Hertz, Other Rental Companies Feeling the Pain as They're Forced to Buy Used Cars
Rental car companies are purchasing whatever they can find as new car production remains tight due to component shortages.
The tumultuous times don’t stop for the rental car industry, which continues to feel the shocks of the pandemic well into 2021. Last year, rental car companies shed hundreds of thousands of cars from their fleets, as big names like Hertz and Enterprise looked to cushion their bottom line in the face of an unprecedented drop in demand. However, as the country opens up again, those same companies now find themselves short on vehicles, at the same time as automakers are struggling for stock themselves. The solution? Scooping up cars on the used market, according to Bloomberg.
It’s an unconventional step, one outside the usual business model. Typically, rental companies purchase huge numbers of cars new in major fleet deals made direct with automakers. These cars are then rented out to the public for a certain period before being shuffled off to auction. The model has quickly fallen apart, however, as automakers struggle to get cars out the door due to the ongoing semiconductor shortage. This affects rental companies particularly keenly, as production facilities focus on the highest-margin models rather than lower-tier economy models more typically found in rental fleets.
With nowhere left to go, the big names in rentals are shopping on the used market instead. Don’t expect to see a desperate chancer in a Hertz polo showing up to your house looking for a deal, though. With the volumes required, wholesale purchases are where it’s at, with the Manheim index showing prices are up 52% on the same time last year.
Despite this, one needn’t worry about the rental companies doing it too tough. With demand high and supply limited, rental prices are skyrocketing as there simply aren’t enough cars to go around. At the time of writing, a one day Focus rental in LA cost over $300, and even a Mirage in Florida was quoted at $96 a day. Fear not, for those who loathe Mitsubishi’s cheapest compact, a Corolla is available for an additional $2. Meanwhile, Bloomberg reports AutoSlash, a website that helps track down cheap rental cars, has noted the uptick in prices. CEO Jonathan Weinberg expects the trend to continue for a while yet. “We think it will get worse in the next couple of weeks. Vehicle travel is up and vehicle inventory is down,” Weinberg said.
The high margins being made on existing stock should go a long way to propping up the rental companies while things get back on track. In the meantime, perhaps reconsider that fly-and-drive holiday until the market cools down. Otherwise, prepare to get comfy in the front seat of your rental Mitsubishi Mirage—assuming there’s still one left on the lot!
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