Avis Budget Group (NASDAQ:CAR) executives struck a contrite tone on the company’s fourth-quarter and full-year 2025 earnings call, acknowledging a significant miss versus prior guidance and outlining a series of operating changes aimed at reducing volatility in 2026.
Chief Executive Officer Brian Choi said the quarter was “unacceptable” and emphasized that the company “fell significantly short of guidance.” In October, Avis Budget guided to full-year adjusted EBITDA of $900 million, implying roughly $157 million in the fourth quarter. The company reported full-year adjusted EBITDA of $748 million, which Choi said represented an approximate $150 million shortfall versus the fourth-quarter forecast over a three-month span.
Americas miss driven by demand whipsaw, fleet actions, and pricing pressure
Choi detailed three key drivers behind the fourth-quarter miss in the Americas:
- Rental days: In October, the company expected Americas rental days to grow about 3% in the fourth quarter, supported by TSA passenger growth of roughly 3% year over year in October. Choi said demand changed abruptly in November, citing FAA flight reductions, air traffic control disruptions, and extended TSA wait times that reduced discretionary travel. Commercial rental days shifted from “mildly down” in October to down 11% in November. December stabilized, but overall the company delivered flat volume for the quarter instead of the expected growth.
- Fleet size and used vehicle pricing: With demand weakening, Avis Budget chose to defleet in November despite calling the fourth quarter the most difficult period to sell used vehicles. Choi noted aggressive new car incentives pressured used car pricing. The Manheim Rental Index price per vehicle declined nearly $1,000, or 4.3%, from October to November, affecting both gains on vehicles sold and the valuation mark on the remaining fleet. Monthly net depreciation per unit (DPU) in the Americas came in at $338 in the fourth quarter versus an October estimate “slightly lower than $300.” Choi said used vehicle prices stabilized in December, recovering most of the November decline, and argued that selling fleet aggressively was the right decision even though the timing was painful.
- Pricing: Avis Budget had expected revenue per day (RPD) on a two-year stack to continue improving, but November reversed earlier progress. Choi said weakened demand and excess industry supply pressured pricing and that length-of-rent restrictions were “largely absent industry-wide.” In the Americas, RPD finished the quarter down 3.7%, compared with an October expectation of closer to a 2% decline.
EBITDA bridge: revenue, depreciation, and insurance reserves
Chief Financial Officer Daniel Cunha said the combination of rental days, depreciation, and RPD moving off plan simultaneously compounded the financial impact. He provided a bridge for the adjusted EBITDA miss versus the company’s October expectations:
- Lower rental days and weaker RPD: approximately $40 million of the miss.
- Higher gross depreciation and lower gains on sale: approximately $60 million.
- Insurance reserves (PLPD): approximately $50 million, reflecting an increase to personal liability and property damage reserves in December following a year-end review. Cunha said new incident trends are improving, but the company chose to reset the reserve baseline conservatively entering 2026.
Cunha characterized most of the quarter’s underperformance as “macro and short-term,” saying demand softness and pricing pressure appeared industry-wide and transitory based on recent trends and forward bookings. He added that the health of the used car market would not be fully known until tax refund season in the spring, though December and January trends suggested stabilization.
EV fleet write-down and tax credit monetization
Management also addressed an approximately $500 million write-down taken on EV fleets at year-end, describing it as a “deliberate reset” to strengthen the balance sheet and reduce future risk.
Executives tied the move in part to the “Big Beautiful Bill” passed in July, which they said made 100% bonus depreciation permanent and clarified the company’s tax position. That prompted Avis Budget to reassess how to monetize federal EV tax credits it had limited ability to use internally. The company said it completed a transaction allowing it to monetize the majority of EV tax credits and generate $180 million of cash.
Separately, management said it shortened the remaining useful life of EV vehicles from 36 months to approximately 18 months. Cunha said the company had been depreciating those vehicles at roughly $600 per month and that exiting them earlier reduces residual value and technology obsolescence risk while accelerating capital recycling. In response to an analyst question, management said the change could reduce EV depreciation to “slightly north of $300” per month from about $600, helping DPU as 2026 develops.
2026 planning: tighter fleet discipline, OEM rebalancing, and cost reset
Choi said 2026 is the first year the current management team has built an annual plan “from the ground up,” and he highlighted a philosophical shift in the Americas: prioritizing utilization over fleet growth. He said the prior approach of being “the last provider with an available car on the lot” worked in a supply-constrained environment but creates volatility in a normalized environment by pressuring pricing and fleet economics.
As part of rightsizing efforts, Choi said the company sold a substantial number of vehicles in the fourth quarter and is using “every disposition channel available” in the first quarter of 2026. He said January featured a record number of vehicle sales, momentum continued into February, and elevated disposition activity is expected through March and April’s peak tax refund season.
Management also said recalls became a larger-than-expected headwind. Choi said the company exited the fourth quarter with approximately 14,000 vehicles still grounded due to parts constraints. He estimated the impact of recalls in the fourth quarter alone—counting depreciation, interest, parking, and related expenses, but not lost profits or gains on sale—at nearly $40 million. Going forward, Choi said Avis Budget will rebalance OEM exposure with greater emphasis on “reliability and execution,” reducing exposure over time where standards are not met.
On costs, Choi said the company implemented a global reduction in force in January to reset the organizational structure, alongside strengthened performance management that led to additional exits. He also said Avis Budget is reviewing its business portfolio, noting the company exited Zipcar UK in December and restructured Zipcar’s U.S. operations in January. Management said it will continue evaluating non-core and adjacent businesses, including package delivery, ride hail, and certain franchise activities.
Early 2026 trends and guidance approach
Executives said January reflected competitive pricing pressures similar to those exiting the fourth quarter, with commercial demand slower to ramp due to the calendar. Choi said pricing stabilized relative to January, and the “rate of erosion” seen post-COVID has moderated. Management emphasized that its 2026 plan does not assume an aggressive pricing recovery and is built around disciplined fleet sizing, utilization improvement, and cost control.
In discussing the first quarter, management said adjusted EBITDA is expected to be lower year over year, driven by elevated depreciation as the company resets fleet economics. Choi and Cunha pointed to weather-related disruptions and flight cancellations in January, while indicating revenue trends improved into February and March as supply and demand became better aligned due to fleet reductions.
On the Waymo partnership, Choi said the Dallas launch remains on schedule across real estate development, hiring and training, and compliance certification. He said Waymo is offering employees fully autonomous rides in Dallas as a final step before serving public riders. Management declined to provide specific financial details, noting that vehicles in Dallas are on Waymo’s balance sheet in the current phase and that Avis Budget would only consider owning vehicles over time if economics meet its return and balance sheet thresholds.
About Avis Budget Group (NASDAQ:CAR)
Avis Budget Group, Inc operates as a leading global provider of vehicle rental and mobility solutions. Through its two core brands, Avis® and Budget®, the company offers a broad range of rental options including daily, weekly and monthly car rentals for leisure and business travelers. In addition to traditional airport and off-airport car rental services, Avis Budget Group delivers innovative mobility platforms such as car-sharing programs and connected fleet solutions designed to meet the evolving needs of corporate, government and individual customers.
The company’s roots trace back to Avis Rent a Car, founded in 1946, and Budget Rent a Car, established in 1958.
