CAR Q3 Deep Dive: Margin Expansion Amid Customer Experience Overhaul and Ongoing Recall Headwinds

Car rental services provider Avis (NASDAQ:CAR) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 1.1% year on year to $3.52 billion. Its GAAP profit of $10.11 per share was 28% above analysts’ consensus estimates.

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StockStory’s Take

Avis Budget Group’s third quarter performance was met with a positive market reaction, reflecting a combination of modest revenue growth and stronger profitability. Management attributed these results to disciplined cost control, operational improvements, and early benefits from new service initiatives like Avis First. CEO Brian Choi emphasized that sustainable EBITDA growth requires both volume and price gains, noting, “You have to grow both volume and price by delivering a product that wins the customer’s share of wallet.” The quarter also marked progress in stabilizing revenue, despite persistent challenges in pricing and fleet recalls.

Looking ahead, Avis Budget Group’s forward strategy centers on elevating the customer experience and driving product differentiation. Management highlighted ongoing investments in technology, service consistency, and brand segmentation, with Choi stating, “We will define and deliver a better product, exceed customer expectations and build brands that actually stand for something.” The company is also preparing for macro events like the World Cup and America 250, while remaining focused on maintaining operational flexibility and cost discipline to navigate industry headwinds.

Key Insights from Management’s Remarks

Management highlighted that margin expansion and stability were driven by a blend of operational improvements, a reset on customer experience priorities, and proactive fleet management decisions.

• Customer experience reset: The leadership team launched a company-wide effort to redefine customer experience, moving beyond traditional satisfaction metrics to focus on consistent, dependable service. Management sees this as key to building brand equity and earning pricing power over time.
• Avis First traction: The newly launched premium service, Avis First, rapidly expanded to 36 locations and is receiving high customer ratings, with an average of 4.9 out of 5 stars. Management views this as proof that customers will pay more for superior, reliable service, supporting higher revenue per day (RPD) in select segments.
• Fleet recall headwinds: A significant portion of the Americas fleet remained out of service due to safety recalls, particularly affecting high-RPD vehicles like vans. This reduced utilization and increased costs by $90–100 million for the full year, with lingering effects expected into the next quarter.
• International mix shift: The International segment benefited from a deliberate pivot towards higher-margin leisure business and away from low-return local markets. This shift, along with disciplined cost management, drove nearly 40% EBITDA growth year over year in the segment.
• Operational discipline and technology: Investment in field operating systems and flexible fleet planning allowed Avis to better match vehicles to demand, offsetting some negative impacts from grounded vehicles and market pricing pressures.

Drivers of Future Performance

Management expects future results to hinge on continued progress in operational efficiency, customer experience innovation, and navigating industry-wide cost and recall challenges.

• Scaling premium service offerings: Avis First is set to expand further, with management expecting its high ratings and willingness from customers to pay a premium to gradually lift base RPD and margin profile over time, provided execution remains consistent.
• Mitigating recall and fleet risks: The company anticipates ongoing headwinds from vehicle recalls into early next year, which could pressure utilization and fleet costs. Management is working closely with OEM partners to accelerate repairs and return vehicles to service, aiming for a gradual normalization.
• International growth and segment focus: Management plans to increase investment in international operations, where a focus on high-margin leisure business and pruning of unprofitable segments is expected to support profitability even as global economic conditions remain mixed.

Catalysts in Upcoming Quarters

In coming quarters, our analysts will watch (1) the pace of adoption and profitability expansion from the Avis First premium service, (2) the resolution of fleet recalls and the associated impact on utilization and costs, and (3) progress in international market repositioning toward higher-margin segments. The company’s investments in technology and customer care, as well as its response to macro events such as the World Cup and America 250, will also be key markers of execution.

Avis Budget Group currently trades at $146.93, down from $155.18 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).

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