Avis Budget Group (CAR) Q3 2025: $100M Recall Cost Weighs on Margin Amid Customer Experience Pivot
Avis Budget Group’s Q3 marked a return to year-over-year revenue growth but revealed margin vulnerability as $100 million in recall-related costs and softening Americas pricing pressured results. Management’s strategic pivot to customer experience, led by the rollout of Avis First, is beginning to show traction, yet execution risk remains high as the company seeks to break the industry’s commodity trap. Investors should watch for the durability of recent international gains and the timeline for recall resolution, as both will shape the path to sustainable EBITDA growth into 2026.
Summary
- Recall Headwind Intensifies: Elevated vehicle recalls drove $100 million in annualized costs, complicating fleet utilization and margin recovery.
- Customer Experience Overhaul: Avis First and a renewed service focus are central to breaking price competition and earning pricing power.
- International Outperformance: Deliberate mix shift and cost discipline drove nearly 40% EBITDA growth, becoming a key offset to domestic pressures.
Performance Analysis
Avis Budget Group delivered modest top-line growth for the first time in eight quarters, with revenue rising to $3.51 billion, a $39 million increase year-over-year. However, pricing pressure persisted in the Americas, where revenue per day (RPD) declined 3% due to softer leisure pricing and a continued mix shift toward leisure rentals. The Americas, the company’s largest segment, saw utilization only modestly decline despite a significant portion of the fleet grounded for recalls, a testament to operational agility but also a source of elevated costs.
International operations stood out, posting a 5% RPD gain and nearly 40% EBITDA growth on the back of a strategic mix shift toward higher-margin leisure and inbound demand. This was achieved by exiting lower-return local monthly business and focusing on disciplined cost management. Recall-related costs, however, weighed heavily on group margin, with $60 million in Q3 and an expected $90 to $100 million for the full year, driven by depreciation, interest, and parking expenses for sidelined vehicles. Despite these headwinds, consolidated adjusted EBITDA increased 11%, reflecting some underlying operational resilience.
- Recall Cost Drag: Recall-related fleet grounding drove $100 million in annual costs, reducing utilization and inflating per-unit expenses.
- Americas Pricing Under Pressure: RPD fell 3%, reflecting persistent leisure pricing softness and inflationary cost mismatch.
- International Mix Shift: Intentional pivot to higher-margin leisure business drove 5% RPD growth and outsize EBITDA gains.
Management’s focus on cost discipline enabled continued investment in customer experience, but margin recovery remains contingent on resolving recall bottlenecks and regaining pricing traction in the Americas.
Executive Commentary
"We are not just a rental car company. We are a service company delivering a dependable product at the best value proposition... Avis First is the opening salvo in our broader transformation, proof to customers, employees, and investors that we're serious about moving this business out of the commodity trap."
Brian Choi, Chief Executive Officer
"We had a modest decline in utilization in spite of what's our percent of the American fleet being grounded. We have seen a sizable impact just in cost alone... something close to $60 million in Q3, and we're probably going to be in the $90 to $100 million range for the full year."
Daniel Cunha, Chief Financial Officer
Strategic Positioning
1. Customer Experience as Differentiator
Avis is repositioning itself as a service-first company, not just a car rental provider. The launch of Avis First, premium customer experience tier, is the first tangible step, targeting product-market fit with a 4.9-star customer rating and RPD over $100. This initiative aims to break the industry’s price-driven, commoditized dynamic by delivering consistent, dependable service that earns loyalty and pricing power.
2. Cost Discipline Enables Reinvestment
Management emphasizes a flywheel model: maintain operational excellence and cost discipline to free up capital for reinvestment in technology and employee experience. This approach is intended to drive sustainable volume and price growth, rather than relying on cost-cutting alone. However, recall-related costs have tested this model’s resilience and highlighted the need for operational flexibility.
3. International Segment Transformation
The international business is undergoing a strategic overhaul, with leadership shifting focus to higher-margin leisure and inbound segments and pruning low-return business. Early results show strong EBITDA growth and improved RPD, positioning international as a more meaningful profit contributor and a counterbalance to domestic volatility. Management signaled increased future investment and focus in this segment.
4. Fleet Management and OEM Relationships
Fleet refresh cycles and OEM negotiations are central to cost control and service consistency. The 2026 model year buy was delayed by tariff uncertainty but is now largely complete, with a focus on maintaining strict ROI discipline. Recall disruptions exposed the vulnerability of fleet-dependent models to external shocks, prompting ongoing dialogue with OEMs for faster parts delivery and improved repair timelines.
5. Brand Segmentation and Value Optimization
Avis is moving away from the legacy binary of premium versus value, adopting a more nuanced brand segmentation approach similar to airlines and streaming services. This strategy aims to optimize value for both customers and the business by offering clearly defined product tiers across its portfolio (Avis, Budget, Payless), with differentiated service levels and price points.
Key Considerations
This quarter underscores the tension between operational execution and strategic reinvention as Avis seeks to escape the industry’s low-margin, price-driven cycle. The following considerations frame the company’s evolving risk-reward profile:
Key Considerations:
- Recall Resolution Timeline: Over two-thirds of affected vehicles remain out of service, with repair delays expected to persist into early 2026, prolonging cost drag and utilization challenges.
- Americas Pricing Recovery: Structurally higher RPD is management’s stated goal, but competitive dynamics and consumer price sensitivity may limit near-term gains.
- International as Growth Hedge: International EBITDA growth provided critical offset to domestic headwinds, but sustainability of this outperformance is unproven as mix shifts mature.
- Capital Allocation Flexibility: Liquidity remains strong at $1 billion, with $1.9 billion in ABS capacity, but negative free cash flow and elevated fleet investment constrain optionality.
- Execution Risk in Transformation: Customer experience investments are long-cycle bets that may not yield immediate financial returns, requiring investor patience and disciplined execution.
Risks
Recall-related fleet downtime remains the most acute near-term risk, with $90 to $100 million in annualized cost drag and lingering uncertainty around repair timelines. Americas pricing softness and inflationary cost pressures threaten margin recovery, while the success of customer experience initiatives depends on changing entrenched consumer perceptions and industry norms. International EBITDA gains could moderate if mix shifts reach saturation or macro headwinds intensify. Debt refinancing at higher rates and fleet cost inflation also pose ongoing challenges.
Forward Outlook
For Q4 2025, Avis Budget Group guided to:
- Continued recall cost headwinds, with most affected vehicles remaining out of service through year-end.
- Modest improvement in Americas RPD expected, though demand visibility remains concentrated around holiday peaks.
For full-year 2025, management signaled:
- EBITDA toward the low end of the previously stated range, reflecting recall and cost headwinds.
Management highlighted several factors that will shape year-end and 2026 trajectory:
- Resolution of recall backlog and normalization of fleet utilization.
- Early traction and scaling of customer experience initiatives, especially Avis First.
Takeaways
Avis Budget Group’s Q3 underscores the complexity of transforming a legacy business model while navigating acute operational shocks.
- Recall Disruption Is the Key Margin Drag: Elevated recall costs and grounded fleet are the primary source of near-term margin pressure, with resolution timing uncertain.
- Strategic Shift to Service Model Is Underway: The rollout of Avis First and a renewed focus on customer experience represent a credible attempt to break the industry’s commodity trap, but require sustained investment and cultural change.
- International Outperformance Is Not Yet Structural: Rapid EBITDA gains from mix shift and cost discipline are encouraging, but durability remains untested as competitive dynamics evolve.
Conclusion
Avis Budget Group is at a strategic crossroads, balancing the need for immediate operational recovery with a longer-term pivot to customer experience differentiation. The ability to resolve recall bottlenecks, regain pricing traction, and sustain international momentum will determine the company’s success in delivering normalized, sustainable EBITDA growth in the coming year.
Industry Read-Through
Avis’s experience highlights systemic vulnerabilities in the car rental industry’s fleet-dependent model, particularly exposure to OEM recall cycles and cost inflation. The strategic pivot toward customer experience and brand segmentation mirrors trends in airlines and hospitality, signaling a broader industry shift away from pure price competition. Operators with the scale and balance sheet to invest in differentiated service are best positioned to break the commodity cycle, but execution risk remains high. Investors in travel, fleet management, and consumer service sectors should monitor recall risk, margin compression, and the pace of service-led transformation as leading indicators for sector-wide performance and valuation re-rating.