Avis Budget Group (NYSE:CAR) is one of the largest car rental companies in the nation. Industry leadership is supposed to bring certain advantages, but it appears that most firms with exposure to the ailing domestic automotive industry are finding it difficult to drive forward.

Avis Budget is proving no exception. Despite a profitable second quarter, slightly higher expectations for the balance of the year, and a plan to escape ultra-competitive airport rentals that are also served by archrivals Hertz (NYSE:HTZ) and Dollar Thrifty (NYSE:DTG), the company faces an uphill battle to become a consistent, growing entity.

At first glance, management expectations for 4%-6% rental day volume growth for all of 2007 appear respectable. However, it expects fleet costs to rise 6%-7%, outstripping the benefits of other positive time and mileage revenue trends. Worse yet, favorable repurchase agreements that Avis Budget has in place with the Big 3 automotive makers of General Motors (NYSE:GM), Ford (NYSE:F), and Chrysler appear to be going the way of the Yugo -- out of existence.

For 2007, about 20% of Avis Budget's fleet will not be subject to agreements where the Big 3 guarantee to repurchase vehicles sold to rental agencies at set prices. The proportion is expected to rise to 50% by 2008, leaving the company much more exposed to the volatile pricing and depreciation movements of domestically manufactured cars and trucks.

Management plans on fighting industry headwinds by growing its "off-airport network expansion, and captur(ing) incremental profit opportunities." It also intends to focus on lowering damage and maintenance costs as well as boost employee productivity -- both of which it said it achieved so far this year.

Aug. 26 marks the anniversary of Cendant's split into four separate companies. The original segment became Avis Budget, with the Realogy real estate unit, Travelport travel business, and Wyndham (NYSE:WYN) hotel franchise sent packing. As such, Avis Budget hasn't had that much time to come up with a crystal-clear game plan on how to navigate challenging industry trends. But, in my opinion, competitive dynamics in the industry and the changing relationship between rental-car agencies and their fleet providers don't bode well for the investment appeal of the space.

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.