Avis said it had made significant progress in obtaining regulatory clearance for the Dollar Thrifty acquisition, but had decided not to pursue a transaction due to current market conditions.
Avis and rival Hertz have been chasing Dollar Thrifty for more than a year, amid growing consolidation pressure in the industry, and were in separate talks for antitrust approval.
Dollar Thrifty had set a deadline of 10 October for both the companies to make their final buyout offers, to end the continued uncertainty surrounding the deal.
It also adopted a poison pill to thwart unfriendly takeovers after Hertz raised it buyout offer in May.
Hertz’s offer is currently worth about $1.92bn (£1.22bn), based on the stock’s last closing price.
However, after Avis acquired its European namesake in June for about $1bn, Wall Street’s expectations of a higher bid from Avis had come down significantly.
Avis had not matched Hertz with a counter bid.
Hertz first agreed to buy Dollar Thrifty in April 2010, in a $1.2bn deal that would have created the second-biggest US car rental company.
But Avis filed a counterbid of about $1.33bn that July, topping the Hertz offer and starting a bidding war that has rumbled on ever since. Shares of Hertz jumped nearly nine per cent to $10.88 in early morning trading, making them one of the top gainers on the New York Stock Exchange.
Dollar Thrifty shares rose 0.53 per cent per cent to $65.04, while Avis’ shares rose 6.3 per cent to $12.48 on the Nasdaq.