UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20072008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

COMMISSION FILE NO. 1-10308

AVIS BUDGET GROUP, INC.

(Exact name of Registrant as specified in its charter)

973-496-4700

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  þ¨    No  ¨þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a non-accelerated filer.smaller reporting company. See definition of “accelerated filer and large“large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  þ

The aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant on June 29, 200730, 2008 was $2,942,661,819.$844,109,411. All executive officers and directors of the registrant have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant.

The number of shares outstanding of the Registrant’s common stock was 103,586,476101,570,563 as of January 31, 2008.30, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be mailed to stockholders in connection with our annual stockholders’ meeting scheduled to be held on June 5, 200812, 2009 (the “Annual Proxy Statement”) are incorporated by reference into Part III hereof.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

The forward-looking statements contained herein are subject to known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on various facts and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives. Statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “projects”, “estimates”, “plans”, “may increase”, “may fluctuate” and similar expressions or future or conditional verbs such as “will”, “should”, “would”, “may” and “could” are generally forward-looking in nature and not historical facts. You should understand that the following important factors and assumptions could affect our future results and could cause actual results to differ materially from those expressed in such forward-looking statements:

Other factors and assumptions not identified above, including those described under “Risk Factors” set forth in Item 1A herein, were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control.

You should consider the areas of risk described above, as well as those described under “Risk Factors” set forth in Item 1A herein and those that may be disclosed from time to time in filings with the Securities and Exchange Commission, in connection with any forward-looking statements that may be made by us and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law. For any forward-looking statements contained in any document, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

PART I

ITEM 1. BUSINESS

Except as expressly indicated or unless the context otherwise requires, the “Company”, “Avis Budget”, “we”, “our” or “us” means Avis Budget Group, Inc., a Delaware corporation, and its subsidiaries and “Avis Budget Car Rental” or “ABCR” means Avis Budget Car Rental, LLC, a Delaware limited liability company and its subsidiaries, the companies that comprise our vehicle rental operations. “Avis” and “Budget” refer to our Avis and Budget operations, respectively, and do not include the operations of Avis Europe and its affiliates, as further discussed below.

We operate two of the most recognized brands in the global vehicle rental industry through Avis and Budget. Avis is a leading rental car supplier to the premium commercial and leisure segments of the travel industry and Budget is a leading rental car supplier to the price-conscious segments of the industry. We believe we are the largest general-use vehicle rental operator in each of North America, Australia, New Zealand and certain other regions we serve, based on published airport statistics. We maintain the leading share of airport car rental revenue and operate one of the leading consumer truck rental businesses in the United States.

Our car rental operations generate significant benefits from operating two distinctivedistinct brands that target different industry segments but share the same fleet, maintenance facilities, systems, technology and administrative infrastructure. We believe that Avis and Budget both enjoy complementary demand patterns with mid-week commercial demand balanced by weekend leisure demand. For 2007, our vehicle rental operationsIn 2008, we generated total revenues of $5,968$5,984 million. The Avis, Budget and Budget Truck brands accounted for approximately 63%62%, 30%32% and 7%6% of our vehicle rental revenue, respectively, in 2007.2008.

Our operations have an extended global reach that includes approximately 6,9007,000 car and truck rental locations in the United States, Canada, Australia, New Zealand, Latin America, the Caribbean and parts of the Pacific region.Asia. On average, our rental fleet totaled more than 425,000424,000 vehicles, and we completed more than 2827 million vehicle rental transactions worldwide in 2007.2008. Domestically, in 20072008 we derived approximately 81%80% of our nearly $4.0$4.7 billion in total car rental revenue from on-airport locations and approximately 19%20% of our domestic car rental revenue from off-airport locations, which we refer to as our local business. We expanded our local business in 2007,2008, which included an increase in our insurance replacement revenue by approximately 25%, and plan to continue this expansion further in 2008.24%. We rent our fleet of approximately 28,70029,700 Budget trucks through a network of approximately 2,500 dealer-operated, 230300 company-operated and 8575 franchisee-operated locations throughout the continental United States. We also license the use of the Avis and Budget trademarks to multiple licensees in areas in which we do not operate. The Avis and/or Budget vehicle rental systems in Europe, Africa, the Middle East and parts of Asia are operated at approximately 3,6003,800 locations by subsidiaries and sub-licensees of an independent third party primarily under royalty-free trademark license agreements.

We categorize our operations in three operating segments: domestic car rental, consisting of our Avis and Budget U.S. car rental operations; international car rental, consisting of our international Avis and Budget carvehicle rental operations; and truck rental, consisting of our Budget truck rental operations.operations in the United States. In 2007:2008:

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In 2008, our business was significantly impacted by the economic downturn, the disruption in the credit markets and ongoing concerns about the domestic auto manufacturers. As a result, pricing and volumes declined and fleet costs and borrowing costs increased, particularly in the second half of 2008. In response, in third quarter 2008, we eliminated more than 700 employee positions to reduce costs and streamlined infrastructure in our headquarters, sales, contact center and field operations, and in November 2008, we implemented a five-point plan to reduce annual expenses in addition to our Performance Excellence process improvement initiative. The five-point plan is intended to enable the Company to realize cost savings through the following specific actions:

For 2008,2009, our objective is to enhance growth, profitability and our position as a leader in theleading provider of vehicle rental industry.services as well as to realize cost savings and efficiencies through process improvement and other actions. We expect to achieve our goals by focusing our efforts on the following core strategic initiatives:

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In 2007,2008, we not only completed more than 27 million rental transactions worldwide, but also made continuedsignificant progress toward our strategic objectives. We retained approximately 98%97% of our commercial contracts. Aviscontracts and Budget maintained theiror expanded our marketing alliances with USAA and AARP, which are long-timekey marketing partners. Budget entered into a multi-year agreement with Expedia, the largest online travel booking portal, increasing its exposure to additional customers. Avis marketing partners,was named “North America’s Leading Car Hire” in the prestigious World Travel Awards, and Budget grew its award-winning small business program. We opened approximately 19590 new off-airport locations in 2007,2008, and off-airport revenues represented 19%20% of our domestic car rental revenues. We are an “approved” or “preferred” provider for customers of a majority of the largest auto insurance companies in the United States. In 2007,2008, we continued to increase revenue related to rentals ofWhere2where2 GPS navigation system units, loss damage waivers and insurance products, and other ancillary services.

In the

areaDecember 2008, we successfully renewed our two U.S. asset-backed rental car conduit facilities to provide financing of cost management, weour fleet in 2009. We have continued to reduce our reliance on individual fleet suppliers and to diversify our fleet purchases, and we establishedhave implemented strategies from our Performance Excellence program and elsewhere to identify and effect potential process-improvement andrealize cost saving opportunities.savings throughout our business. We are utilizing sophisticated yield-management technology to optimize our pricing and fleet planning, and we continue to analyze and streamline our operations to gain efficiencies. And, most importantly, our more than 30,00026,000 employees continue to provide reliable, high-quality vehicle rental services that foster customer satisfaction and customer loyalty.

* * *

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Company Information

Our principal executive office is located at 6 Sylvan Way, Parsippany, New Jersey 07054 (telephone number: (973) 496-4700). We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, we file reports, proxy and information statements and other information with the Commission and certain of our officers and directors file statements of changes in beneficial ownership on Form 4 with the Commission. Such reports (including our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to such reports), proxy statements, and other information and such Form 4s can be accessed on our website at www.avisbudget.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Commission. A copy of our Codes of Conduct and Ethics, as defined under Item 406 of Regulation S-K, including any amendments thereto or waivers thereof, Corporate Governance Guidelines, Director Independence Criteria and Board Committee Charters can also be accessed on our website. We will provide, free of charge, a copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, Codes of Conduct and Ethics, Corporate Governance Guidelines and Board Committee Charters upon request by phone or in writing at the above phone number or address, attention: Investor Relations. In accordance with New York Stock Exchange (NYSE) Rules, on June 14, 2007,18, 2008, we filed the annual certification by our Chief Executive Officer certifying that he was unaware of any violation by us of the NYSE’s corporate governance listing standards at the time of the certification.

Company History

We were created through a merger with HFS Incorporated in December 1997 with the resultant corporation being renamed Cendant Corporation. On August 23, 2006, Cendant completed a separation into four separate companies (the “Cendant Separation”), one for each of its former Real Estate Services businesses (Realogy Corporation), its former Hospitality Services businesses (Wyndham Worldwide Corporation), its former Travel Distribution Services businesses (Travelport) and its Vehicle Rental businesses (Cendant, now Avis Budget Group). Following completion of the Cendant Separation, Cendant changed its name to Avis Budget Group, Inc. and our common stock began to trade on the New York Stock Exchange under the symbol “CAR.” Avis Budget Group’s operations consist of two of the most recognized brands in the global vehicle rental industry through Avis Budget Car Rental, LLC, the parent of Avis Rent A Car System, LLC, Budget Rent A Car System, Inc. and Budget Truck Rental, LLC.

Founded in 1946, Avis is believed to be the first company to rent cars from airport locations. Avis expanded its geographic reach throughout the United States in the 1950s and 1960s. In 1963, Avis introduced its award winning “We try harder” advertising campaign, which is considered one of the top ten advertising campaigns of all time by Advertising Age magazine. Budget was founded in 1958. The company name was chosen to appeal to the “budget-minded” or “value-conscious” vehicle rental customer. Avis possesses a long history of using proprietary information technology systems in its business, and its established, but continually updated, Wizard System remains the backbone of our operations. We acquired the Avis brand in 1996, Avis’ capital stock in 2001, and the Budget brand and substantially all of the domestic and certain international assets of Budget’s predecessor in 2002.

In addition to our vehicle rental operations, we continue to manage the administration of certain legacy items which remain following the completion of the Cendant Separation. In connection with the Cendant Separation, we entered into certain agreements, including the Separation and Distribution Agreement dated as of July 27, 2006 (the “Separation Agreement”), with Realogy, Wyndham and Travelport governing our relationships following the separation, including the assumption by Realogy and Wyndham of 62.5% and 37.5%, respectively, of certain contingent and other liabilities of Cendant.

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Car rental business

Operations—Avis

We operate or franchise approximately 2,200 of the approximately 5,100 rental locations that comprise the Avis car rental system (the “Avis System”), throughout the world, which represents one of the largest car rental systems in the world, based on total revenue and number of locations, and encompasses locations at most of the largest airports and cities in the United States and internationally. The Avis System in Europe, Africa, the Middle East and parts of Asia is primarily operated under royalty-free license agreements with Avis Europe Holdings, Limited (“Avis Europe”), an independent third party, and is comprised of approximately 2,900 locations operated by Avis Europe and its sub-licensees.

We own and operate approximately 1,300 Avis car rental locations in both the on-airport and local rental segments in North America, Australia, New Zealand, Latin America and the Caribbean. In 2007,2008, Avis generated total revenue of approximately $3.7 billion, of which approximately 83% (or $3.1 billion) was derived from U.S. operations. In addition, we franchise the Avis System to independent business owners in approximately 850900 locations throughout the United States, Canada, Latin America, Australia, New Zealand and parts of the Pacific region.Asia. In 2007,2008, approximately 95% of the Avis System total domestic revenue was generated by our locations and the remainder was generated by locations operated by franchisees. Franchisees generally pay royalty fees to us based either on total time and mileage charges or total revenue.

The table below presents the total number of locations that make up the Avis System:

Avis System Locations^*

In 2007,2008, Avis derived approximately 62%60% and 38%40% of its domestic time and mileage revenue from commercial and leisure customers, respectively, and 81%77% and 19%23% of its domestic revenue from customers renting at airports and locally, respectively. We have continued to focus efforts in 2007 on increasing the amount of revenue we generate locally from customers who rent in order to temporarily replace their own cars when they are being repaired or are otherwise unavailable.

The Avis brand provides high-quality car rental services at price points generally above non-branded and value-branded national car rental companies. We offer Avis customers a variety of premium services, including:

Operations—Budget

The Budget vehicle rental system (the “Budget System”) is one of the largest car rental systems in the world, based on total revenue and number of locations. We operate or franchise approximately 1,9001,850 of the approximately 2,6002,750 car rental locations in the Budget System throughout the world, including locations at most of the largest airports and cities in the United States and certain other regions. The Budget System in Europe, Africa and the Middle East is operated under a royalty-free trademark license agreement with an independent third party, which is an affiliate of Avis Europe and is comprised of approximately 700900 additional company-operated and sub-licensee locations.

We own and operate approximately 800825 Budget car rental locations in the United States, Canada, Puerto Rico, Australia and New Zealand. In 2007,2008, our Budget car rental operations generated total revenue of approximately $1.8$1.9 billion, of which 86% (or $1.5$1.6 billion) was derived from U.S. operations. We also franchise the Budget System to independent business owners who operate approximately 1,1001,025 locations throughout the United States, Canada, Latin America, the Caribbean and parts of the Asia Pacific region.Asia. In 2007,2008, approximately 84%86% of the Budget System domestic total revenue was generated by our locations with the remainder generated by locations operated by independent franchisees. Independent franchisees generally pay royalty fees to us based on gross rental revenue.

The table below presents the total number of locations that make up the Budget System:

Budget System Locations^*

In 2007,2008, Budget derived 24%28% and 76%72% of its domestic time and mileage car rental revenue from commercial and leisure customers, respectively, and 80%75% and 20%25% of its domestic car rental revenue from customers renting at airports and locally, respectively.

Budget is a leading rental car supplier to the price-conscious segments of the industry, and Budget was named “Leading Provider of Outstanding Car Rental Deals” in April 2007 byTravelzoo, a global Internet media company.industry. Budget offers its customers Fastbreak, an expedited rental service for frequent travelers, which operates much like Avis Preferred.Preferred, as well aswhere2 navigation systems and Roving Rapid Return, as described above. Budget also offers the Budget Small Business Program, a program for small businesses that offers discounted rates and central billing options, and Unlimited Budget, a loyalty program for travel professionals established by Budget over ten years ago. Budget also offersWhere2and Roving Rapid Return, as described above.

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Reservations

Customers can make Avis and Budget reservations through our Avis and Budget websites at avis.com and budget.com, through our reservation centers (also referred to as contact centers) toll-free at 1-888-777-AVIS and 1-800-BUDGET7, respectively, through online travel portals, through selected partners, including many major airlines utilizing direct connect technology, through their travel agent, or by calling a location directly. Travel agents can access our reservation systems through all major global distribution systems (GDSs) and can obtain information with respect to rental locations, vehicle availability and applicable rate structures through these systems.

Marketing

Avis and Budget support their premium and value brand positions through a range of marketing channels and campaigns, including traditional media, such as television, radio and print advertising, as well as Internet and direct marketing. Avis focuses its marketing around its industry-leading customer loyalty and its award-winning “We try harder” campaign. Budget builds its marketing around retail advertising, key partnerships and online marketing campaigns.

We maintain strong links to the travel industry. Avis and Budget offer customers the ability to earn frequent traveler points with most major airlines’ frequent traveler programs. Avis and Budget are also affiliated with the frequency programs of major hotel companies, including Hilton Hotels Corporation, Hyatt Corporation, Starwood Hotels and Resorts Worldwide, Inc. and Wyndham Worldwide. These arrangements provide incentives to program participants and cooperative marketing opportunities, including call transfer programs and online links with various partners’ websites. Avis has an agreement with Wyndham Worldwide’s lodging brands whereby lodging customers making reservations by telephone may be transferred to Avis if they desire to rent a vehicle.

In 2007,2008, approximately 79% of domestic vehicle rental transactions from our owned and operated Avis locations in the United States were generated by travelers who rented from Avis under contracts between Avis and the travelers’ employers or through membership in an organization with whom Avis has a contractual affiliation (such as AARP). Avis also has marketing relationships with organizations such as American Express Company and Sears, Roebuck & Co., through which we are able to provide customers of these companiesentities with incentives to rent from Avis. Avis franchisees also have the option to participate in these affiliations. For commercial and leisure travelers who are unaffiliated with any of the employers or organizations that we contract with, Avis solicits business through media, direct mail, e-mail and Internet advertising. Avis conducts various loyalty programs through direct marketing campaigns, including Avis Preferred, which allows customers to bypass the counter, and Avis First, which offers our customers certainenhanced benefits for frequent rentals. As a result of these programs, Avis has been ranked as the top rental car brand for customer loyalty for nine consecutive years by a leading third party research firm. Travel agents are also able to participate in the Avis travel agent reward program, Club Red.

Similarly,Additionally, Budget offers “Unlimited Budget”, a loyalty incentive program for travel agents which had approximately 18,60021,000 travel agents actively enrolled as of December 31, 2007,2008, and the Budget Small Business Program, a program for small businesses that offers discounted rates and central billing options. Budget also has contractual arrangements with American Express Company and other organizations which offer members of these groups incentives to rent from Budget. In connection with its focus on price-conscious customers, Budget primarily relies on retail advertising, including Internet advertising, and on value pricing to drive customers to our Budget website, our call centers and other distribution channels. Budget also offers proprietary marketing programs such as Fastbreak, an expedited rental service for frequent renters.

Our international Avis and Budget operations maintain close relationships with the travel industry through participation in several non-U.S. based frequent traveler programs with airlines such as Air Canada and Qantas Airways Limited, as well as participation in Avis Europe’s programs with British Airways Plc, Deutsche Lufthansa AG and other carriers.

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Franchising

Of the approximately 2,200 Avis and approximately 1,9001,850 Budget car rental locations we operated and/or franchised at December 31, 2007,2008, approximately 39%41% and 57%56%, respectively, were owned and operated by franchisees. Revenue derived from our car rental franchisees in 20072008 totaled approximately $35$34 million. Franchised locations range from large operations at major airport locations to franchise territories encompassing an entire country to relatively small operations in suburban locations. Fleets of our franchisees range from fleets in excess of 3,000 vehicles to fleets of fewer than 50 vehicles. Franchising provides us with a source of high margin revenue as there are relatively limited additional fixed costs associated with fees paid by franchisees to us. Although franchised locations represent approximately half of the locations that we own or franchise, they represent only approximately 9%8% of total domestic revenue generated by the Avis and Budget Systems, as the average franchised operation is significantly smaller than the average owned location. Generally, we do not actively seek new franchisees in the United States or Canada.

We enjoy good relationships with our franchisees and meet regularly with them at regional, national and international meetings. Our relationships with Avis and/or Budget franchisees are governed by franchise agreements that grant the franchisees the right to operate Avis and/or Budget vehicle rental businesses in certain

exclusive territories. These franchise agreements impose obligations on the franchisee regarding the operations of each franchise and most restrict the franchisee’s ability to transfer its franchise agreement and the franchisee’s capital stock. Each franchisee is required to adhere to our system standards for each brand as updated and supplemented by our policy bulletins, brand manuals and service programs.

We maintain the right to monitor the operations of franchisees and, when applicable, can declare a franchisefranchisee to be in default under its franchise agreements, which default may or may not be curable. We can terminate these franchise agreements for certain defaults, including failure to pay franchise fees and failure to adhere to our operational standards.

Our franchise agreements grant the franchisees the exclusive right to operate an Avis and/or Budget car and/or truck rental business in a particular geographic area. Under agreements that predate our ownership of Avis or Budget, a limited number of franchisees in the United States are also separately franchised exclusively to sell used cars under the Avis and/or Budget brand. Our current franchise agreements provide for a 20-year term. Certain existing franchise agreements do not contain a fixed term, or provide for renewal terms for no additional fee so long as the franchisee is not in default. Upon renewal, the terms and conditions of the franchise agreement may generally be amended from those contained in the expiring franchise agreements, while language in certain older franchise agreements may limit our ability to do so. The car rental royalty fee payable to us under franchise agreements is generally 5% to 7.5%8% of gross rental revenue but certain franchisees of each brand, both internationally and domestically, have franchise agreements with different royalty fee structures.

Pursuant to their franchise agreements, some franchisees must meet certain requirements relating to the number of rental locations in their franchised territory, the number of vehicles available for rental and the amount of their advertising and promotional expenditures. In general, each franchise agreement provides that the franchisee must not engage in any other vehicle rental business within the franchised territory during the term of such agreement and, in the Budget franchise agreement, for 12 months thereafter. Upon termination of a franchise, the franchisee is also prohibited from using the Avis or Budget name and related marks in any business.

Other revenue

In addition to revenue from vehicle rentals and franchisee royalties, we generate revenue from Avis and Budget customers through the sale and/or rental of optional products and services such as supplemental equipment (for example, child seats and ski racks), loss damage waivers, additional/supplemental liability insurance, personal accident/effects insurance, fuel service options, fuel service charges, electronic toll collection and other ancillary products and services as described above, such as rentals of wWhere2here2 GPS navigation units which in 2007 2008

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contributed more than $35$75 million to pretax income.revenue. In 2007,2008, approximately 4% of our vehicle rental operations revenue was generated by the sale of loss damage waivers under which we agree to relieve a customer from financial responsibility arising from vehicle damage incurred during the rental period if the customer has not breached the rental agreement. In addition, we receive reimbursement from our customers for certain operating expenses we incur, including gasoline and vehicle licensing fees, as well as airport concession fees, which we pay in exchange for the right to operate at airports and other locations.

Websites

Avis and Budget have strong brand presence on the Internet through their websites, avis.com and budget.com, as well as third party websites. In 2007, the number of Avis and Budget vehicle rental customers who obtained rate, location and fleet information and then reserved their rentals directly on these websites increased. Direct bookings via our websites incur less cost per transaction thanare one of our least-expensive sources of bookings, made through our voice reservation agents or through third party distribution systems. Therefore, an increase inso the use of Internet bookings generates cost savings for us. In addition, both Avis and Budget have agreements to promote their car rental services with major Internet portals and have a strong advertising presence on various search engines. Bookings over the Internet accounted for 52%55% of Budget’s 20072008 domestic reservations, with 32%33% of reservations derived from bookings on budget.com. Bookings over the Internet accounted for 32%35% of Avis’ 2008 domestic reservations, with 25%28% derived from bookings on avis.com. In 2007, avis.com reservations grew by 16% and budget.com reservations grew by 10% over the prior year.

The Wizard System

We own the Wizard System, our worldwide reservation, rental, data processing and information management system. The Wizard System enables us to process over one million incoming customer inquiries each day, providing our customers with accurate and timely information about our locations, rental rates and vehicle availability, as well as the ability to place or modify reservations. Additionally, the Wizard System is linked to all major travel distribution networks worldwide and provides real-time processing for travel agents, travel industry partners (such as airlines), corporate travel departments and individual consumers through our websites or calls to our contact centers. The Wizard System also provides personal profile information to our reservation and rental agents to better service our customers. Among the principal features of the Wizard System are:

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We also use data supplied from the Wizard System and airline reservation systems in certain proprietary information management systems to maintain centralized control of major business processes such as fleet acquisition and logistics, sales to corporate accounts and determination of rental rates. The principal components of the systems we employ include:

reports based upon these plans and schedules. This tool allows management to monitor and change fleet volume and composition on a daily basis and to optimize our fleet plan based on estimated business levels and available repurchase and guaranteed depreciation programs.

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Fleet

General.  We maintain a single fleet of vehicles for Avis and Budget. We rent a wide variety of vehicles, including luxury and specialty vehicles. Our fleet consists primarily of vehicles from the current and immediately preceding model year. Rentals are generally made on a daily, weekly or monthly basis. Rental charges are

computed on the basis of the length of the rental or, in some cases, on the length of the rental plus a mileage charge. Rates vary at different locations depending on the type of vehicle rented, the local marketplace and competitive and cost factors. Rentals are made utilizing rate plans under which the customer is responsible for gasoline used during the rental. We also generally offer our customers the convenience of leaving a rented vehicle at a location in a city other than the one in which it was rented, although, consistent with industry practices, a drop-off charge or special intercity rate may be imposed. We facilitate one-way car rentals between corporate-owned and franchised locations in the United States that enable us to operate as an integrated network of locations.

Vehicle purchasing.  We participate in a variety of vehicle purchase programs with major domestic and foreign vehicle manufacturers. General Motors is the featured supplier for Avis, and Ford is the featured supplier for Budget. During 2007,2008, approximately 44%32%, 26%23% and 15%14% of the cars acquired for our U.S. car rental fleet were manufactured by General Motors, Ford and Chrysler, respectively, compared to 42%34%, 32%27% and 12%16%, respectively, in 2006.2007. During 2007,2008, we also purchased Mitsubishi, Hyundai, Kia, Nissan, Subaru, Suzuki, Toyota and Volkswagen vehicles. The decrease in the portion of our fleet sourced from Forddomestic manufacturers in 20072008 is reflective of our overallcontinuing efforts to diversify our fleet which we expectand to continue in 2008. The substantial majority of vehicles used in our rental car business are purchased through our principal U.S. vehicle financing program, which is an asset-backed facility.reduce fleet costs.

Vehicle disposition.  We generally hold a vehicle in our domestic fleet for a term of four to fourteen14 months. For 2008 and 2007, approximately 58% and 2006, approximately 75% and 88%73%, respectively, of the rental cars purchased for our domestic car fleet were subject to agreements requiring automobile manufacturers to repurchase them or guarantee our rate of depreciation during a specified period of time. Cars subject to these agreements are sometimes referred to as “program vehicles” or “program cars” and cars not subject to these agreements are sometimes referred to as “risk cars” or “risk vehicles”. The programs in which we participate currently require that the program vehicles be maintained in our fleet for a minimum number of months (typically four to twelve12 months) and impose return conditions, including those related to mileage and condition. At the time of return to the manufacturer, we receive the price guaranteed at the time of purchase and are thus protected from fluctuations in the prices of previously-owned vehicles in the wholesale market at the time of disposition. The future percentages of program and risk vehicles in our fleet will be dependent on the availability and attractiveness of manufacturers’ repurchase and guaranteed depreciation programs, and we expect percentages for 2008 to be lower than 2007 as we acquire more risk vehicles in order to mitigate the anticipated increased cost of program vehicles.programs. We dispose of our risk vehicles largely through automobile auctions, including auctions that enable dealers to purchase vehicles online more quickly than through traditional auctions.

Of the approximately 407,000373,000 cars from our rental car fleet that we sold in 20072008 (compared to 445,000407,000 that we sold in 2006)2007), we sold approximately 88%64% back to the manufacturers pursuant to repurchase or guaranteed depreciation programs and the rest through third party channels such as wholesale auctions. In 2008,2009, we expect the percentage of cars sold back to the manufacturers to decrease as we acquire more risk vehicles.

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Utilization and seasonality.  Our car rental business is subject to seasonal variations in customer demand, with the summer vacation period representing the peak season. The general seasonal variation in demand, along with more localized changes in demand at each of our locations, causes us to vary our fleet size over the course of the year. For 2007,2008, our average monthly fleet size in the U.S. ranged from a low of approximately 300,000269,000 vehicles in December to a high of approximately 388,000380,000 vehicles in July. OurCompared to 2007, our average fleet size increased 4.2%decreased approximately 1% in 2007, to 340,8992008 at approximately 338,000 vehicles. DomesticAverage domestic fleet utilization for 2007,2008, which is based on the number of rental days (or portion thereof) that vehicles are rented compared to the total amount of time that vehicles are available for rent, ranged from 68% in December to 79% in August and averaged 75% for 2007.2008, which was consistent with 2007 levels. Our calculation of utilization may not be comparable to other companies’ calculation of similarly titled statistics.

Maintenance.  We place a strong emphasis on vehicle maintenance sincefor customer safety and customer satisfaction reasons, as well as because quick and proper repairs are critical to fleet utilization. To accomplish this task we employ a fully-certified National Institute for Automotive Service Excellence (“ASE”) technician instructor at our headquarters. This instructor has developed a specialized training

program for our 418405 technicians who operate in approximately 10085 maintenance and damage repair centers for both Avis and Budget. We use advanced diagnostic equipment, including General Motors’ “Techline” and “Tech 2” and MDI diagnostic computerssystems and Ford’s PDSIDS diagnostic system. Our technician training department also prepares its own technical service bulletins that can be retrieved electronically at all of our repair locations. Approximately 89%85% of our technicians are ASE-certified.

Customer service

Our commitment to delivering a consistently high level of customer service is a critical element of our success and strategy. Each year,We conduct daily location-specific customer satisfaction tracking by sending web-based surveys to recent customers of our internal quality auditors conduct approximately 1,000 unannounced reviewstop volume locations. In 2008, we received over 530,000 responses to our online customer satisfaction survey (the Voice of the Customer Survey). The Voice of the Customer Survey selects customers at specific locations to measureevaluate their overall satisfaction with their rental experience at that location. Results are analyzed generally and by location to help further enhance our service levels by location. We identify specific areas of achievement and opportunity from these assessments. We address areas of improvement on a system-wide level and develop standard methods and measures. The major focus areas of these assessments include (i) vehicle condition and availability; (ii) customer interaction, including helpfulness and courtesy; and (iii) location image.to our customers. In addition, we utilize a toll-free “800” number and a dedicated customer service e-mail address to allow customers of both Avis and Budget to report problems directly to our customer relations department. Location associates and managers also receive training and are empowered to resolve virtually all customer issues at the location level. We prepare weekly and monthly reports on the types and number of complaints received for use by location management in conjunction with the customer satisfaction reports by location management as feedback of customer service delivery. Finally,

Environmental Initiatives

Over the past several years, we conduct daily location-specific customer satisfaction tracking by sending web-based surveyshave launched a number of initiatives to recent customersmanage the environmental aspects of our top volume locations.business. We have focused on and expect to continue to focus on the environmental profile of our car rental fleet, as measured using the United States Environmental Protection Agency SmartWay Certification program. Sixty-three percent of the 2008 model year rental cars in our fleet met the standards for U.S. EPA SmartWay Certification. We also offer gas/electric hybrid cars for rent in three different car classes and flex fuel cars for rent for those seeking to minimize environmental impact through use of E-85 ethanol fuel. We also offer a significant number of vehicles equipped for electronic toll collection, which published research indicates reduces hydrocarbons and carbon monoxide emissions as well as emissions of nitrogen oxides.

We have begun the process of creating formal Environmental Management Systems (EMS) for key airport locations in accordance with ISO 14001 international standards. We intend to use these standards to quantify the various environmental aspects of our business operations, and to manage these aspects, reducing our impact when and where practicable. For example, all of the car washes installed at our Avis and Budget facilities now recycle and reuse at least 80% of their wastewater. We also recently announced that we will make the puraDYN^® Oil Filtration System standard equipment on our fleet of nearly 300 heavy duty buses; this equipment upgrade is expected to reduce our use of motor oil significantly.

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We also offer corporate customers a carbon footprint calculator designed to work with our data warehouse and compute the emissions from their rental car use. We then offer our corporate customers a program to help them reduce their impact, including driver education, and the use of carbon offset credits aimed at making their rental car use carbon neutral. We also have an alliance with Carbonfund.org, a leading non-profit provider of carbon offset credits, to enable both renters and corporate customers to be able to offset the emissions from their rental car use. Renters can offset emissions on a daily, weekly or monthly basis on Avis.com or Budget.com.

Airport concession fees

In general, concession fees for on-airport locations are based on a percentage of total commissionable revenue (as defined by each airport authority), subject to minimum annual guaranteed amounts. Concessions are typically awarded by airport authorities every three to five years based upon competitive bids. Our concession agreements with the various airport authorities generally impose certain minimum operating requirements, provide for relocation in the event of future construction and provide for abatement of the minimum annual guarantee in the event of extended low passenger volume.

Competition

The car rental industry is characterized by intense price and service competition. Competition in the U.S.our vehicle rental operations business is based primarily upon price, reliability, vehicle availability, national distribution, usability of booking systems, ease of rental and return, and other elements of customer service. In addition, competition is influenced strongly by advertising, marketing and brand reputation. We compete primarily with the following car rental companies: Hertz Global Holdings, Inc., Dollar Thrifty Automotive Group, and Enterprise Rent-A-Car Company, which also operates the National Car Rental and Alamo brands.brands, and Europcar.

20072008 Acquisitions

On October 23, 2007In 2008, we acquired a minority interest in Carey Holdings, Inc., the parent companyexclusive rights to certain vehicle rental franchise territories and related assets, including $36 million of Carey International, Inc., a worldwide provider of chauffeured ground transportation services. In connection with this transaction, we invested approximately $60associated vehicles, for $87 million in cash, resulting in $50 million valued as trademark intangible assets. These acquisitions for 2008 relate to the Company’s domestic car rental and acquired approximately 48% percent of Carey’s common stock. We also acquired a one-year option to increase our ownership stake to 80% of Carey’s common stock, subject to certain conditions, which would likely include the assumption or repayment of Carey’s existing indebtedness. If we exercise of our option, we expect to expand revenue by offering our customers a full range of ground transportation products.

In 2007, we also purchased theinternational car and truck rental operating rights and/or assets from approximately 13 of our former Avis and Budget domestic franchisees for approximately $10 million in cash. Suchsegments. These acquisitions were not significant individually or in the aggregate to our business.the Company’s results of operations, financial position or cash flows.

Truck rental business

Operations

Budget’s truck rental business is one of the largest local and one-way truck rental businesses in the United States. The Budget truck rental business has a combined fleet of approximately 28,00029,700 trucks, with a medianan average truck age of less than three years, which are rented through a network of approximately 2,500 dealers 230and 300 company-operated and 8575 franchisee-operated locations throughout the continental United States. The Budget truck rental business serves both the consumer and light commercial sectors. The consumer sector consists primarily of individuals who rent trucks to move household goods on either a one-way or local basis. The light commercial sector consists of a wide range of businesses that rent light- to medium-duty trucks, which we define as trucks having a gross vehicle weight of less than 26,000 pounds, for a variety of commercial applications. In 2007,2008, the Budget truck rental business generated total revenue of approximately $416$382 million.

We primarily advertise in “yellow pages” telephone directories to promote our truck rental business to potential customers. Budget truck rental customers can make reservations through the Budget truck rental reservation center toll-free at 1-800-GO-BUDGET, through our Budget truck rental website at budgettruck.com or by calling a location directly. In addition, we have established online affiliations with websites like moving.com to reach our targeted audience. Budget truck rental reservations may also be made through the budget.com website.

In 2007,

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We maintain a co-branding agreement with Public Storage, a leading operator of self-storage units, whereby we completed the integrationare an exclusive third-party provider of our Denver-based corporate truck operationsrental trucks at Public Storage locations, and engage in certain cross-promotional efforts. We also maintain a strategic partnership agreement with Sears, Roebuck & Co. and in 2008 entered into our Parsippany headquartersnew agreements with Entertainment Publications and existing car-rental facilities, eliminated certain positions and significantly reduced separate senior management for ourAARP to promote Budget’s truck rental operations.business.

Distribution

Budget’s truck rental business is offered through a national network, which included approximately 2,500 dealers as of December 31, 2007.2008. These independently ownedindependently-owned dealers primarily operate self-storage facilities, rental centers, hardware stores, service stations and other similar retail service businesses. In addition to the dealers’their principal businesses, the dealers rent our light- and medium-duty trucks to consumers and to our commercial accounts and are responsible for collecting payments on our behalf. The dealers receive a commission on all truck rentals and ancillary equipment rentals. Generally, dealership agreements may be terminated by either party upon 30 to 90 days’ prior written notice.

Strategic Partnerships and Agreements

In September 2007, Budget entered into a co-branding agreement with Public Storage, the largest owner and operator of self-storage facilities worldwide, as an exclusive third-party provider of rental trucks to Public Storage customers. As part of this agreement, approximately 200 Public Storage locations in the U.S. will offer on-site Budget truck rentals, and the parties will engage in cross-promotional efforts, including co-branding of websites and “yellow pages” advertising. Budget has also entered into a strategic partnership with Sears, Roebuck & Co., whereby Budget will have the opportunity to open Budget truck rental locations at certain Sears appliance outlet stores nationwide. In September 2007, Budget was accepted as an “approved vendor” of truck rental services by the U.S. Government Services Administration (“GSA”). The GSA agreement allows Budget to bid and/or receive contracts from any federal agency for temporary fleet replacement, special events, natural disasters and other general use.

Competition

The truck rental industry is characterized by intense price and service competition. We compete with a large number of truck rental companies throughout the country, including U-Haul International, Inc., Penske Truck Leasing Corporation, Ryder System, Inc., Enterprise Rent-A-Car Company and many others.

Seasonality

Our truck rental operations are subject to seasonal demand patterns, with generally higher levels of demand occurring during the late spring and summer months when most self movesself-moves occur, with the third quarter typically being our busiest quarter. Generally, December is also a strong month due to increased retail sales activity and package deliveries.

Ancillary products and insurance coverages

We supplement our daily truck rental revenue by offering customers a range of ancillary optional products. We rent automobile towing equipment and other moving accessories such as hand trucks, furniture pads and moving supplies, as well asWhere2where2 GPS navigation units. We also make available to customers a range of optional liability-limiting products and coverages such as physical damage waivers, automobile towing protection, personal accident and cargo insurance, and supplemental liability insurance. These ancillary products enhance our appeal to consumers by offering customers “one-stop” moving services.

InsuranceINSURANCE

We generally assume the risk of liability to third parties arising from vehicle rental services in the United States, Canada, Puerto Rico and the U.S. Virgin Islands, for up to $1 million per occurrence, through a combination of self-insurance, insurance coverage provided by one of our domestic subsidiaries and insurance coverage secured from one or more unaffiliated domestic insurance carriers. We retain the exposure for up to $9 million per occurrence, in excess of the previously described $1 million level, through an unaffiliated fronting carrier who is reinsured by our offshore captive insurance company, Constellation Reinsurance Co., Ltd. We also purchase additional excess insurance coverage from a combination of unaffiliated excess carriers.

We insure the risk of liability to third parties in Argentina, Australia and New Zealand through a combination of unaffiliated carriers and our affiliates. These carriers provide coverage supplemental to minimum local requirements.

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TrademarksINTEREST IN CAREY HOLDINGS, INC.

We own a 47.9% interest in Carey Holdings, Inc., the parent company of Carey International, Inc., a leading worldwide provider of chauffeured ground transportation services. Carey operates in approximately 550 cities and intellectual property60 countries through a network of franchisees and alliance partners. In 2008, we continued to develop our relationship with Carey to enable us to offer our customers increasingly diversified ground transportation products and services.

TRADEMARKS AND INTELLECTUAL PROPERTY

The service marks “Avis” and “Budget”, related marks incorporating the words “Avis” or “Budget”, and related logos and marks such as “We try harder” are material to our vehicle rental business. Our subsidiaries, licensees and franchisees actively use these marks. All of the material marks used by the Avis and Budget Systems are registered (or have applications pending for registration) with the United States Patent and Trademark Office as well as all countries worldwide where Avis and Budget have operations. Our subsidiaries own the marks, patents and other intellectual property, including the Wizard System, used in our business.

FINANCIAL DATA OF SEGMENTS AND GEOGRAPHIC AREAS

Financial data for our segments and geographic areas are reported in Note 23—Segment Information to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

REGULATION

We are subject to federal, state and local laws and regulations, including those relating to taxing and licensing of vehicles, franchising, consumer credit, consumer protection, environmental protection, insurance, privacy and labor matters.

Environmental

The principal environmental regulatory requirements applicable to our vehicle rental operations relate to the ownership or use of tanks for the storage of petroleum products, such as gasoline, diesel fuel and waste oils; the

treatment or discharge of waste waters; and the generation, storage, transportation and off-site treatment or disposal of solid or liquid wastes. We operate approximately 440430 Avis and Budget locations at which petroleum products are stored in underground or above ground tanks. We have instituted an environmental compliance program designed to ensure that these tanks are in compliance with applicable technical and operational requirements, including the replacement and upgrade of underground tanks to comply with the December 1998 U.S. Environmental Protection Agency upgrade mandate and periodic testing and leak monitoring of underground storage tanks. We believe that the locations where we currently operate are in compliance, in all material respects, with such regulatory requirements.

We may also be subject to requirements related to the remediation of, or the liability for remediation of, substances that have been released into the environment at properties owned or operated by us or at properties to which we send substances for treatment or disposal. Such remediation requirements may be imposed without regard to fault and liability for environmental remediation can be substantial.

We may be eligible for reimbursement or payment of remediation costs associated with future releases from regulated underground storage tanks and have established funds to assist in the payment of remediation costs for releases from certain registered underground tanks. Subject to certain deductibles, the availability of funds, compliance status of the tanks and the nature of the release, these tank funds may be available to us for use in remediating future releases from our tank systems.

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Loss damage waivers

A traditional revenue source for the vehicle rental industry has been the sale of loss damage waivers, by which rental companies agree to relieve a customer from financial responsibility arising from vehicle damage incurred during the rental period if there has been no breach of the rental agreement. Approximately 4% of our domestic car rental revenue during 20072008 was generated by the sale of loss damage waivers. To date, 24 states have enacted legislation which requires disclosure to each customer at the time of rental that damage to the rented vehicle may be covered by the customer’s personal automobile insurance and that loss damage waivers may not be necessary. In addition, New York permits the sale of loss damage waivers at a capped rate per day based on the vehicle manufacturer’s suggested retail price. Illinois, Nevada and California have similar statutes, which establish the daily rate that can be charged for loss damage waivers.

Insurance

As a result of our reinsurance of the optional insurance coverages that we offer through unaffiliated third party insurance companies as well as other insurance obligations, we are subject to regulation under the insurance statutes, including insurance holding company statutes, of the jurisdictions in which our insurance company subsidiaries are domiciled. These regulations vary from jurisdiction to jurisdiction, but generally require insurance holding companies and insurers that are subsidiaries of insurance holding companies to register and file certain reports, including information concerning their capital structure, ownership, financial condition and general business operations with the regulatory authority of the applicable jurisdiction, and require prior regulatory agency approval of changes in control of an insurer and intra-corporate transfers of assets within the holding company structure. Such insurance statutes may also require that we obtain limited licenses to sell optional insurance coverage to our customers at the time of rental.

Franchise regulation

The sale of franchises is regulated by various state laws, as well as by the Federal Trade Commission (the “FTC”). The FTC requires that franchisors make extensive disclosure to prospective franchisees but does not require registration. A number of states require registration or disclosure in connection with franchise offers and sales. In addition, several states have “franchise relationship laws” or “business opportunity laws” that limit the ability of the franchisor to terminate franchise agreements or to withhold consent to the renewal or transfer of

these agreements. Although our franchising operations have not been materially adversely affected by such existing regulations, we cannot predict the effect of any future federal, state or local legislation or regulation.

Privacy

Laws in some countries and jurisdictions limit the types of information we may collect about individuals with whom we deal or propose to deal, as well as how we collect, retain and use the information that we are permitted to collect, some of which is non-public personally identifiable information. The centralized nature of our information systems requires the routine flow of information about customers and potential customers across national borders, particularly into the United States. If this flow of information were to become illegal, or subject to onerous restrictions, our ability to serve our customers could be seriously impaired for an extended period of time. In addition, our failure to maintain the security of the data we hold, whether as a result of our own error or the actions of others, could harm our reputation or give rise to legal liabilities leading to lower revenue, increased costs and otherwise adversely impact our results of operations.

EMPLOYEES

As of December 31, 2007,2008, we employed approximately 30,00026,000 employees, of which approximately 10,800 people9,000 were employed on a part-time basis. Approximately 27%26% of our employees are covered by collective bargaining agreements. We believe our employee relations are satisfactory. We have never experienced a large-scale work stoppage.

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ITEM 1A. RISK FACTORS

You should carefully consider each of the following risks and all of the other information set forth in this Annual Report on Form 10-K. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting our company in each of these categories of risk. However, the risks and uncertainties our company faces are not limited to those described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

Risks related to our business

The high level of competition in the vehicle rental industry may lead to reduced rental volumes, downward pricing pressure or an inability to increase our prices, which could have an adverse impact on our results of operations.

The vehicle rental industry in which we operate is highly competitive. We believe that price is one of the primary competitive factors in the vehicle rental industry. Our competitors, some of whom may have access to substantial capital, may seek to compete aggressively on the basis of pricing. To the extent that we match competitors’ downwardreduced pricing, it could have an adverse impact on our results of operations. To the extent that we do not match or remain within a reasonable competitive margin of our competitors’ pricing, it could also have an adverse impact on our results of operations, as we may lose rental volume. The risk of competition on the basis of pricing in the truck rental industry can be even more intense than in the car rental industry because it is more difficult to reduce fleet size in the truck rental industry in response to reduced demand. The Internet has increased pricing transparency among vehicle rental companies by enabling cost-conscious customers to more easily obtain and compare the rates available from various vehicle rental companies for any given rental. This transparency may increase the prevalence and intensity of price competition in the future.

We face risks of increased fleet costs, both generally and due to the possibility that manufacturers could change or cease their repurchase or guaranteed depreciation programs.

Fleet costs, which represent our largest single expense, represented approximately 29% of our aggregate expenses for 20072008 and can vary from year to year based on the prices at which we are able to purchase and dispose of rental vehicles. For 2008 and 2007, approximately 58% and 2006, approximately 75% and 88%73%, respectively, of the rental cars purchased for our domestic car fleet were the subject of agreements requiring automobile manufacturers to repurchase them or guarantee the depreciation rate for a specified period of time. We refer to cars subject to such agreements as “program cars.” Under these repurchase and guaranteed depreciation programs, automobile manufacturers agree to repurchase cars at a specified price during a specified time period or guarantee the rate of depreciation for a specified period of time, typically subject to certain car condition and mileage requirements. Repurchase and guaranteed depreciation programs therefore enable us to determine, in advance, our depreciation expense, which is a significant cost factor in our car rental operations. Repurchase and guaranteed depreciation programs also limit the risk to us that the market value of a car, at the time of its disposition, will be less than its estimated residual (or depreciated) value.value; however, such programs result in additional exposure to the manufacturers with whom we have such agreements. See “We face risks related to the financial condition and possible bankruptcy of automobile manufacturers and the used vehicle marketplace”.

Automobile manufacturers may not continue to sell cars to us subject to repurchase or guaranteed depreciation programs at all or on terms consistent with past practice. The overall cost of cars subject to repurchase or guaranteed depreciation programs could also increase if the manufacturers were to make changes to these programs, particularly if such changes were to result in a decrease in the repurchase price or guaranteed depreciation without a corresponding decrease to the original purchase price. Repurchase or guaranteed depreciation programs also generally provide us with flexibility to reduce the size of our fleet rapidly in response to an economic downturnslowdown or changes in demand by returning cars sooner than originally expected. This

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flexibility may be reduced in the future to the extent the percentage of program cars in our car rental fleet decreases or this feature of repurchase or guaranteed depreciation programs is altered.

Our per unit fleet costs could also increase if we purchase fewer vehicles, as we receive payments from manufacturers, known as “incentive payments”, following the purchase of some of our vehicles once certain conditions are met such as reaching certain purchase volumes, or if manufacturers eliminate or reduce the terms of these incentive programs. Our failure to purchase pre-determined volumes of cars for our rental fleet, or the elimination or reduction in incentive payments, could cause our per unit fleet costs to increase substantially and adversely impact our financial condition and results of operations.

We face risks duerelated to a possible decline in the financial condition and possible bankruptcy of automobile manufacturers.manufacturers and the used vehicle marketplace.

During 2007, approximately 69%Approximately 58% of the rental cars acquired for our U.S.domestic car rental fleet were manufactured by either General Motors Corporationin 2008 are subject to manufacturer repurchase or Ford Motor Company.guaranteed depreciation programs and we also receive incentive payments from manufacturers following the purchase of some of our vehicles once certain conditions are met such as reaching certain purchase volumes. A default on any repurchase or guaranteed depreciation agreement particularly with respect to GM or Ford, mightincentive payment obligation could leave us with a substantial unpaid claim against the manufacturer particularly with respect to program cars that were either (i) soldresold for an amount less than the amount guaranteed under the applicable agreement and therefore subject to a “true-up” payment obligation from the manufacturer or (ii) sold and returned to the car manufacturer but for which we were not yet paid and therefore we could incur a substantial loss as well as potentiala result of such default.

Approximately 32%, 23% and 14% of the cars we acquired in 2008 were manufactured by General Motors, Ford and Chrysler, respectively, and more than 57% of these cars, and a portion of our cars manufactured by foreign manufacturers, are subject to manufacturer repurchase or guaranteed depreciation agreements. The auto industry has been adversely impacted by current economic conditions, and U.S. car sales of both domestic and foreign manufacturers have recently declined to historically low levels. U.S. automakers are facing particularly serious challenges; General Motors and Chrysler received government loans in 2008 and have requested additional assistance in 2009 and some observers believe Ford may seek similar assistance in 2009. We could incur additional material expenses if, following a manufacturer default under its agreements with us as a result of commencement of bankruptcy proceedings by such manufacturer or otherwise, the prices at which we were able to dispose of program cars were less than the specified prices under the repurchase or guaranteed depreciation program. Any increased risk with respectThe effect may be magnified because we typically pay the manufacturer of a program car more than we would pay to buy the same car as a non-program, or “risk”, vehicle and because we depreciate a program car to the likelihood of these defaultsrepurchase price or a declinethe guaranteed depreciation agreed to by the manufacturer, which price does not take into consideration conditions in the results of operations or financial condition ofused car marketplace and is usually therefore higher than the manufacturers ofprice that would be available in the cars we purchase could also impact our ability to finance the purchase of cars to maintain ourused car rental fleet.marketplace.

We face risks of increased fleet costs as a result of the increase in our number of “risk” vehicles.

We have no control over the terms of manufacturers’ repurchase and guaranteed depreciation programs, and we anticipate that the cost of program vehicles will increase in 2008. We intend to reduce the number of program cars we purchase in 2008 as we acquire more vehicles not covered by repurchase or guaranteed depreciation programs (“risk vehicles”) in order to mitigate such increased costs. We currently sell risknon-program vehicles through auctions, third party resellers and other channels which channels may not produce stablein the used vehicle pricingmarketplace. In the fourth quarter of 2008, the resale value of used vehicles dropped sharply. Residual values for both non-program cars and trucks in our vehicle rental fleet can decline for a variety of reasons, including the current downturn in the future. The costsU.S. and global economies, the effects of our riskthe disruptions of the credit markets on demand for vehicles may be materially impacted by the relative strength ofin the used vehicle marketplace, particularlya manufacturer announcing the elimination of various models or brands, or the financial distress of a manufacturer, including commencement of bankruptcy proceedings by such manufacturer. Such a reduction in value could cause us to sustain a substantial loss on the ultimate sale of non-program cars and trucks or require us to depreciate those cars and trucks at a more accelerated rate while we own them. If a manufacturer were to default on its obligations with respect to any of our program vehicles or commence bankruptcy proceedings, we may be forced to resell those program vehicles on our own, increasing our exposure to the same resale risks as apply to non-program vehicles.

Any reduction in the value of our fleet could effectively increase our fleet costs, adversely impact our profitability and potentially lead to decreased capacity in our asset backed car rental funding facilities due to the collateral requirements for such facilities which effectively increase as market values for vehicles decrease. As a result, our ability to utilize our asset-backed vehicle financing programs to acquire new vehicles for our rental

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fleet may be limited. In addition, if our ability to sell vehicles in the used vehicle marketplace were to become severely limited at a time when required collateral levels were rising, principal under our asset-backed financing facilities may be required to be repaid sooner than anticipated with vehicle disposition proceeds and lease payments we make to our vehicle program subsidiaries. If that were to occur, the holders of our asset-backed debt may have the ability to exercise their right to direct the trustee to foreclose on and sell vehicles to generate proceeds sufficient to repay such debt.

To the extent auto manufacturers significantly curtail production in response to current economic conditions or determine to curtail sales to the vehicle rental industry for roughly one-year-old used cars. Aany reason, we may not be able to obtain a sufficient number of vehicles to operate our business without significantly increasing our fleet costs.

We have been adversely impacted by the downturn in the U.S. economy and weakness in travel demand and the housing market and may be further adversely impacted.

The U.S. economy appears to have been in recession throughout 2008, and such conditions are likely to persist into at least 2009. Historically, our results of operations have declined during periods of general economic weakness. The effects of the current recession have contributed to the significant year-over-year decline in the prices at which we sell risk vehiclesresults of our car and truck rental operations, including declines in volume and pricing particularly in the second half of 2008 in both our car and truck rental businesses. If economic conditions in the United States and worldwide do not improve or worsen, our financial condition and results of operations could have an adverse impact on our fleet holding costsbe materially and profitability.adversely impacted in 2009 and beyond.

Our car rentalFor example, the economic downturn has led to reduced travel demand, with many U.S. airlines having implemented capacity reductions and many companies curtailing business is dependent on airline passenger traffic, and disruptions in travel patterns could harm our business.

travel. In 2007,2008, we generated approximately 81%80% of our domestic car rental revenue from our corporate-owned on-airport locations. As a result,locations; therefore, a decline in airline passenger traffic couldtravel will typically have ana direct adverse impact on our results of operations. Events that affect airAir travel could include economic downturns,also be further affected by work stoppages, military conflicts, terrorist incidents or threats, pandemic diseases, natural disasters or the response of governments to any of these events. We

Our truck rental operations generated negative EBITDA for 2008 in part because the housing market, a key driver of both local rentals and one-way truck rentals, is also face increased costs of maintaining our positions on-airport through increased competitive bidding and minimum airport guarantees.

A decline in general economicexperiencing a severe downturn. If adverse conditions including a decline in the residential housing market could result inpersist or worsen, we may see a decline in business and leisure travel, and a decline in truck rentals, which could harm our business.

Our results of operations are affected by downturns in economic activity in the United States and abroad. An economic downturn could result in a decline in both business and leisure travel and cause a decline in the volume of car rental transactions, and a decline in home sales may result in afurther decline in truck rental transactions, both of which could have ana further adverse impact on our business. In the case of a decline in car rental or truck rental activity, we may reduce rental rates to meet competitive pressures, which could have an adverse impact on our results of operations. A general decline in economic conditions also may have an adverse impact on residual values realized on the disposition of our risk vehicles in the wholesale market.

We are dependent on third party distribution channels, and the success of our business depends in significant part on these relationships.

We generate approximately 45% of our domestic car rental reservations through third party distribution channels, which include (i) traditional and online travel agencies, airlines and hotel companies, marketing partners such as credit card companies and membership organizations, and other entities that help us attract customers and (ii) global distribution systems (“GDS”) that connect travel agents, travel service providers and corporations to our reservations systems. In 2008, 19% and 2% of our domestic car rental reservations came through our largest GDS source and our largest non-GDS third party source of reservations, respectively. The operators of third party distribution channels through which we generate approximately 45% of our domestic reservations, generally can cancel or modify their agreements with us upon relatively short notice. Changes in our pricing agreements, commission schedules or arrangements with third party distribution channels, the termination of any of our relationships or a reduction in the transaction volume of such channels, or a GDS’s (Amadeus, Galileo, Sabre or Worldspan) inability to process and communicate reservations to us could have

an adverse impact on our business, financial condition and results of operations. Most of these reservations are made in connection with global distribution systems or GDS (Amadeus, Galileo, Sabre and Worldspan), which aggregate reservations from various sources. Our largest third party source of reservations (other than from GDS) in 2007 was responsible for less than 3% of our domestic reservations.

Our business is seasonal, and a disruption in rental activity during our peak season could materially adversely affect our results of operations.

In our business, the third quarter of the year has historically been our strongest quarter due to the increased level of leisure travel and household moving activity. In 2007,2008, the third quarter accounted for approximately 28% of

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our vehicle rental revenue and more than 39% of EBITDA for each of our Domestic Car Rental, International Car Rental and Truck Rental segments.segments and was our most profitable quarter for each of our segments as measured by EBITDA. Any circumstance or occurrence that disrupts rental activity during the third quarter could have a disproportionately adverse impact on our liquidity and/orfinancial condition and our results of operations.

An increase in interest rates would increase the cost of servicing our debt and could reduce our profitability.

A significant amount of our borrowings, primarily our vehicle-backed borrowings, bear interest at variable rates and expose us to interest rate risk. If interest rates increase, whether because of an increase in market interest rates or an increase in our own cost of borrowing, our debt service obligations for our variable rate indebtedness would increase even though the amount of borrowings remained the same, and our net income could be adversely affected. As of December 31, 2007, our total outstanding debt of approximately $7.4 billion included interest rate sensitive debt of approximately $500 million (either by its original terms or through the use of interest rate derivatives), which had a weighted average interest rate of approximately 6% per annum. During our seasonal borrowing peak in 2007, outstanding interest rate sensitive debt totaled approximately $1.9 billion, with a weighted average interest rate of approximately 6% per annum.

Our derivative instruments may impact our results of operations.

We utilize derivative instruments to manage a portion of our risk related to fluctuations in interest rate fluctuations.rates, gas prices and foreign exchange rates. The derivative instruments we use are typically in the form of interest rate swaps.and commodity swaps and foreign exchange forwards. Periodically, we are required to determine the change in fair value, called the “mark to market,” of these derivative instruments, which can result in a non-cash charge or gain being recognized in our financial results for a period preceding the period or periods in which settlement occurs under the derivative instruments and, for example, interest payments are made. Changes or shifts in interest rates, gas prices and foreign exchange rates can significantly impact the valuation of our derivatives and therefore could expose us to substantial mark-to-market losses or gains if interestsuch rates or prices fluctuate materially from the time when the derivatives were entered into. Accordingly, a fluctuation in interestsuch rates or prices may impact our financial position, results of operations and cash flows. In addition, volatility in rates and prices can also impact the cost and effectiveness of our derivative instruments in managing our risks. To the extent any of our derivatives were to result in a gain upon settlement, we would be exposed to credit risk of the counterparties to such derivatives, which are typically financial institutions.

We are exposed to fluctuations in foreign exchange rates, which may adversely affect our results of operations.

Certain of our international operations generate revenue and incur operating costs in currencies other than the U.S. dollar, including our operations in Australia, Canada and New Zealand. In addition, the financial position and results of operations of some of our foreign subsidiaries are reported in the relevant local currency and then translated to U.S. dollars at the applicable currency exchange rate for inclusion in our consolidated financial statements. Changes in exchange rates between these foreign currencies and the U.S. dollar will affect the recorded levels of our assets and liabilities, to the extent such figures reflect the inclusion of foreign assets and liabilities that are translated into U.S. dollars for presentation in our financial statements, as well as our results of operations. While we take steps to manage our currency exposure, we cannot accurately predict the nature or extent of future exchange rate variability, which could adversely impact our results of operations and financial position.

We may not be successful in implementing our cost-saving and efficiency improvements or other business strategies and growth initiatives.strategies.

We planexpect to increase revenues from sources beyond time and mileage rental fees generated by our on-airport locations. In addition to expanding revenue generated by additional products and services offered to our on- and off-airport customers, we plan to expand our presenceface a challenging operating environment in 2009, given the weakness in the domestic off-airport segment ofeconomy and the car rental market and expand our insurance replacement and local sales at new and existing off-airport locations through a dedicated local sales team. Our ability to generate significant revenue at new or existing off-airport locations may depend on many factors, including our ability to successfully market to off-airport renters, including local customers needing cars while their vehicles are temporarily unavailable due to repairs or other reasons, and our ability to acquire and maintain our status as an approved car rental company by insurance companies.disruption in the credit markets. As a result, revenues generated at off-airport locations may not increase substantially in the short-term.we announced actions designed to reduce costs and improve efficiency. Such actions include (i) reduction of operating costs, fleet costs and other expenses; (ii) targeted pricing increases; (iii) assessment and modification or elimination of unprofitable aspects of our business; and (iv) consolidation of certain back office and other functions. We also anticipate generating sustainableadditional cost savings in 2009 through implementation of our Performance Excellence process improvement initiative and other efforts.initiative. If we are unable to successfully implementachieve sufficient cost savings through these strategies,actions, our financial condition and results of operations could be adversely impacted.

Part of our business strategy also includes enhancing profitability by expanding our ancillary revenues such as revenue from selling insurance coverages andwhere2 GPS navigation rentals. If we are unable to achieve targeted price increases aimed at improving revenue per day, overall profitability or ancillary revenue growth through our actions, our financial condition and results of operations could be adversely impacted.

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The exercise of our option to purchase a majority interest in Carey Holdings, Inc., or future acquisitionsAcquisitions of existing Avis or Budget franchisees, or other businesses, could have an adverse impact on our results of operations.

We have an option to purchase additional interests which would increase our total ownership to approximately 80% of the common stock of Carey Holdings, Inc., which option expires October 23, 2008. Our decision to exercise this optionacquired or may acquire existing franchisees and have invested in and may invest in other businesses. These acquisitions may involve numerous risks, including those associated with integrating Carey’s operations, technology and personnel into our business, potential disruption of our ongoing business and distraction of management, and exposure to existing as well as unknown liabilities, including litigation involving Carey. Exercise of the option is subject to certain conditions, which would likely include assumption or repayment of Carey’s existing debt facility. Our acquisition of Careyacquired entity. Such acquisitions may not be accretive to our earnings and may negatively impact our balance sheet orfinancial condition and results of operations. In the future, we may also decide to acquire or invest in other businesses (including the acquisition of existing franchisees), some of which may be significant, and which acquisitions or investments may involve the same or similar risks.

We face risks arising from our heavy reliance on communications networks and centralized information systems.

We rely heavily on information systems, including our reservation system, to accept reservations, process rental and sales transactions, manage our fleet of vehicles, account for our activities and otherwise conduct our business. We have centralized our information systems, and we rely on communications service providers to link our systems with the business locations these systems serve. A failure of a major system, or a major disruption of communications between the system and the locations it serves, could cause a loss of reservations, interfere with our ability to manage our fleet, slow rental and sales processes, and otherwise materially adversely affect our ability to manage our business effectively. Our systems’ business continuity plans and insurance programs are designedseek to mitigate such a risk, not eliminate it.

In addition, because our systems contain non-public personally identifiable non-public information about millions of individuals and businesses, our failure to maintain the security of the data we hold, whether as a result of our own error or the actions of others, could harm our reputation, give rise to legal liabilities leading to lower revenue and increased costs or otherwise adversely impact our reputation, financial condition and results of operations.

We face risks related to liability and insurance.

Our businesses expose us to claims for personal injury, death and property damage related to the use of our vehicles and for workers’ compensation claims and other employment-related claims by our employees. We may become exposed to uninsured liability at levels in excess of our historical levels resulting from unusually high losses or otherwise. In addition, liabilities in respect of existing or future claims may exceed the level of our reserves and/or our insurance, which could adversely impact our financial condition and we may not have sufficient capital available to pay any uninsured claims.results of operations. Furthermore, insurance with unaffiliated carriers may not continue to be available to us on economically reasonable terms or at all.

Environmental regulations could subject us to liability for fines or damages.

We are subject to federal, state, local and foreign environmental laws and regulations in connection with our operations, including, among other things, with respect to the ownership and operation of tanks for the storage of petroleum products, such as gasoline, diesel fuel and motor and waste oils. We have established a compliance program for our tank systems that is intended to ensure that the tanks are properly registered with the state or other jurisdiction in which the tanks are located and have been either replaced or upgraded to meet applicable leak detection and spill, overfill, corrosion protection and vapor recovery requirements. These tank systems may not at all times remain free from undetected leaks, and the use of these tanks may result in significant spills.spills, which may expose us to material liabilities.

We have made, and will continue to make, expenditures to comply with environmental laws and regulations, including, among others, expenditures for the cleanup of contamination at our owned and leased properties, as well as contamination at other locations at which our wastes have reportedly been identified. Our compliance with existing or future environmental laws and regulations may, however, require material expenditures by us or otherwise have an adverse impact on our consolidated financial position, results of operations orand cash flows.

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Changes in the U.S. and foreign legal and regulatory environment that affect our operations, including laws and regulations relating to the insurance products we sell, consumer privacy, data security, employment matters, taxes, automobile-related liability and insurance rates, could disrupt our business, increase our expenses or otherwise have an adverse impact on our results of operations.

We are subject to a wide variety of laws and regulations in the United States and the other countries and jurisdictions in which we operate, and changes in the level of government regulation of our business have the potential to materially alter our business practices or our profitability. Depending on the jurisdiction, those changes may come about through new legislation, the issuance of new laws and regulations or changes in the interpretation of existing laws and regulations by a court, regulatory body or governmental official.

Optional insurance products, including, but not limited to, supplemental liability insurance, personal accident insurance and personal effects protection, we offer to renters providing various insurance coverages in our domestic vehicle rental operations, are regulated under state laws governing the licensing of such products. In our international car rental operations, our offering of optional products providing insurance coverages historically has not been regulated.

Any changes in U.S. or foreign law that change our operating requirements with respect to optional insurance products could increase our costs of compliance or make it uneconomical to offer such products, which would lead to a reduction in revenue.revenue and profitability. If customers decline to purchase supplemental liability insurance products throughfrom us as a result of any changes in these laws or otherwise, our results of operations could be materially adversely affected.

In almost every state, we recover from consumers various costs associated with the title and registration of our vehicles. In addition, where permitted, we also recover from consumers certain costs, including concession costs imposed by an airport authority or the owner and/or operator of the premises from which our vehicle is rented. Our long-standing business practice has been to separately state the existence of these additional costs in our rental agreements and invoices, and disclose to consumers additional surcharges used to recover such costs together with an estimated total price, inclusive of these surcharges, in all distribution channels. ThisWe believe that this standard practice comports with the Federal Trade Commission Act and has been upheld by several courts. We may in the future be subject to potential legislative changes or administrative action which could limit, restrict or prohibit our ability to separately state, charge and recover such costs, which would result in aan adverse cost reallocation. If any such changes were to be enacted there may be an adverse impact or limitation on our ability to recover all of the surcharges we currently charge, which could adversely impact our profitability and results of operations.

We are also subject to numerous other laws and regulations in numerous jurisdictions. Changes in such laws and regulations could adversely impact our financial position and results of operations.

We may be held responsible by third parties, regulators or courts for the actions of, or failures to act by, our licensees, dealers or independent operators, which exposes us to possible fines, other liabilities and bad publicity.

Our car and truck rental franchisee and dealer locations are independently owned and operated. We also operate many of our corporate locations through agreements with “agency operators,” which are third party independent contractors who receive commissions to operate such locations. Our agreements with our franchisees, dealers and agency operators require that they comply with all laws and regulations applicable to their businesses, including our internal policies and standards. Under these agreements, our franchisees, dealers and agency operators retain control over the employment and management of all personnel. Third parties, regulators or courts may seek to hold us responsible for the actions of, or failures to act by, our franchisees, dealers or agency operators. Although

we maintain the right to monitor the operations of these franchisees, dealers and agency operators, and under certain circumstances have the ability to terminate their agreements for failure to adhere to contracted operational standards, we are unlikely to detect all problems. Moreover, there are occasions when the actions and activities of

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our franchisees, dealers or agency operators may not be clearly distinguishable from our own. It is our policy to vigorously seek to be dismissed from any such claims and to pursue indemnity for any adverse decisions.outcomes. Failure of our franchisees, dealers or agency operators to comply with laws and regulations may expose us to liability, damages and publicity that may adversely affect our business.

Significant or sustained increases or significant volatility in fuel costs or limitations in fuel supplies could harm our business.

We could be adversely affected by limitations in fuel supplies or significant or sustained increases or significant volatility in fuel prices. A severe or protracted disruption in fuel supplies or significant increases in fuel prices could have an adverse impact on our financial condition and results of operations, either by directly discouraging consumers from renting cars and trucks or by causing a decline in airline passenger traffic.

Our business requires substantial capital, Significant volatility in fuel prices can also impact the cost and a disruptioneffectiveness of derivative instruments we utilize to seek to hedge our exposure to fluctuation in fuel prices for fuel used in our ability to obtain financing forbusiness, thereby impacting our operations, whether or not beyondfinancial condition and results of operations. See “Our derivative instruments may impact our control, could have an adverse impact on our profitability and financial condition.

We rely on asset-backed financing for our operations, particularly with respect to our vehicle fleet, which we fund largely through the asset-backed securities and lending market. There has been significant turbulence, reduced liquidity and a significant increase in borrowing spreads in the asset-backed debt markets since third quarter 2007. We may be unable to obtain financing for our operations or refinance our existing financing on similar terms, as a resultresults of negative credit events specific to us, the current asset-backed market environment or a further deterioration in the markets for asset-backed securities, such as:

Any disruption in our ability to obtain asset-backed financing for our operations, or maintain our current funding capacity, financing costs and interest rates, could have an adverse impact on our profitability and financial condition.

The terms of ABCR’s senior credit facility and our senior unsecured notes permit us to finance or refinance new car acquisitions through other means, including secured financing that is not limited to the assets of special purpose entity subsidiaries. We may seek in the future to finance or refinance new car acquisitions through such other means. No assurances can be given, however, as to whether such financing will be available, or as to whether the terms of such financing will be comparable to the terms of the senior credit facility or senior unsecured notes.operations”.

Risks related to our indebtedness

We have a substantial amount of debt which could impair our financial condition and adversely affect our ability to react to changes in our business.

As of December 31, 2007,2008, our total debt was approximately $7.4$7.8 billion and ABCRwe had approximately $1.2 billion$333 million of available borrowingletter of credit capacity, $275 million of which is available for borrowings, under ABCR’sour senior secured credit facility.facilities.

Our substantial indebtedness could have important consequences, including:

Despite our current indebtedness levels, we may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial indebtedness.

Subject to specified limitations, the indenture governing our senior unsecured notes limits, but does not prohibit, us from incurring additional indebtedness in the future. As of December 31, 2007, ABCR’s senior secured credit facility provided us commitments for additional borrowings of up to $1.2 billion, in the aggregate. All of those borrowings would be secured and the lenders under ABCR’s senior secured credit facility would have a prior claim to the assets that secure such indebtedness. If new debt is added to our current debt levels, the risks described above in the previous risk factor could intensify.

Restrictive covenants in agreements and instruments governing our debt may adversely affect our ability to operate our business.

The indenture governing our senior unsecured notes and the agreement governing ABCR’s senior secured credit facility contain, and our future debt instruments may contain, various provisions that limit our ability to, among other things:

We require a significant amount of cash to service all of our indebtedness and our ability to generate sufficient cash depends on many factors, some of which are beyond our control.

Our ability to make payments on and refinance our debt depends on our ability to generate cash flow. To some extent, this is subject to prevailing economic and competitive conditions and to certain financial, business and other factors, somemany of which are beyond our control. Our business may not generate cash flow from operations at levels sufficient to permit us to pay principal, premium, if any, and interest on our indebtedness, and our cash needs may increase. If we are unable to generate sufficient cash flow from operations to service our debt and meet our other cash needs, we may be forced to reduce or delay capital expenditures, sell or curtail assets or operations, seek additional capital, or seek to restructure or refinance our indebtedness. If we must sell or curtail our assets or operations, it may negatively affect our ability to generate revenue.

Despite our current indebtedness levels, we may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial indebtedness. Subject to the specified limitations referred to above, the indenture governing our senior unsecured notes limits, but does not prohibit, us from incurring

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additional indebtedness in the future. As noted above, as of December 31, 2008, our senior credit facilities provided us commitments for additional letters of credit of up to $333 million, $275 million of which is available for borrowings. All of those borrowings would be secured and the lenders under our senior credit facilities would have a prior claim to the assets that secure such indebtedness. If new debt is added to our current debt levels, the risks described above could intensify.

We may be unable to remain in compliance with the financial or other covenants contained in our debt instruments, including our senior credit facilities.

Many of our debt instruments, including our senior credit facilities, contain financial and other covenants that impose significant requirements on us and limit our ability to engage in certain transactions or activities.

Our senior credit facilities were amended in December 2008 to change the financial covenants, interest rate spreads and restrictions on our activities contained therein. As a result, our borrowing costs under such facility will increase in 2009 compared to 2008 and the letter of credit availability and borrowing capacity thereunder were reduced.

Notwithstanding the December 2008 amendments to our senior credit facilities, due to reduced demand for travel services, rising borrowing costs and other factors, there can be no assurance that we will be able to generate sufficient earnings to enable us to satisfy the minimum EBITDA requirement or other covenants included in our senior credit facilities, our $2.45 billion of asset-backed conduit facilities used to finance a portion of our domestic car rental operations or our other borrowing agreements. Our failure to comply with these covenants, if not waived, would cause a default under the senior credit facilities and could result in principal under the conduit facilities being required to be repaid from a portion of vehicle disposition proceeds and lease payments we make to our vehicle program subsidiaries. If such a failure were to occur, there can be no assurance that we would be able to refinance or obtain a replacement for such facilities and in certain circumstances such failure could also give rise to a default under the instruments that govern our other indebtedness.

We have been adversely impacted by the significant disruption in the credit and asset-backed securities markets, which has led to and could lead to further increases in interest rates and could disrupt our ability to obtain financing for our operations, which require substantial capital.

We rely upon financing for our operations, particularly asset-backed financing, through asset-backed securities and the lending market, for our vehicle fleet. Our total asset-backed debt as of December 31, 2008 was approximately $6.0 billion, with available capacity of approximately $1.1 billion. In the fourth quarter of 2008, we amended and renewed our two asset-backed domestic rental car conduit facilities for 2009 with aggregate capacity of $2.45 billion and such facilities mature from September through December 2009. As a result of these amendments and renewals, our borrowing costs and collateral requirements for 2009 will increase compared to 2008. In addition, approximately $300 million and $1.1 billion of term asset-backed financings for our domestic car rental operations will mature in 2009 and 2010, respectively. There has been significant disruption in the asset-backed financing market; therefore, we may be unable to obtain refinancing for our operations at current levels, or at all, when our asset-backed rental car financings mature, and any new financing or refinancing of our existing financing could increase our borrowing costs, including due to an increase in required collateral levels. See “We face risks related to the financial condition and possible bankruptcy of automobile manufacturers and the used vehicle marketplace.” In addition, we could be subject to increased collateral requirements to the extent we request any amendment or renewal of any of our existing financing or by other counterparties.

Ambac Assurance Corporation, MBIA Insurance Corporation, Financial Guaranty Insurance Company and XL Capital, Ltd. provide credit enhancement in the form of financial guaranties for approximately $1.45 billion, $725 million, $200 million and $125 million, respectively, of our approximately $2.8 billion of domestic term asset-backed car rental financing outstanding at December 31, 2008. The debt ratings of these financial guaranty firms have been downgraded significantly, and the firms have substantially curtailed their issuance of new guaranties. Therefore we are unlikely to be able to offer similar financial guaranties in connection with any

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refinancing we pursue for our term asset-backed financings. Assured Guaranty Corp. is the provider of a financial guaranty for $250 million of our term asset-backed car rental financing.

Certain insolvency events in respect of the financial guarantors of our outstanding term asset-backed financings would result in principal of the related financing being required to be repaid sooner than anticipated from a portion of the proceeds of ordinary course vehicle disposition and lease payments we make to our vehicle program subsidiaries. These financial guarantor insolvency events could also result in the noteholders of the series of asset-backed notes guaranteed by the insolvent financial guarantor directing the trustee to foreclose on and sell vehicles to generate proceeds sufficient to repay such series of notes. If such a financial guarantor insolvency event were to occur, there can be no assurance that we would be able to obtain a replacement for the relevant financings on reasonable terms or at all.

We utilize a like-kind exchange program whereby we replace vehicles in a manner that allows tax gains on disposed vehicles to be deferred. The program has resulted in a material deferral of federal and state income taxes beginning in 2004. The benefit of deferral is dependent on reinvestment of vehicle disposition proceeds in replacement vehicles within a prescribed period of time (usually six months). An extended downsizing of our fleet could result in reduced deferrals, utilization of tax attributes and increased payment of federal and state income taxes. Such a downsizing or reduction in purchases would likely occur if, and to the extent, we are unable to obtain financing when our asset backed rental car financings mature.

An increase in interest rates would increase the cost of servicing our debt and could reduce our profitability.

A significant amount of our borrowings, primarily our vehicle-backed borrowings, bear interest at variable rates and expose us to interest rate risk. If interest rates increase, whether because of an increase in market interest rates or an increase in our own cost of borrowing, our debt service obligations for our variable rate indebtedness would increase even though the amount of borrowings remained the same, and our results of operations could be adversely affected. As of December 31, 2008, our total outstanding debt of approximately $7.8 billion included interest rate sensitive debt of approximately $2.4 billion (either by its original terms or through the use of interest rate derivatives), which had a weighted average interest rate of approximately 4% per annum. During our seasonal borrowing peak in 2008, outstanding interest rate sensitive debt totalled approximately $2.4 billion, with a weighted average interest rate of approximately 3% per annum.

Restrictive covenants in agreements and instruments governing our debt may adversely affect our ability to operate our business.

The terms of certain of our indebtedness, including the indenture governing our senior unsecured notes and the agreement governing our senior credit facilities contain, and our future debt instruments may contain, various provisions that limit our ability to, among other things:

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In December 2008, we amended our senior credit facilities and as a result certain of the terms set forth above were revised to be more restrictive than they had previously been and we granted additional collateral to the lenders party to such facilities, which represented most of our assets that were not already encumbered by existing financings.

Risks related to the Cendant Separation

We have limited operating history as a stand-alone vehicle rental company.

The financial information included in this annual report on Form 10-K does not reflect the financial condition, results of operations or cash flows we would have achieved as a stand-alone vehicle rental company during 2005 orfull year 2006. Prior to the completion of the Cendant Separation, the vehicle rental business was operated by Cendant as part of its broader corporate organization, rather than as an independent company. Cendant or one of its affiliates performed various corporate functions for our vehicle rental business, including, but not limited to, tax administration, certain governance functions (including compliance with the Sarbanes-Oxley Act of 2002 and internal audit) and external reporting. Our financial results for all periods other thanbefore fourth quarter 2006 and full year 2007 for our operating segments reflect allocations of corporate expenses from Cendant for these and similar functions. These allocations may be more or less than the comparable expenses we would have incurred had we operated as a stand-alone vehicle rental company during those periods.

We are relying on Realogy, Wyndham Worldwide and Travelport to fulfill their obligations under the Separation Agreement and other agreements.

Pursuant to the Separation Agreement, Realogy and Wyndham Worldwide are responsible for 62.5% and 37.5%, respectively, of certain contingent and other of our corporate liabilities including those relating to unresolved tax and legal matters as well as 100% of certain liabilities that relate to their respective businesses (the “Assumed Obligations”). More specifically, Realogy and Wyndham Worldwide have generally assumed and are responsible for the payment of their allocatedspecified percentage of (i) all taxes imposed on us and certain of our subsidiaries and (ii) certain of our contingent and other corporate liabilities and/or those of our subsidiaries to the extent incurred prior to August 23, 2006. These contingent and other corporate liabilities include liabilities relating to (i) Cendant’s terminated or divested businesses, including among others, the former PHH and Marketing Services (Affinion) businesses, (ii) liabilities relating to the sale of Travelport, (iii) Cendant’s litigation that did not pertain to the Securities Action and related litigationoperations of Realogy, Wyndham Worldwide, Travelport or our vehicle rental operations, including the Credentials Litigation (for a further description of these litigation matters,the Credentials Litigation, see “Legal Proceedings”) and (iv) generally any actions with respect to the Cendant Separation or the distributions brought

by any third party. If either Realogy or Wyndham were to default in its payment, when due, of any such Assumed Obligations, each non-defaulting party, including us, would be required to pay an equal portion of the amounts in default.

On April 10, 2007, Realogy was acquired by an affiliate of Apollo Management VI, L.P. following the Cendant Separation and is no longernot listed as an independent public company. Thecompany, but the acquisition doesdid not affect Relaogy’sRealogy’s obligation to satisfy 62.5%its specified percentage of theits Assumed Obligations. However, as a result of the acquisition, Realogy has greater debt obligations and its ability to satisfy its portion of such Assumed Obligations may be adversely impacted. In accordance with the terms of the Separation Agreement, Realogy posted a letter of credit in April 2007 for the benefit of the Company to cover its estimated share of the Assumed Obligations, which is subject to adjustment from time to time, although there can be no assurance that such letter of credit will be sufficient or effective to cover Realogy’s actual obligations if and when they arise. In addition, the Separation Agreement effectively provides Realogy with the right to control the process for resolving disputes related to many of the Assumed Obligations.

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Moreover, the Separation Agreement provides for cross-indemnities designed to place financial responsibility of certain liabilities and other obligations with the proper company. For example, Realogy, Wyndham Worldwide and/or Travelport are required to indemnify us in respect of certain effective guarantees that result from either us or one of our subsidiaries remaining a named lessee on real estate leases pertaining to properties occupied by Realogy, Wyndham and/or Travelport. Any failure by Realogy, Wyndham Worldwide or Travelport to pay any of their assumed liabilities when due or to indemnify us when required may adversely impact our results of operations.

Risks related to our common stock

The market price of our shares may fluctuate widely.

During 2008, the market price for our common stock experienced a substantial decline. We cannot predict the prices at which our common stock will trade. The market price of our common stock may fluctuate widely, depending upon many factors, some of which may be beyond our control, including:

The decrease in our stock price during 2008 has impacted our ability to provide equity incentives to our employees, officers or directors with a value comparable to prior years and has impacted the value of prior incentive awards made to our employees; therefore our ability to retain our key employees and officers could be adversely impacted.

Your percentage ownership may be diluted in the future.

Your percentage ownership may be diluted in the future because of equity issuances or equity awards that we granted or will grant to our directors, officers and employees and the accelerated vesting of other equity awards.employees. As disclosed in the notes to

our financial statements included herein, in 2007,2008 we granted approximately 1.11.2 million restricted stock units.units and we granted stock options in January 2009. We also expect to grant restricted stock units, stock options and/or other types of equity awards in the future.

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Our stockholder rights plan and provisionsProvisions in our certificate of incorporation and by-laws, and of Delaware law may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.

Our amended and restated certificate of incorporation, amended and restated by-laws and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirors to negotiate with our Board of Directors rather than to attempt a hostile takeover. These provisions include, among others:

Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock.

In 2006, prior to the Cendant Separation, our Board adopted a stockholder rights plan (the “Rights Plan”) which provides, among other things, that when specified events occur, our stockholders will be entitled to purchase from us a newly created series of junior preferred stock. The preferred stock purchase rights are triggered by the earlier to occur of (i) ten business days (or a later date determined by our Board of Directors before the rights are separated from our common stock) after the public announcement that a person or group has become an “acquiring person” by acquiring beneficial ownership of 15% or more of our outstanding common stock or (ii) ten business days (or a later date determined by our Board before the rights are separated from our common stock) after a person or group begins a tender or exchange offer that, if completed, would result in that person or group becoming an acquiring person. The issuance of preferred stock pursuant to the stockholder rights plan would cause substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors. The existing Rights Plan will expire in accordance with its current terms unless stockholders approve its continuation at our 2008 annual meeting of stockholders.

We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our Board and by providing our Board with more time to assess any acquisition proposal. These provisions are not intended to make our company immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board determines is not in the best interests of our company and our stockholders.

ITEM 1B. UNRESOLVED STAFF COMMENTSWe recorded a charge for goodwill impairment in third quarter 2008, and our goodwill may be further impaired in the future, which may require us to record an additional charge to earnings.

Under generally accepted accounting principles, we perform a goodwill impairment assessment as required, which includes, among other things, a reconciliation of current equity market capitalization to stockholders’ equity. In third quarter 2008, our total stockholders’ equity significantly exceeded our equity market capitalization and based on our goodwill impairment assessment, we recorded a charge of approximately $1.3 billion for impairment of goodwill, intangible assets and the Company’s investment in Carey Holdings, Inc. During the third and fourth quarter 2008, our stock price continued to decline. We may be required to record an additional impairment in the future including as a result of continued reduction to our equity market capitalization or other declines in our business, which would result in a negative impact on our results of operations.

If we do not meet the New York Stock Exchange continued listing requirements, our common stock may be delisted.

The New York Stock Exchange (“NYSE”) continued listing standards require that our common stock have a minimum average closing price of not less than $1.00 during a consecutive 30 trading-day period. On December 17, 2008, we were notified by the NYSE that we had fallen below this continued listing standard. Pursuant to NYSE rules, we must bring our share price and average share price back above $1.00 within six months from the receipt of the NYSE notice, subject to possible extension. If we fail to do so, or fail to maintain compliance with other NYSE listing requirements, the NYSE may initiate suspension and delisting procedures. A delisting of our common stock could negatively impact us by:

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We have responded to the NYSE with notice of our intent to cure the current deficiency, in which we noted that if we do not expect that the price condition will be cured at the expiration of the six-month cure period, we will consider a reverse stock split that will enable us to be in compliance with the price condition.

Not applicable.

ITEM 2. PROPERTIES

Our principal executive offices are located at leased offices at 6 Sylvan Way, Parsippany, New Jersey 07054 pursuant to a lease expiring in 2023. Additional corporate functions are also conducted at leased offices at 10 Sylvan Way and Three Century Drive in Parsippany, New Jersey pursuant to leases expiring in 2011 and 2018, respectively. We also own a facility in Virginia Beach, Virginia, which serves as a satellite administrative facility

for our car and truck rental operations. Office space is also leased in Orlando, Florida; Englewood, Colorado; Wichita Falls, Texas; Tulsa, Oklahoma; and Fredericton, Canada pursuant to leases expiring in 2010, except for the Englewood and Fredericton leases which expire in 2011. These locations primarily provide operational services for both brands, including call center operations. The Budget office at Redding, California was closed in 2005 and is currently vacant and is subject to a lease expiring in 2011. In addition, there are approximately 15 other leased office locations in the United States for administrative activities, regional sales and operations activities.

We lease or have vehicle rental concessions for both the Avis and Budget brands at locations throughout the world. Avis operates approximately 1,000 locations in the United States and approximately 315300 locations outside the United States. Of those locations, approximately 240250 in the United States and approximately 120 outside the United States are at airports. Budget operates at approximately 620650 locations in the United States of which approximately 160170 are at airports. Budget also operates at approximately 180175 locations outside the United States of which approximately 6065 are at airports. Typically, an airport receives a percentage of vehicle rental revenue, with a guaranteed minimum. Because there is a limit to the number of vehicle rental locations in an airport, vehicle rental companies frequently bid for the available locations, usually on the basis of the size of the guaranteed minimums. We believe that our properties are sufficient to meet our present needs and we do not anticipate any difficulty in securing additional space, as needed, on acceptable terms.

ITEM 3. LEGAL PROCEEDINGS

Vehicle Rental Litigation

We, along with our subsidiaries, are involved from time to time in legal proceedings in the ordinary course of business, including the cases described below.

On August 8, 2006,Ludwig v. Avis Rent A Car System, Inc.andFarrell v. Budget Rent A Car System, Inc. were commenced in the Superior Court of California in and for Los Angeles on behalf of plaintiffs and all others similarly situated claiming violations of California Civil Code Section 1936 and unlawful, unfair or fraudulent business practices under California Business and Professions Code Section 17203. In both cases, plaintiffs seek class certification, general and compensatory damages, attorneys’ fees and seek that Avis and Budget, respectively, be enjoined from future conduct constituting violations of Civil Code Section 1936. Section 1936 of the California Civil Code establishes the additional daily rates which a rental car company may charge for the optional loss damage waiver product based on the manufacturer suggested retail price (MSRP) of the vehicle in 2002 with Consumer Price Index increases to the MSRP commencing January 1, 2003. Plaintiffs contend that the amount of the daily charge imposed for certain classes of vehicles exceeds the amount set forth in the statute based on the vehicle cost. No class certification hearing has been scheduled or heard by the court. On January 8, 2008, the court determined that no further briefing on any motions, including class certification motions, could occur until after a decision is reached on our motion for summary judgment.

Avis has beenwas named as a defendant in two putative class actions (Esquivel v. Avis, commenced January 24, 2004 in the 214th Judicial District of Nueces County, Texas, and Stafford v. Avis, commenced February 16, 2005 in the District Court in and for Creek County, State of Oklahoma). Each case alleges thatalleged various causes of action related to the Company’s use and collection of the fuel service charge (“FSC”), pursuant to its rental agreements, constitutes an illegal penalty and is therefore a breach of the rental agreements betweenagreements. Both cases were settled by the Company and the putative class members and is unconscionable under the relevant state Uniform Commercial Code. The cases assert other causes of action such as fraudulent misrepresentation, unjust enrichment and unfair trade practice under the Oklahoma Consumer Protection Act. The putative class inEsquivel comprises all Texas residents who were charged an FSC by Avis or its licensee in Texas after February 6, 2000; and inStafford, the class comprises all persons who were charged an FSC by Avis, or alternatively, all Oklahoma residents who were charged an FSC by Avis. In each case, the plaintiff seeks an unspecified amount of compensatory damages, with the return of all FSC paid or the difference between the FSC and the Company’s actual costs, disgorgement of unearned profits, attorneys’ fees and costs. In

theEsquivel matter, a hearing on the plaintiff’s motion for class certification was adjourned and has not been rescheduled. No class certification hearing has been scheduled in the Stafford case, where discovery is ongoing.nominal fees.

On October 27, 2006, plaintiffs Giuseppe Demarte and Mona Self filed a complaint against Budget Truck Rental, LLC (“BTR”) in the Superior Court of the State of California, County of Los Angeles. The complaint alleges causes of action for unlawful business practices in violation of California Business & Professions Code Section 17200, et seq., and conversion, relating to BTR’s refueling practices and procedures. The complaint is asserted as a putative class action on behalf of “all persons who, within the four years preceding the filing of the Complaint, have entered into a truck rental agreement with BTR in California that provided for a refueling fee and who paid that fee, or have paid for fuel in connection with that rental agreement based on the amount of fuel measured by the rented truck’s fuel gauge, or have returned the rented truck to Budget with more fuel in the tank than at the initiation of the rental.” The parties have settled this action and court approval of settlement terms is pending.

On November 14, 2007, two California residents filed a putative class action lawsuit, captionedMichael Shames et al. v. The Hertz Corp. et al., No. 07 CV 2174H (S.D. Cal.), against Avis Budget, six other rental car companies, the California Travel and Tourism Commission (the “CTTC”) and the CTTC’s Executive Director, alleging that the defendants violated federal antitrust law and California’s Unfair Competition Law and False Advertising Law by allegedly agreeing to pass on airport concession fees and a state tourism commission

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assessment to passenger car renters in California. One plaintiff has raised an additional claim against the CTTC and its Executive Director of alleged violations of California’s Bagley-Keene Open Meeting Act. The plaintiffs are seeking treble damages, injunctive relief and attorneys’ fees and costs. We have filed a motion to dismiss theShames suit, and on April 8, 2008, the U.S. District Court for the Southern District of California granted the motions to dismiss the putative class action lawsuit, on the ground that plaintiffs failed to state claims for which relief could be granted. An amended complaint was filed in May 2008 against the Company and six other rental car companies, as well as the CTTC, and contained claims that the defendants had violated federal antitrust law and California’s Unfair Competition Law and False Advertising Law by allegedly agreeing to pass on airport concession fees and a state tourism commission assessment to passenger car renters in California. On July 24, 2008, the U.S. District Court for the Southern District of California granted our motions to dismiss with respect to the state law claims and denied our motion to dismiss with respect to the federal antitrust claim. The court has not yet been decided.dismissed all claims against the CTTC, but the plaintiffs are appealing the CTTC’s dismissal. We intend to continue to vigorously defend this suit as we believe it is without merit.

In December 2007, two individuals filed separate but virtually identical putative class action lawsuits, captionedThomas J. Comiskey et al. v. Avis Budget Group, Inc. et al., No. CV07-08118 (C.D. Cal.) andIsabel S. Cohen et al. v. Avis Budget Group, Inc. et al,al., No. CV07-08164 (C.D. Cal.), against Avis Budget, 12 other rental car companies, the CTTC and California’s Secretary of Business, Transportation and Housing. These suits challenge the tourism commission assessment fees imposed on certain renters in California as of January 1, 2007. Both theComiskey andCohen suits allege that California’s tourism assessment program with respect to the rental car industry (i) infringes on renters’ speech and associational rights in violation of both the U. S.U.S. and California Constitutions, (ii) violates the Commerce Clause of the U.S. Constitution, (iii) violates 42 U.S.C. § 1983 insofar as the assessment program violates the federal Constitution’s Commerce Clause and First and Fourteenth Amendments, and (iv) violates the Motor Vehicle Revenues section of the California Constitution. BothOn February 5, 2008, the district court consolidated theComiskey andCohen suits, and on March 19, 2008, plaintiffs filed a consolidated amended complaint against Avis Budget, ten other rental car companies, the CTTC and California’s Secretary of Business, Transportation and Housing. The consolidated amended complaint contains all the claims from the earlier individual complaints seekand adds equal-protection claims under the U.S. and California Constitutions. As was the case with both individual complaints, the consolidated amended complaint seeks declaratory and injunctive relief, a refund of all California tourism commission assessment fees collected by the rental car defendants, attorneys’ fees and costs, and unspecified damages. The defendants moved to dismiss the consolidated amended complaint as well as to transfer the action (now known asIn re Tourism Assessment Fee Litigation) to the Southern District of California. On September 23, 2008, the transfer motion was granted and the action was subsequently transferred to the Southern District of California. On February 5, 2008,19, 2009, the district court consolidated the Comiskeygranted defendants’ motions to dismiss plaintiffs’ federal law claims, declined to exercise supplemental jurisdiction over plaintiffs’ state law claims, andCohen suits, and defendants’ responses have been postponed until after the plaintiffs have filed a consolidated complaint. We intend to vigorously defend this consolidated action as we believe it is without merit. dismissed plaintiffs’ amended complaint with prejudice.

Corporate Litigation

Pursuant to the Separation Agreement, Realogy has assumed 62.5% and Wyndham Worldwide has assumed 37.5% of certain contingent and other corporate liabilities (and related costs and expenses), including legal matters and related disputes, of the Company or its subsidiaries which are not primarily related to any of the respective businesses of Realogy, Wyndham Worldwide, Travelport and/or the Company’s vehicle rental operations, in each case incurred or allegedly incurred on or prior to the date of the separation of Travelport from the Company. Such litigation includes the litigationCredentials Litigation described below.

After the April 15, 1998 announcement of the discovery of accounting irregularities in the former CUC International, Inc. (“CUC”) business units approximately 70 lawsuits claiming to be class actions and other

proceedings were commenced against the Company and other defendants, virtually all of which have been settled other than as discussed below.

In Re Cendant Corporation Litigation, Master File No. 98-1664 (WHW) (D.N.J.) (the “Securities Action”), was a consolidated class action brought on behalf of all persons who acquired securities of Cendant and CUC, except PRIDES securities, between May 31, 1995 and August 28, 1998. Named as defendants are the Company; 28 current and former officers and directors of Cendant, CUC and HFS Incorporated; and Ernst & Young LLP, CUC’s former independent accounting firm.

The Amended and Consolidated Class Action Complaint in the Securities Action alleges that, among other things, the lead plaintiffs and members of the class were damaged when they acquired securities of Cendant and CUC because, as a result of accounting irregularities, Cendant’s and CUC’s previously issued financial statements were materially false and misleading, and the allegedly false and misleading financial statements caused the prices of Cendant’s and CUC’s securities to be inflated artificially.

On December 7, 1999, we announced that we had reached an agreement to settle claims made by class members in the Securities Action for approximately $2,850 million in cash plus 50 percent of any net recovery we receive from Ernst & Young as a result of our cross-claims against Ernst & Young as described below. This settlement received all necessary court approvals and was fully funded on May 24, 2002.

On January 25, 1999, we asserted cross-claims against Ernst & Young that alleged that Ernst & Young failed to follow professional standards to discover and recklessly disregarded the accounting irregularities and is therefore liable to us for damages in unspecified amounts. The cross-claims assert claims for breaches of Ernst & Young’s audit agreements with us, negligence, breaches of fiduciary duty, fraud and contribution. On July 18, 2000, we filed amended cross-claims against Ernst & Young asserting the same claims.

On March 26, 1999, Ernst & Young filed cross-claims against us and certain of our present and former officers and directors that alleged that any failure by Ernst & Young to discover the accounting irregularities was caused by misrepresentations and omissions made to Ernst & Young in the course of its audits and other reviews of our financial statements. Ernst & Young’s cross-claims assert claims for breach of contract, fraud, fraudulent inducement, negligent misrepresentation and contribution. Damages in unspecified amounts were sought for the costs to Ernst & Young associated with defending the various shareholder lawsuits, lost business it claims is attributable to Ernst & Young’s association with us, and for harm to Ernst & Young’s reputation. On June 4, 2001, Ernst & Young filed amended cross-claims against us asserting the same claims.

On December 21, 2007, the Company and certain other parties entered into a settlement agreement with Ernst & Young to settle all claims between the parties arising out of the Securities Action. Pursuant to the terms of the settlement, Ernst & Young has agreed to pay into escrow an aggregate of $298.5 million (the “Settlement Amount”) to settle all claims arising from the Securities Action.

The Settlement Amount will be distributed from escrow to certain parties involved in the Securities Action, including the plaintiff class members in the Securities Action, persons who purchased or otherwise acquired shares of Cendant’s PRIDES securities between April 16, 1998 and August 28, 1998, certain officers and directors of HFS Incorporated and to Realogy and Wyndham. Pursuant to the terms of the Separation Agreement, Realogy and Wyndham are entitled to 62.5% and 37.5%, respectively, of our portion of the Settlement Amount. Pursuant to the Separation Agreement, Realogy and Wyndham have approved the terms of, and authorized us to execute, the settlement agreement. The receipt and distribution of the Settlement Amount will have no net impact on our financial statements or cash balances.

CSI Investment et. al. vs.v. Cendant et. al., (Case No. 1:00-CV-01422 (DAB-DFE) (S.D.N.Y.) (“Credentials Litigation”) is an action for breach of contract and fraud arising out of Cendant’s acquisition of the Credentials

business in 1998. The Credentials Litigation commenced in February 2000 and was filed against Cendant and its senior management. The Stock Purchase Agreement provided for the sale of Credentials Services International to Cendant for a set price of $125 million plus an additional amount which was contingent on Credentials’ future

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performance. The closing occurred just prior to Cendant’s April 15, 1998 announcement of the discovery of accounting irregularities in theits former CUC business units. Plaintiffs seek payment of certain “hold back” monies in the total amount of $5.7 million, as well as a contingent payment based upon future performance that plaintiffs contend should have been approximately $50 million. In early 2007, the parties moved for summary judgment on various aspects of the case. In a written opinion issued oncase, and in September 7, 2007, the Court granted Cendant’s motion for summary judgment on the fraud claims and plaintiffs’ motion for summary judgment with respect to the plaintiffs’ claims for hold back monies and for breach of contract for failing to perform in good faith and pay the contingent fee.contract. Including pre-judgment interest, the Court entered judgment in favor of plaintiffs in the amount of approximately $94.3 million plus attorneysattorneys’ fees. On September 21, 2007,The judgment entered in favor of plaintiffs was affirmed in May 2008 following the denial of our and plaintiffs’ motions for reconsideration. The judgment included sanctions against Cendant in the amount of $720,000 and Realogy and Wyndham have paid their proportional share of such sanctions plus post-judgment interest thereon. As requested by Realogy and Wyndham (who bear the economic liability for this case, as discussed below), we filed a motionnotice of appeal on May 23, 2008 and appellate bonds were posted by Realogy and Wyndham in their proportional share. Plaintiffs filed a notice of cross appeal on June 2, 2008 and the Court stayed plaintiffs’ application for reconsideration. On October 22, 2007, plaintiffs opposedattorneys’ fees pending the motion and cross moved for reconsiderationoutcome of the Court’s dismissal of plaintiffs’ fraud claims. We opposedappeal. On September 12, 2008, we filed the initial appellate brief and plaintiffs filed their opposition brief and opening brief on their cross motionappeal on November 5, 2007,26, 2008. Our reply brief and response on cross appeal were filed a reply on its motion on November 12, 2007. Both motions are still pending. PursuantJanuary 23, 2009 and oral argument is expected to take place in the spring of 2009. Given the agreements set forth in the Separation Agreement Realogy and Wyndham are responsible for 62.5% and 37.5%, respectively, of any liability related to the Credentials Litigation; therefore,discussed above, we do not expect that any judgment or payment related to the Credentials Litigation will have noa net impact on our financial statements or cash balances.

Realogy, Wyndham Worldwide and Travelport have also assumed under the Separation Agreement certain contingent and other corporate liabilities (and related costs and expenses), which include legal proceedings where we are named as a defendant but are primarily related to each of their respective businesses.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

Market Price of Common Stock

Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “CAR”. At January 31, 2008,30, 2009, the number of stockholders of record was approximately 3,528.3,954. The following table sets forth the quarterly high and low sales prices per share of CAR common stock as reported by the NYSE for 20072008 and 2006.2007.

Dividend Policy

We paid no cash dividends on our common stock in 2008 and 2007 and we do not anticipate paying dividends on our common stock for the foreseeable future. Our ability to pay dividends to holders of our common stock is limited as a practical matter by ABCR’s senior credit facilities, the indenture governing our senior notes and our vehicle financing programs, insofar as we may seek to pay dividends out of funds made available to Avis Budget Group by ABCR and/or its subsidiaries, because these debt financings directly or indirectly restrict ABCR’sABG’s ability to pay dividends or make loans.dividends. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our businesses, covenants associated with certain debt obligations, legal requirements, regulatory constraints, industry practice and other factors that the Board of Directors deems relevant.

In 2006, we paid cash dividends of $1.10 per common share in the first quarter. These dividend amounts have been adjusted to reflect a one-for-ten reverse stock split completed in September 2006.

On July 31, 2006, we distributed 100% of our ownership interest in Realogy and Wyndham, comprising Cendant’s former Real Estate Services and Hospitality Services businesses, respectively, to our stockholders. We distributed one share of Realogy common stock for every four shares of our common stock and one share of Wyndham stock for every five shares of our common stock, in each case outstanding on the record date for the distribution. On January 31, 2005, we distributed 100% of our ownership interest in PHH Corporation, comprising our former mortgage, appraisal and fleet management businesses, to our stockholders. We distributed one share of PHH common stock for every 20 shares of our common stock outstanding on the record date for the distribution.32

Securities Authorized Forfor Issuance Underunder Equity Compensation Plans

The following table provides information about shares of our common stock that may be issued upon the exercise of options and restricted stock units under all of our existing equity compensation plans as of December 31, 2007.2008. The table excludes 850,000202,000 shares of our common stock approved by stockholderswhich was issued or available for issuance pursuant to the 1998 Employee Stock Purchase Plan.Plan approved by stockholders.

Of the 8.9approximately 8.3 million shares of our common stock to be issued upon exercise of outstanding options, stock settled stock appreciation rights and restricted stock units, approximately 6.05 million shares are related to stock option grants that were made by Cendant Corporation to employees of Cendant Corporation prior to the spin-offs of Realogy and Wyndham, virtually all of which have strike prices in excess of our closing stock price of $13.00$0.70 on December 31, 2007.2008.

shares subject to outstanding options, the exercise price of outstanding options and the number and type of shares remaining to be made subject to options under this plan may be adjusted or substituted for, as the Compensation Committee or Board may determine. The terms and conditions of options granted under this plan are to be determined by the Compensation Committee, provided that the exercise price of an option may not be less than the fair market value of the shares covered thereby on the date of grant. Each option granted under this plan will become immediately exercisable upon a “change-of-control transaction” (as defined in the plan). Unless otherwise determined by the Compensation Committee, following termination of employment, options granted under this plan generally will remain exercisable, to the extent exercisable at the time of termination, for one year (two years, in the case of retirement, death or disability).

1997 Employee Stock Plan. This plan provides for the grant of awards of stock options, stock appreciation rights (payable in cash or shares or a combination thereof) and restricted stock to our employees and affiliates. Shares issued pursuant to awards granted under this plan may be authorized and unissued shares or treasury shares. In the event of any change in corporate capitalization, any reorganization of our company or a similar event, shares subject to outstanding awards, the exercise price of outstanding options and the number and type of shares remaining to be made subject to awards under this plan may be adjusted or substituted for, as the Compensation Committee or Board may determine. The terms and conditions of awards granted under this plan are to be determined by the Compensation Committee, provided that the exercise price of an option may not be less than the fair market value of the shares covered thereby on the date of grant. Under this plan, stock appreciation rights may be granted only in tandem with an option, and will be cancelled to the extent the related option is exercised or cancelled. The vesting of restricted stock awards granted under this plan may be subject to the attainment of predetermined performance goals. Unless otherwise determined by the Compensation Committee, following termination of employment, options and stock appreciation rights granted under this plan generally will remain exercisable, to the extent exercisable at the time of termination, for one year (two years, in the case of retirement, death or disability). Unless otherwise determined by the Compensation Committee, following termination of employment for any reason, shares that are subject to restrictions under a restricted stock award will be immediately forfeited.

1999 Broad-Based Employee Stock Option Plan. This plan provides for the grant of stock options, shares of Common Stock and other awards valued by reference to Common Stock to our employees who are not executive officers. Shares issued pursuant to the exercise of options granted under this plan may be authorized and unissued shares or treasury

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shares. In the event of any change in corporate capitalization, any reorganization of our company or a similar event, shares subject to outstanding options, the exercise price of outstanding options and the number and type of shares remaining to be made subject to options under this plan may be adjusted or substituted for, as the Compensation Committee or Board may determine. The terms and conditions of options granted under this plan are to be determined by the Compensation Committee, provided that the exercise price of an option may not be less than the fair market value of the shares covered thereby on the date of grant. Each option granted under this plan will become immediately exercisable upon a “change-of-control transaction” (as defined in the plan). Unless otherwise determined by the Compensation Committee, following termination of employment, options granted under this plan generally will remain exercisable, to the extent exercisable at the time of termination, for one year (two years, in the case of retirement, death or disability).

1997 Employee Stock Plan. This plan provides for the grant of awards of stock options, stock appreciation rights and restricted stock to our employees and affiliates. Shares issued pursuant to awards granted under this plan may be authorized and unissued shares or treasury shares. In the event of any change in corporate capitalization, any reorganization of our company or a similar event, shares subject to outstanding awards, the exercise price of outstanding options and the number and type of shares remaining to be made subject to awards under this plan may be adjusted or substituted for, as the Compensation Committee or Board may determine. The terms and conditions of awards granted under this plan are to be determined by the Compensation Committee, provided that the exercise price of an option may not be less than the fair market value of the shares covered thereby on the date of grant. Under this plan, stock appreciation rights may be granted only in tandem with an option, and will be cancelled to the extent the related option is exercised or cancelled. The vesting of restricted stock awards granted under this plan may be subject to the attainment of predetermined performance goals. Unless otherwise determined by the Compensation Committee, following termination of employment, options and stock appreciation rights granted under this plan generally will remain exercisable, to the extent exercisable at the time of termination, for one year (two years, in the case of retirement, death or disability). Unless otherwise determined by the Compensation Committee, following termination of employment for any reason, shares that are subject to restrictions under a restricted stock award will be immediately forfeited.

Issuer Purchases of Equity Securities

None.

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Performance Graph

The following graph assumes $100 invested on December 31, 20022003 and compares (a)(A) the yearly percentage change in our cumulative total stockholder return on our common stock (as measured by dividing (i) the sum of (A)(a) the cumulative amount of dividends, (including the Realogy, Wyndham and PHH distributions (described above under “Dividend Policy”), assuming dividend reinvestment, during the five years commencing on the last trading day before January 1, 20032004 and ending on December 31, 2007,2008, and (B)(b) the difference between our stock price at the end and the beginning of the periods presented by (ii) the share price at the beginning of the periods presented)presented with (b) (i)(B) the Standard & Poor’s MidCap 400 Index and (ii) the Standard & Poor’s Diversified Commercial and Professional ServicesDow Jones U.S. Transportation Average Index.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN

Among Avis Budget Group, Inc., the S&P MidCapMidcap 400 Index

and the S&P Diversified Commercial & Professional ServicesDow Jones US Transportation Average Index

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ITEM 6. SELECTED FINANCIAL DATA

In presenting the financial data above in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported. See “Critical Accounting Policies” under Item 7 included elsewhere herein for a detailed discussion of the accounting policies that we believe require subjective and complex judgments that could potentially affect reported results.

Income (loss) from discontinued operations, net of tax, includes the after tax results of the following disposed businesses for all periods presented (through their dates of disposition): (i) Travelport, which we sold in August 2006, (ii) Realogy and Wyndham, which were spun-off on July 31, 2006, (iii) our former Marketing Services division, which we sold in October 2005, (iv) Wright Express Corporation, which we sold in February 2005, (v) our former mortgage, fleet leasing and appraisal businesses, which were included in the spin-off of PHH Corporation on January 31, 2005, and (vi) Jackson Hewitt Tax Service Inc., which we sold in June 2004. Income (loss) from discontinued operations, net of tax, also includes a tax benefit realized as a result of certain elections

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made in connection with the disposition of Travelport on income tax returns filed during 2007, the after tax losses on the sale of Travelport and the spin-offs of Realogy and Wyndham in 2006, the after tax gains on the sale of our Marketing Services division and Wright Express in 2005, the after tax loss on the spin-off of PHH in 2005, and the after tax gain on the sale of Jackson Hewitt in 2004. See Note 3 to our Consolidated Financial Statements for more detailed information regarding these discontinued operations.

During 2008, we recorded a $1,262 million ($1,053 million, net of tax) charge to reflect (i) the impairment of goodwill, (ii) the impairment of the Company’s tradenames assets and (iii) the impairment of our investment in Carey Holdings, Inc. These charges reflect the decline in their fair value below their carrying value, primarily as a result of reduced market valuations for vehicle services and other companies, as well as reduced profit forecasts due to soft economic conditions and increased financing costs. In 2007, we recorded a $1,195 million ($1,073 million after tax) charge was recorded for the impairment of goodwill at each of our reporting units to reflect the decline in their fair value as evidenced by a decline in the market value of our common stock. See Note 2 to our Consolidated Financial Statements.

In 2006, we recorded an impairment charge of approximately $1.3 billion within discontinued operations to reflect the difference between Travelport’s carrying value and its estimated fair value, less costs to dispose. In 2005, we incurred costsrecorded an impairment charge of $574$425 million and $15within discontinued operations as a result from a decline in future anticipated cash flows of one of Travelport’s businesses.

During 2008, we recorded $28 million respectively, in connection with the disposition of Realogy and Wyndham and the salerestructuring charges related to restructuring initiatives within each of Travelport. These costs consisted primarily of legal, accounting, other professional and consulting fees and various employee costs, and for 2006 include costs associated with the retirement of corporate debt. During 2007, these separation-related costs were insignificant.

our segments. In 2006, we recorded $10 million of restructuring charges related to restructuring initiatives within our Truck Rental and Domestic Car Rental segments. In 2005, we recorded $26 million of restructuring and transaction-related charges as a result of restructuring activities undertaken following the spin-off of PHH Corporation and the initial public offering of Wright Express Corporation. See Note 5 to our Consolidated Financial StatementsStatements.

During 2008 and 2007, separation-related costs incurred in connection with the spin-offs of Realogy and Wyndham and the sale of Travelport were insignificant. In 2006 and 2005, we incurred separation-related costs of $574 million and $15 million, respectively. These costs consisted primarily of legal, accounting, other professional and consulting fees and various employee costs, and for a detailed description2006 included costs associated with the retirement of such charges.corporate debt.

In 2006, 2005 2004 and 2003,2004, we incurred $40 million, $35 million $(28) million and $11($28) million, respectively, forof litigation and related costs (credits) primarily in connection with the 1998 discovery of accounting irregularities in the former business units of CUC International, Inc. The amount in 2004 includes a $55 million credit recorded in connection with previously established liabilities for severance and other termination benefits for which we no longer believe we are liable. In 2008 and 2007, these costs were immaterial.

In 2003,2006, we consolidatedrecorded a number$103 million ($64 million after tax) non-cash charge to reflect the cumulative effect of entities pursuantaccounting charges related to Financial Accounting Standards Board Interpretation No. 46, “Consolidation(i) real estate time-share transactions at our former Hospitality Services and Timeshare Resorts segment and (ii) stock-based compensation awards. In 2005, we recorded a $14 million ($8 million after tax) non-cash charge to reflect the cumulative effect of Variable Interest Entities,” and/or as a result of amendmentsaccounting change relating to the underlying structures ofour asset retirement obligation to remove assets at certain of the facilities we used to securitize assets. See Notes 2 and 17 to the Consolidated Financial Statements.leased properties.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein. Unless otherwise noted, all dollar amounts in tables are in millions and those relating to our results of operations are presented before taxes.

We operate two of the most recognized brands in the global vehicle rental industry through Avis Rent A Car System, LLC and Budget Rent A Car System, Inc. We provide car and truck rentals and ancillary services to businesses and consumers in the United States and internationally.

We operate in the following business segments:

Our revenues are derived principally from car and truck rentals in our Company-owned operations and include (i) time and mileage (“T&M”) fees charged to our customers for vehicle rentals, (ii) reimbursement from our customers for certain operating expenses we incur, including gasoline and vehicle licensing fees, as well as airport concession fees, which we pay in exchange for the right to operate at airports and other locations, and (iii) sales of loss damage waivers and insurance and rentals of GPS navigation units and other items in conjunction with vehicle rentals. We also earn royalty revenue from our franchisees in conjunction with their vehicle rental transactions.

Car rental volumes are closely associated with the travel industry, particularly airline passenger volumes, or enplanements. Because we operate primarily in the United States and generate a significant portion of our revenue from our on-airport operations, we expect that our ability to generate revenue growth will be somewhat dependent on increases in domestic enplanements. We have also experienced significant per-unit fleet cost increases on model-year 2006 and 2007 vehicles,over the last four years, which have negatively impacted our margins. Accordingly, our ability to achieve profit margins consistent with prior periods remains dependent on our ability to successfully reflectmanage our fleet costs and to implement corresponding changes in our pricing programs.

Our vehicle rental operations are seasonal. Historically, the third quarter of the year has been our strongest quarter due to the increased level of leisure travel and household moving activity. Any circumstance or occurrence that disrupts rental activity during the third quarter could have a disproportionatelydisproportionate adverse impacteffect on our results of operations. We have a predominantlypartially variable cost structure and routinely adjust the size and, therefore, the cost of our rental fleet in response to fluctuations in demand. However, certain expenses, such as rent, are fixed and cannot be reduced in response to seasonal fluctuations in our operations.

We believe that the following trends, among others, may affect and/or have impacted our financial condition and results of operations:

In 2005,Many of these trends are the result of the current downturn in the U.S. and worldwide economies and have caused EBITDA for our domestic car rental and truck rental segments for the year ended December 31, 2008 to be significantly lower than for the year ended December 31, 2007. Due to reduced demand for travel services, rising borrowing costs and other factors, there can be no assurance that we undertookwill be able to satisfy the minimum EBITDA requirement and other covenants contained in our senior credit facilities, and our asset-backed car rental conduit facilities. Failure to comply with such covenants could significantly impact our liquidity if we were unable to obtain an amendment or waiver or were unable to refinance or obtain a strategic realignment to simplifyreplacement for such facilities. There can also be no assurance that 2008 results will be indicative of results we will achieve in 2009.

We have also been impacted by, and may be further impacted by, the current financial market disruptions as we rely heavily on financing for our business model through exiting non-core businesses or businesses that produced volatilityoperations, particularly asset-backed financing. The amendments we obtained to our earnings inconsistent with our business modelsenior credit facilities and asset-backed car rental conduit facilities in October and December 2008 amended the remainder of our core businesses. In October 2005, the strategic realignment was completedpricing, financial covenants and our management team and Board of Directors, with the aid of financial and legal advisors, performed a comprehensive review of the growth opportunities and estimated market valuations for each of our core businesses.other terms in those facilities. As a result, of this review, from October 2005our borrowing costs under such facilities will increase in 2009 compared to July 2006, our Board of Directors approved a plan to separate Cendant into four independent companies:

On July 31, 2006, we completed the spin-offs of Realogy Corporation (“Realogy”) and Wyndham Worldwide Corporation (“Wyndham”) in tax-free distributions of one share each of Realogy and Wyndham common stock for every four and five shares, respectively, of then outstanding Cendant common stock held on July 21, 2006. On August 1, 2006, Realogy and Wyndham stock began regular-way trading on the New York Stock Exchange under the symbols “H” and “WYN,” respectively. Prior to the completion of the spin-offs, we received special cash dividends of $2,225 million and $1,360 million from Realogy and Wyndham, respectively, and utilized such proceeds to fund a portion of the repayment of our outstanding debt, as discussed below. On August 23, 2006, we completed the sale of Travelport for proceeds of approximately $4.1 billion, net of closing adjustments, of which approximately $1.8 billion was used to repay indebtedness of Travelport. The spin-offs of Realogy and Wyndham2008 and the saleletter of Travelport are referredcredit availability and borrowing capacity under our senior credit facilities were reduced. These asset-backed car rental conduit facilities mature from September through December of 2009. To the extent we were to as the “Cendant Separation.” Pursuant to the Separation Agreement, during third quarter 2006, we distributed $1,423 million and $760 million of the proceeds of the Travelport sale to Realogy and Wyndham, respectively. In connection with executingrequire any further amendment or waiver under our plan, we incurredsenior credit facilities or asset-backed car rental conduit facilities, our borrowing costs of $574 million and $15 million during 2006 and 2005, respectively. These costs consist primarily of legal, accounting, other professional and consulting fees and various employee costs, and for 2006 include costs associated with the retirement of corporate debt. In connection with the Cendant Separation, we entered into the Separation Agreement, a tax sharing agreement and a transition services agreement with Realogy, Wyndham and Travelport.

On August 29, 2006, our stockholders approved certain amendmentswould likely increase even further. See “Risk Factors—Risks related to our Certificate of Incorporation, including a change in our name from Cendant Corporation to Avis Budget Group, Inc. and a 1-for-10 reverse stock split of our common stock, each of which became effective on the New York Stock Exchange at the opening of the market on September 5, 2006 and, at that time, our ticker symbol changed to “CAR”.indebtedness.”

RESULTS OF OPERATIONS

Discussed below are our consolidated results of operations and the results of operations for each of our reportable segments. Generally accepted accounting principles require us to segregate and report as discontinued operations, for all periods presented, the account balances and activities of PHH, Wright Express, our former Marketing Services division, Realogy, Wyndham and Travelport. Prior to completion of the Realogy spin-off, we could not classify our former mortgage business as a discontinued operation due to Realogy’s participation in a mortgage origination venture that was established with PHH in connection with our January 2005 spin-off of PHH. However, due to the spin-off of Realogy on July 31, 2006, this business is classified as a discontinued operation.

We measure performance using the following key operating statistics: (i) rental days, which represents the total number of days (or portion thereof) a vehicle was rented, and (ii) T&M revenue per rental day, which represents the average daily revenue we earned from rental and mileage fees charged to our customers. Our car rental operating statistics (rental days and T&M revenue per rental day) are all calculated based on the actual usage of the vehicle during a 24-hour period. We believe that this methodology, while conservative, provides our management with the most relevant statistics in order to manage the business. Our calculation may not be comparable to other companies’ calculation of similarly-titled statistics.

The reportable segments presented below represent our operating segments for which separate financial information is available and is utilized on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also consider the nature of services provided by our operating segments. Management evaluates the operating results of each of our reportable segments based upon revenue and “EBITDA,” which we define as income from continuing operations before non-vehicle related depreciation and amortization, any impairment of goodwill, impairment charge,other intangible asset or equity investment, non-vehicle related interest and income taxes. Our presentation of EBITDA may not be comparable to similarly-titled measures used by other companies.

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Year Ended December 31, 2008 vs. Year Ended December 31, 2007

Our consolidated results of operations comprised the following:

During 2008, our net revenues decreased $2 million principally due to a $103 million (2%) decrease in T&M revenue, reflecting a 1% decrease in domestic and international car rental T&M revenue per day and a 7% decrease in our Truck rental T&M revenue per day, offset by a $101 million (8%) increase in ancillary revenues, such as counter sales of insurance products, GPS navigation unit rentals, gasoline sales and fees charged to customers. In addition, the total revenue decrease includes a $7 million favorable effect related to foreign currency exchange rate fluctuations on the translation of our international operations’ results into U.S. dollars.

The total expense increase of $349 million (5%) was principally due to (i) a $126 million (8%) increase in vehicle depreciation and lease charges resulting from an increase in per-unit fleet costs, (ii) a $114 million (4%) increase in operating expenses, representing higher gasoline costs (which increased $77 million), vehicle licensing expenses and other items, (iii) a $67 million (6%) increase in impairment charges recorded for the impairment of goodwill, our tradenames asset and our equity investment in Carey Holdings, Inc. (“Carey”), (iv) $28 million in restructuring costs primarily associated with severance related expenses and costs incurred for closing facilities and (v) the absence of $5 million in net separation related expenses primarily resulting from tax related items. The increase in total expenses includes an adverse impact from foreign currency exchange rates of $7 million, offset by a gain on foreign currency earnings hedges of $7 million. As a result of these items, offset by a $174 million increase in our benefit from income taxes, our loss from continuing operations increased $177 million.

Our effective tax rate for continuing operations was a benefit of 16.3% and 4.5% for 2008 and 2007, respectively. The unusually low tax rate for 2008 and 2007 was primarily due from the non-deductible portion of the impairment charges.

Following is a more detailed discussion of the results of each of our reportable segments:

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Domestic Car Rental

Revenues increased $16 million (less than 1%) while EBITDA decreased $253 million (95%) in 2008 compared with 2007. Revenue increased due to growth in ancillary revenues offset by lower car rental pricing. EBITDA margins were negatively impacted year-over-year by lower car rental pricing, increased fleet costs and severance costs.

The revenue increase of $16 million was comprised of a $91 million (9%) increase in ancillary revenues, offset by a $74 million (2%) decrease in T&M revenue. The $91 million increase in ancillary revenues was primarily due to (i) a $48 million increase in rentals of GPS navigation units, our implementation of an energy recovery fee, sales of insurance products and other items, (ii) a $33 million increase in gasoline sales, which was more than offset in EBITDA by $71 million of higher gasoline expense including an unfavorable impact of $31 million from gasoline hedges, and (iii) a $10 million increase in airport concession and vehicle licensing revenues, $6 million of which was offset in EBITDA by higher airport concession and vehicle licensing expenses remitted to airport and other regulatory authorities. The decrease in T&M revenue was principally driven by a 1% decrease in T&M revenue per day, while rental days remained essentially unchanged year-over-year.

The favorable effect of increased revenues was offset in EBITDA by $133 million (10%) of increased fleet depreciation and lease charges resulting from an 11% increase in per-unit fleet costs, while the average size of our domestic rental fleet decreased 1%. EBITDA also reflected a $61 million (2%) increase in operating and selling, general and administrative and other expenses including (i) $23 million of restructuring charges recorded in 2008 primarily due to expenses related to severance and the closure of rental facilities, (ii) $22 million of incremental operating expenses primarily representing inflationary increases in wages and salaries, off-airport rental expense and other costs offset by expense savings from our process improvement and cost-reduction initiatives, and (iii) a $9 million increase in selling, general and administration expense primarily related to higher travel agency commissions, travel incentive programs and other marketing costs.

International Car Rental

Revenues and EBITDA increased $31 million (4%) and $10 million (8%), respectively, in 2008 compared with 2007. Revenue and EBITDA increased primarily due to growth in ancillary revenues and the impact of foreign currency exchange rate movements.

The revenue increase of $31 million was comprised of a $28 million (11%) increase in ancillary revenues and a $3 million increase in car rental T&M revenue. The total growth in revenue includes a $7 million increase related to foreign currency exchange rates, impacting T&M revenue by $6 million and ancillary revenues by $1 million, and was largely offset in EBITDA by the opposite impact of foreign exchange on expenses of $7 million. The $28 million increase in ancillary revenues was primarily due to (i) a $13 million increase in counter sales of insurance, rentals of GPS navigation units and other items, (ii) a $12 million increase in airport concession and vehicle licensing revenues, $4 million of which was offset in EBITDA by higher airport concession and vehicle licensing expense remitted to airport and other regulatory authorities, and (iii) a $3 million increase in gasoline sales, which was more than offset in EBITDA by higher gasoline costs. The increase in T&M revenue was principally driven by a 1% increase in rental days, while T&M revenue per day remained essentially unchanged year-over-year.

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The favorable effect of incremental T&M revenues was offset in EBITDA by $6 million (3%) of increased fleet depreciation and lease charges, reflecting a 2% increase in the average size of our international rental fleet and a 1% increase in per-unit fleet costs. EBITDA also reflects a $6 million (2%) increase in incremental operating expenses including (i) a $9 million increase in salaries and wages, rents and other costs, (ii) a $4 million increase in selling, general and administrative expense related primarily to increased agency operator commissions, marketing and other expenses, and (iii) $3 million of restructuring charges recorded in 2008 for severance related expenses and costs for facility closures. These cost increases were offset by a $3 million reduction in insurance costs due to favorable claims experience and a $7 million gain on our foreign exchange earnings hedges.

Truck Rental

Revenues and EBITDA declined $34 million (8%) and $21 million, respectively, in 2008 compared with 2007.

The revenue decrease was due to a decline of $32 million (10%) in T&M revenue, which reflected a 7% decrease in T&M revenue per day and a 3% decrease in rental days in 2008 compared with 2007. The unfavorable effect of decreased revenue on EBITDA was partially offset by $11 million (9%) less fleet depreciation, lease charges and interest primarily reflecting an increase in the planned service lives of our truck fleet. EBITDA also reflected a decrease of $7 million in operating commission expense primarily as a result of the decrease in T&M revenue, and $2 million of restructuring charges recorded in 2008 for severance related expenses.

Corporate and Other

Revenue and EBITDA declined $15 million and $14 million, respectively, in 2008 compared with 2007.

The revenue decrease was primarily due to a decrease in revenues earned for information technology and other service contracts with Realogy, Wyndham and Travelport as the contracts expire and various services are no longer required. EBITDA decreased primarily due to the absence of a $14 million credit related to tax-related receivables from Realogy and Wyndham, recognized in connection with the adoption of FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income”, in first quarter 2007.

Year Ended December 31, 2007 vs. Year Ended December 31, 2006

Our consolidated results of operations comprised the following:

During 2007, our total revenues increased $297 million (5%) driven by our car rental operations, which experienced a 5% increase in T&M revenue, reflecting a 4% increase in rental days and a 1% increase in T&M revenue per day, and a 13% increase in ancillary revenue. The growth in our car rental operations was partially offset by a 7% reduction in truck rental days and an 8% reduction in truck T&M revenue per day. Ancillary revenue growth was primarily driven by increases in airport concession and vehicle licensing revenues, rentals of GPS navigation units, and sales of loss damage waivers and insurance products. In addition, the total revenue

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increase includes $67 million related to foreign currency exchange rate fluctuations on the translation of our international operations results into U.S. dollars.

Total expenses increased $612 million (10%) due to (i) a $1,195 million charge recorded for the impairment of goodwill at each of our reporting units to reflect the decline in their fair value as evidenced by a decline in the market value of our common stock, (ii) a $146 million (5%) increase in operating expense largely due to the 4% increase in car rental days, (iii) an increase in vehicle depreciation and lease charges of $155 million (11%) resulting from higher per unit vehicle costs and 4% growth in our average car rental fleet and (iv) the adverse impact from foreign exchange currency rates of $56 million. The increase in expenses was offset by decreases principally due to the $313 million charge for early extinguishment of debt incurred during 2006 and a $266 million decrease in separation-related costs. The separation costs related primarily to severance, retention and legal, accounting and other professional fees incurred in connection with the Cendant Separation. We also experienced (i) a $160 million reduction in selling, general and administrative expenses resulting mainly from unallocated corporate expense in 2006 related to the discontinued operations treatment of our former subsidiaries and (ii) $109 million lower interest expense related to corporate debt, resulting from the repayment of approximately $3.5 billion of such debt in third quarter 2006. As a result of these items and a $181 million reduction in our benefit from income taxes, our loss from continuing operations increased $496 million. Our effective tax rate for continuing operations were benefits of 4.5% and 33.4% for 2007 and 2006, respectively. The decrease in our effective tax rate for 2007 was primarily due to the non-deductible portion of the goodwill impairment charge.

Income (loss) from discontinued operations decreased $480 million, which principally reflects the absence of net income generated by Realogy, Wyndham and Travelport prior to the Cendant Separation, which was completed in 2006. The $2 billion increase in gain (loss) on disposal of discontinued operations, net of tax primarily represents the loss on disposal of discontinued operations in 2006, partially offset by a tax benefit realized as a result of certain elections made in connection with the Travelport disposition on the income tax returns filed during 2007.

Absent in 2007 were the non-cash charges recorded in 2006 of $103 million ($64 million, after tax) to reflect the cumulative effect of accounting changes as a result of our adoption of (i) Statement of Financial Accounting Standards (“SFAS”) No. 152, “Accounting for Real Estate Time-Sharing Transactions,” and American Institute of Certified Public Accountants’ Statement of Position No. 04-2, “Accounting for Real Estate Time-Sharing Transactions” on January 1, 2006, which resulted in a non-cash charge of $65 million after tax, and (ii) SFAS No. 123R, “Share-Based Payment,” on January 1, 2006, which resulted in a non-cash credit of $1 million after tax.

As a result of the above-mentioned items, net loss decreased approximately $1.1 billion.

Following is a more detailed discussion of the results of each of our reportable segments:

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(b)

Includes unallocated corporate overhead, the elimination of transactions between segments and the results of operations of certain non-strategic businesses. In addition, EBITDA for 2006 reflects unallocated corporate expenses related to discontinued operations. Following the completion of the Cendant Separation, we do not incur the majority of such costs.

(c)	The amount in 2006 includes a $313 million charge related to the early extinguishment of corporate debt.

(d)	We recorded a charge of $1,195 million for the impairment of goodwill during the three months ended December 31, 2007. Domestic Car Rental recorded $786 million of the goodwill impairment, International Car Rental recorded $268 million and Truck Rental recorded $141 million.

Domestic Car Rental

Revenues and EBITDA increased $284 million (6%) and $51 million (24%), respectively, in 2007 compared with 2006. We experienced increased demand for car rentals and significantly increased our ancillary revenues.

The revenue increase of $284 million was comprised of a $132 million (4%) increase in T&M revenue and a $152 million (19%) increase in ancillary revenues. The increase in T&M revenue was principally driven by a 4% increase in rental days. The $152 million increase in ancillary revenues was due primarily to (i) a $72 million increase in airport concession and vehicle licensing revenues, $20 million of which was offset in EBITDA by higher airport concession and vehicle licensing expenses remitted to airport and other regulatory authorities, (ii) a $69 million increase in rentals of GPS navigation units, sales of loss damage waivers and insurance products and other items, and (iii) an $11 million increase in gasoline sales.

The favorable effect of incremental revenues was offset in EBITDA by $125 million (11%) of increased fleet depreciation and lease charges primarily resulting from increased per-unit fleet costs in 2007 and a 4% increase in average fleet size.fleet. EBITDA also reflected a $92 million increase in operating expenses including (i) $64 million of additional expenses associated with increased car rental volume and fleet size, primarily related to credit card fees and agency operator commissions and (ii) $29 million of incremental expenses, primarily representing inflationary increases in salaries and wages and off-airport rental expense. We incurred $8 million more vehicle-related interest expense during 2007 compared to 2006, primarily due to the loss of intercompany interest income recorded in 2006 prior to the Cendant Separation. EBITDA also benefited from a $17 million decrease in separation-related costs, primarily related to accelerated vesting of stock-based compensation awards incurred in 2006.

International Car Rental

Revenues and EBITDA increased $112 million (15%) and $20 million (18%), respectively, in 2007 compared with 2006, primarily due to the impact of foreign currency exchange rate fluctuations, increased car rental pricing and higher demand for car rentals.

The revenue increase of $112 million was comprised of a $73 million (13%) increase in car rental T&M revenue and a $39 million (18%) increase in ancillary revenues. The increase in T&M revenue was principally driven by a 10% increase in T&M revenue per day and a 3% increase in the number of days a car was rented. The total growth in revenue includes a $67 million increase related to the translation of foreign currency exchange rates, which increased T&M revenue per day by 8% and was largely offset in EBITDA by the opposite impact on expenses and provided a net benefit of $8 million year-over-year. The $39 million increase in ancillary revenues was due primarily to (i) a $23 million increase in counter sales of insurance and other items, and (ii) a $13 million increase in airport concession and vehicle licensing revenues, which was more than offset in EBITDA by higher airport concession and vehicle licensing expenses remitted to airport and other regulatory authorities.

The favorable effect of incremental T&M revenues was partially offset in EBITDA by $27 million (15%) of increased fleet depreciation and lease charges principally resulting from an increase of 4% in the average size of

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our international rental fleet and increased per-unit fleet costs including the effects of foreign exchange

movements. EBITDA also reflects $37 million of incremental operating expenses including (i) $22 million in inflationary increases in salaries and wages, rents and other costs, (ii) $11 million in additional expenses associated with increased car rental volume, primarily related to license and registration fees and other vehicle costs, and (iii) $4 million in increased gasoline expenses. We incurred $7 million more interest expense during 2007 than in 2006 due to increased borrowings for international operations and higher interest rates. 

Truck Rental

Revenues and EBITDA declined $56 million (12%) and $28 million (62%), respectively, in 2007 compared with 2006, primarily reflecting decreases in rental day volume and T&M revenue per day. EBITDA was also impacted by increased fleet costs.

Substantially all of the revenue decrease was due to a decline in T&M revenue, which reflected a 7% reduction in rental days and an 8% decrease in T&M revenue per day. The 7% reduction in rental days resulted primarily from declines in one-way consumer and commercial volumes, and a 6% reduction in the average size or our rental fleet. We believe these decreases reflect a soft housing market and heightened competition for commercial rentals. Despite the reduction in the average size of our truck rental fleet, we incurred $4 million (4%) of incremental fleet depreciation, interest and lease charges primarily due to higher per-unit fleet costs, including a reduction in expense of $5 million due to a change in projected vehicle hold periods. These items were offset by $22 million in reduced operating expenses, including (i) a decrease of $11 million in operating commission expense primarily reflecting the decrease in T&M revenue, (ii) a $10 million decrease in maintenance and damage costs, and (iii) an $8 million reduction in insurance expense as a result of favorable claims experience and the reduction in rental days. EBITDA also reflected a $5 million reduction in restructuring charges compared to 2006 and a year-over-year reduction of $3 million in costs related to the Cendant Separation.

Corporate and Other

Revenues decreased $43 million and EBITDA increased from a loss of $393 million in 2006 to an income of $1 million in 2007.

Revenues were lower in 2007 due to (i) the absence of $17 million in revenue associated with a credit card marketing program under which we earned fees based on a percentage of credit card spending through the date of the Cendant Separation, (ii) a $16 million decrease in revenues earned for information technology service contracts with Realogy, Wyndham and Travelport as the contracts expire and services are no longer being provided and (iii) a $10 million reduction primarily related to dividend income and gains on the sale of marketable securities in 2006.

EBITDA increased primarily due to (i) a $131 million reduction in selling and general expenses resulting from the spin-offs of Realogy and Wyndham and the sale of Travelport in third quarter 2006, (ii) a $248 million reduction in separation-related expenses, including unallocated corporate costs, (iii) a $40 million reduction in legal fees for litigation related to the former CUC business units and (iv) a $21 million decrease in intercompany interest expense prior to the Cendant Separation.

Year Ended December 31, 2006 vs. Year Ended December 31, 2005

Our consolidated results of operations comprised the following: