The conference calls for Avis Budget Group and Hertz provide a glimpse of what the near future holds in car rental. But it’s not a complete picture, because the biggest player, Enterprise Holdings, is a private company.

Here’s an analysis of Avis’ and Hertz’s statements from their fourth quarter and full-year 2013 calls held in March.

Hertz’s Over-Fleeting Fallout

Hertz said its over-fleeting situation last year was caused in part by integration issues with Dollar Thrifty, combined with weaker demand and the government sequestration.

Hertz decided to rent the excess fleet rather than sell those units into the seasonally weak used car market. Hertz said over fleeting caused it to miss its earnings guidance for last year.

That surplus fleet had an industrywide effect on car rental pricing in the fourth quarter. Hertz said pricing was down 1.4% in the U.S. overall in the fourth quarter, though the “Hertz Classic Brand” held up on airport. Hertz says it is right-fleeted moving into the summer season.

Pricing is Faring Better

Hertz also attributed the recent unfavorable pricing to lower rates at Dollar Thrifty and also its deep-discount startup Firefly, which now has 22 airport locations in leisure markets. This mix shift — along with growth in insurance replacements — would dampen pricing but create better margins due to lower costs.

Avis reported flat pricing year over year in the fourth quarter in North America, with leisure holding steady but commercial pricing declining slightly.

According to both companies, pricing fared much better in the first months of 2014 than in the fourth quarter. Though both companies expect better pricing this year, Hertz isn’t baking a price increase into its 2014 forecast. Better pricing will come as a result of fleet costs going up, which naturally forces price increases.

Also, as Hertz completes the Dollar Thrifty integration, Hertz plans to reduce fleet, which should drive utilization and pricing. In fact, Hertz expects to be back in the 80%-plus utilization range later this year.
Lastly, volume looks good across the board, which bodes well for prices, too.

Synergies from Consolidations

These last two years in car rental saw unprecedented consolidation, with Hertz buying Dollar Thrifty and Avis buying Zipcar and Payless. The benefits have taken some time to manifest, however.

Avis reiterated that it expects $50 to $70 million in synergies through the Zipcar integration by expanding onto airports and into Avis and Budget urban locations. Zipcars are now available to Avis and Budget commercial customers. One-way rentals are on the way.

Avis says Zipcar has started sharing “hundreds of cars” in several cities with traditional Avis and Budget rental operations. Avis reportedly lowered Zipcar’s depreciation, insurance, interest, maintenance and overhead costs.

Avis said it plans to have all of Payless’ fleet consist of former Avis and Budget cars by the end of 2014.

Both Hertz and Avis Budget announced the implementation of fleet optimization systems. The systems are designed to help make better decisions across all their brands for maximizing vehicle hold periods, timing fleet purchases and disposals and putting the right car in the right place at the right time.

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A Stable Used Car Market

Both Hertz and Avis are counting on declines in residual values of 2% for 2014, based on greater supply in the used car market. Nonetheless, the used car market looks relatively stable this year.

Avis said the used car market was solid in the first two months of the year, and this is backed by a positive Manheim Index. Hertz also reported “market conditions which we believe have been favorable compared to our expectations,” and better than Black Book’s forecasts.

Both companies are continuing to work on car sales initiatives. Avis said its direct-to-dealer AutoNation initiative nets $300 to $400 more per unit than if sold at a traditional auction, though this is less than 10% of its risk car sales volume.

Hertz grew its retail sales lots, from 35 in 2013 to an expected 125 by the end of 2014. The volume is similarly small, about 27,000 units or 15% of total sales volume.

Fleet Costs Will Rise

For 2013, Avis reported average fleet costs of $299 per month, a 25% increase over 2012. Avis expects fleet costs in 2014 to be $300 to $310 per unit in North America, mostly due to declines on prices of used vehicles.

Hertz expects its monthly fleet costs to be $260 per unit, driven by the same 2% decline in residual values that Avis predicted.

Though mitigated by fleet cost increases, Avis and Hertz expect overall rental car revenues to increase in 2014 by 4% to 8% based on higher rental volume and slightly better pricing.