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Automaker Recalls Have Dented The Rental Car Industry's Bottom Line

Automaker Recalls Have Dented The Rental Car Industry's Bottom Line

The historic round of vehicle recalls this year by General Motors (NYSE: GM), as well as similar events at Ford (NYSE: F) and Chrysler –- a division of Fiat (OTC: FIATY) -– don't appear to have negatively impacted the public's growing demand for new cars.

But all those recalls are taking their toll on the rental car industry.

In its second quarter report earlier this month, the Avis Budget Group (NASDAQ: CAR) reported strong results with a 10 percent increase in revenue compared to the same time period in 2013, but its executives note the automakers' recalls have also hurt the company's bottom line, costing it tens of millions of dollars.

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Short Supply

Avis CEO Ron Nelson told Forbes the recalls are forcing the company to hold on to more thousands more cars than expected, which in turn is “playing havoc” with its operational logistics.

“It is a constantly evolving issue,” Nelson told the magazine, “and some cars have been grounded for literally months because of an inability to get parts and some cars we can fix overnight because it is just a flash to the car computer.”

Shares of Hertz Global Holdings (NYSE: HTZ), meanwhile, took a beating last week after the rental car company withdrew its full-year financial forecast – due in part to a recall-linked shortage of cars.

In an SEC filing, Hertz noted its transaction days for this year's second quarter “were tempered by already tight fleets in the face of rising OEM [Original Equipment Manufacturer] recall activity, which limited the Company’s ability to convert demand into transaction days.”

"(Hertz) weren't able to get the benefit of a strengthening market because they simply didn't have the cars," Michael Millman, of Millman Research Associates, told Reuters.

Buy A Rental?

One possible bright side to all this, according to Jack Nerad, executive editor for Kelley Blue Book's, could be for consumers looking to buy cars out of the rental companies' fleets.

“The interesting thing here is that the rental companies are obviously intent on getting the recalled vehicles serviced,” he said in an email to Benzinga, “which distinguishes them from many consumers who don’t respond to recall notices”

“Potentially cars being sold out of daily rental fleets could be safer than consumer-owned cars,” he added, “at least in terms of getting recall-involved items fixed.”


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