We have come a long way since the heyday of car rental stocks in 2013 and 2014. Hertz Global Holdings, Inc (NYSE:HTZ) was popular with funds betting that it, and the other top players, would benefit from industry consolidation. Earnings would be accretive and balance sheets would get bolstered.

This didn’t play out, and the rental car market seems to have been forsaken.

Add to that the exponentially growing popularity of the likes of Uber and Lyft, and rental car stocks have gotten pummeled — unduly so, in my opinion.

A quick note on the Uber/Lyft threat. At these prices, the risk seems to be more than priced in. Right now, while they may be taking some corporate business away from traditional rental car companies in urban areas, I’m not convinced that they are doing long-term damage to the longer duration travelers.

What Happened to HTZ?

HTZ bought Dollar Thrifty in 2012, though has had trouble integrating it given operational missteps. The accounting scandal didn’t help matters.

This cast a pall over an underlying business run by a savvy chief executive. In short, it’s distracted investors.

Instead, look at margin data. Even in 2009, per Avis Budget Group Inc. (NASDAQ:CAR) data, when fleet costs were at a peak, HTZ earned best-in-class margins. Margin wise, Hertz out earned Avis by several points throughout the financial crisis and thereafter.

Tightening the Fleet

Tightening fleet levels is critical to both pricing and utilization. Here, HTZ and CAR have come to similar conclusions about the need to tighten and the intent to do so.

Kathryn Marinello, CEO of Hertz:

“[we] are very aggressively … getting out of fleet, again, 21% more in the first quarter, the same level of intensity we’ll have in getting out of fleet the second quarter, we believe that we’ll be in a great position to manage profitable demand and to manage back up to a normal utilization rate.”

David Wyshner, CFO of Avis:

“In the context of weak residual values in Q1, each week, we had to make a decision about whether to keep our fleet in line with demand or to hold cars in hopes that residual values would improve. Sometimes the first loss is the best loss and we took our medicine selling cars to keep our fleet levels where we felt they needed to be. We actually set a new record in the quarter for the number of used cars we sold.” [Emphasis mine.]

Getting the fleet aligned with demand won’t be immediate, especially during the summer when seasonality is at play, but it’s an important strategic move for a healthier pricing environment across the industry. This is key.

Carl Icahn

Ichan is known for his proxy battles, but he hasn’t instigated anything here yet. He’s been buying since the highs in 2014, when he felt shares were undervalued and has doubled down since. As of third quarter 2016, he owned 35% of the company. Most recently, Icahn purchased 16 million shares late last year at $23.78. After trading below $10 last month, HTZ stock is back up over $17.

I don’t pretend to have any insights into his plans, but it’s interesting to note that he is also an investor in Lyft — an investment I would add, that came in 2015 after he initiated a position in HTZ.

Icahn likely sees the negative overreaction to ride-sharing company taking a large portion of revenues away and sees the continued improvement in residual values. Residual values have not dropped to the high single-digits, but rather the low- to mid-single digits so far.

Therefore, things look better than they first appear and are looking better as we look to the second half of the year.

As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.