from a "Unknown" name again, and will only use "At Airport" pickup.  You get what you pay for....

any_mouse's picture

You tried to save money by using the cheapest rental agency.

There are many reasons that I use Hertz Gold.

Same goes for using cheap airfare sites. Your seat will be one of the lowest priority seats on the plane.

Mr. Pain's picture

Whatever you do, don't use Enterprise. Terrible thing's I could tell you about but time is not my luxury at this moment. 

ProstoDoZiemi's picture

Carl Icahn should double down on this bet, or blame Russians for "hacking" the odometer

Ben A Drill's picture

When are these so-called Uber drivers going to wake up and realize that Uber takes abosoutly no risk. The drivers take all the risk. Independent contractors my ass. Do the drivers have paid health care, paid sick time, paid vacations? If not, it's not a real job. Does Uber pay for car insurance, no of course not. How about a traffic ticket? Not even!

When are these drivers going to move away from home? How can they if Uber is not a real job.

Buying a new car plus insurance plus extra miles added if you lease. Not to mention dents, wear and tear on the vehicle. A Uber driver is in a financial hole from the beginning.

Let's not forget about taxes either. Uber drivers are hamsters on a wheel in a cage. Spinning the wheel getting no where in life.

evoila's picture

yeah...it really is surprising how many uber drivers are leasing vehicles. I ask them. It's ridiculous. But then again, we aren't dealing with rhodes scholars in our uber drivers either are we....

Anteater's picture

No, you're dealing with flat-out lying Uber dispatchers

and feed-in kickbacks from GE Financial and Big Four

auto companies. You can't be that Elitist, can you?

There are Uber drives with PhDs in physics I've met.

any_mouse's picture

Using the tax advantages of leasing to shelter profits. /s

Antifaschistische's picture

Uber drivers are free to come and go as they wish.   Freedom of choice should belong to suppliers of a service just like it should belong to the consumer.   You stop worrying about it.....and, I don't know what type of awesome intellectually rewarding career you have Benadrill....but not everyone has that, and a LOT of people can be hamsters on the wheel of life.  Probably MOST people are on 'the wheel'.  Your job shouldn't be at the center of your lifes emo-fulfillment.

Ben A Drill's picture

I'm living with a Uber driver that is going on 40 years old. She's my wife's daughter that has a Bachelor's Degree from CSUN. Still living at home, does no dishes and only works when she feels like it. She works just enough to get by on purpose. You see, she is lazy, sloppy and can't handle a job that has a time clock. She also can't handle any boss that tells her what to do so she makes extra money babysitting in addition to being a Uber driver. WTF!

Peanut Butter Engineer's picture

She is following what ZH is preaching, do minimum in this society and don't be a cog to some corporations! You should be proud of her.

Angry White Guy's picture

I bet she still thinks she's entitled to a super hot hunk of a man with 8% body fat at 6' 220 lbs that controls millions of dollars of real-estate and makes six figures annually.

I also bet she's pushing 180 lbs of pure fat and has 20 tattoos...and wonders where the 'good men' went to.

Anteater's picture

AVIS is not in the taxi business. This is a misleading article.

AVIS is losing money because the whole industry is losing

money, because all industries are losing money, except the

FANG darlings of the front-loading AI momentum chasers.

Do I hear $1124 for AMZN??!! Going once, going twice...

 

When I fly into Houston, I take Uber to the airport, then

rent an Avis car there. Sure as hell don't sit in the client's

office waiting for my Uber ride, but then, maybe that's the

new reality. "Hi, I'm your on-contract, no-benefits, gigger

for ZioCorp A235. I'm here to service your account, but

would you hold on a second? I have to arrange my Uber,

so I don't miss the flight home, and still have time to go

to the grocery store to get my boyfriend his favorite beer,

before he gets home. OK, what were we talking about?"

 

"This is all gonna blow like shit from a goose!" DJT/JCK

SOW, where is Little Jared? Is he still hiding out in Tel Aviv?

gilhgvc's picture

it's ok, sooner or later uber and lyft will relax thier checks on new drivers. a couple of serial murderers will get through. massive lawsuits from the victims families will eventually bring them down. it is human nature and only a matter of time

Buckaroo Banzai's picture

This. What's most despicable about Uber is, they have created an unsustainable business model, and diverted billions and billions of dollars into it, which has resulted in massive structural distortions in the economy (Uber drivers deceived into thinking that this is a long-term way to make money, so they quit perfectly good jobs and invest in a new car, and rental car companies getting their business model killed by all these Uber cars out there) that will cost tens of billions of dollars to unwind when Uber collapses because it was a fucking unsustainable business to being with.

 

allgoodmen's picture

They lease their drivers USED cars... a guy I know leased a 2012 Prius from Uber... for $160 a week... "but I don't pay anything as long as I make more than that driving" (wait til he does his taxes next year)

What a racket. COmpared to Uber, the $7k a week guy suddenly looks LEGIT

RevIdahoSpud3's picture

Think about this. Everyone at sometime in their lives envisions being something wonderful as in occupation or service to the world. Some dream of being a pilot, a doctor, or someone who discovers a cure for cancer etc. 

Most wind up in 'jobs' occupations that would have blown their tiny minds if they had been able to look forward to reality as high school students. Waitress, insurance salesman, cashier, bartender, teacher, carpet installer etc.

But who on gods earth ever dreamed of being a taxi driver??

 

aliens is here's picture

Every caddie (free) in a ghetto home's lot should fix the car problem and have a federal program call "Give up murder for a free caddie" in high crime areas such as Chicago to clear up the inventory.

Whodathunkit's picture

Mercedes are the new Caddy in my part of the country

any_mouse's picture

Mercedes is Dodge in France (and Europe).

They export only the premium models to the USA. Greatest profit margin on sales and service.

You don't drive a Mercedes, you are the car's bitch.

Larry Dallas's picture

Mandatory sterilization should handle that, but I'm not Margret Sanger...

Sonya B59's picture

The collapse will happen when we least expect it.

Able Ape's picture

Nobody ever expects the Spanish Inquisition...

https://www.youtube.com/watch?v=sAn7baRbhx4

 

 

Chippewa Partners's picture

Rented with National in San Diego last week.        The AVIS counter was empty.  National and Hertz wide open.    Will be my last visit to San Diego/LaJolla in the summer.

What is up with the foreigners, lack of parking, high parking fees, sky high hotel con/vis add-on's, derelicts and poor service?  

I forgot I was in California near the coast.  

 

 

buzzsaw99's picture

in case any of you bitchez weren't already aware, rental car "insurance" only protects THEIR CAR.  Not you, not other vehicles or passengers, NOTHING.  If you use a cc to pay for the rental you probably also have great insurance through the cc.  if you have insurance on your personal vehicle you also probably have insurance through them.  Rental car insurance is the biggest scam in the world.  Their crap vehicles ARE NOTHING compared to the cost of hitting someone in an injury accident and for that the rental car insurance, as in most other cases, IS DAMN NEAR WORTHLESS.

Mr. Pain's picture

I agree buzzaw. It's a criminal scam by criminals. Won't tell you how I know...wink, wink........