Industry News: Rental Car Companies Are Buying Up Used Cars

[William Maley]

Around this time last year, rental car companies found themselves selling off a fair amount of their inventory as the COVID-19 pandemic devastated the travel industry. With travel starting to bounce back, rental car companies now find themselves with a new problem - a shortage of vehicles to rent. Usually, they would turn to automakers and buy up a batch of new cars to shore up inventory. But the on-going semiconductor shortage has automakers cutting back on production, and causing rental companies to look at used cars.

“You would never go into auction to buy routine sedans and SUVs. These are special circumstances. There is a shortage of cars,” said Maryann Keller, an independent consultant.

Bloomberg reports that rental car companies do buy a small amount of used cars in the event of an sudden rise in demand, but not to fully outfit their fleet.

New car production has been hampered since last year as plants were shut down to stop the spread of the COVID-19 virus. Production was starting to climb back up later in the year only to be hampered again by another crisis, the lack of semiconductors and chips needed for various systems. In their first-quarter earnings call, Ford reported production was down 17 percent and could fall as much as 50 percent in the second quarter. Other automakers are making similar statements.

“Our fleet acquisition team is working hard to secure additional vehicles -- both new and low-mileage used vehicles -- through all channels to meet the ongoing increase in demand.Overall, though, both new and used car inventory remain low. Our teams will continue to do everything we can to help customers with their transportation needs,” Enterprise spokeswoman Lisa Martini said via email.

There is a silver lining for rental car companies as they'll be able to charge higher rates as many people begin to take vacations after spending a lot of time at home. For example, the average rate at Avis increased 3 percent in the fourth quarter, to $59.43 a day according to Hamzah Mazari, an analyst with Jefferies & Co. He expects that number to rise to $60.00 when Avis reports their first quarter results.

Source: Bloomberg (Subscription Required)

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[David]

OUCH, this is gonna suck for those that do risk going on vacation and need to rent an auto. 

For myself and family, other than local road trips away from society in our own auto's we will not be going anywhere till maybe late 2022 or 2023. Vacation is not worth ones life.

[smk4565]

Smart business move, sell off your rental fleet in a big dump 1 year ago, then buy all those cars back at a higher price this year.  No wonder Hertz filed for bankruptcy.

[balthazar]

It's the industry standard to sell rental cars between 1 & 2 yrs old.

[surreal1272]

On 5/4/2021 at 6:44 PM, smk4565 said:

Smart business move, sell off your rental fleet in a big dump 1 year ago, then buy all those cars back at a higher price this year.  No wonder Hertz filed for bankruptcy.

Because everyone had a crystal ball a year ago during one of the most unprecedented economic collapses of our time (please note heavy use of sarcasm here). Companies like Hertz going bankrupt have zero to do with the circumstances of the past year so maybe you beed to go back and read WHY they had to sell their inventory last year. If they want to stay afloat and pay their staff (or bot go bankrupt), that is what they have to do when the money stops flowing all of a sudden. Knowing things like that, what would you have done different?

Edited May 7, 2021 by surreal1272

[Robert Hall]

Rental car companies, like airlines and hotels, were uniquely hit by last year's events, with the sharp curtailment in business and personal travel. 

[smk4565]

12 hours ago, surreal1272 said:

Because everyone had a crystal ball a year ago during one of the most unprecedented economic collapses of our time (please note heavy use of sarcasm here). Companies like Hertz going bankrupt have zero to do with the circumstances of the past year so maybe you beed to go back and read WHY they had to sell their inventory last year. If they want to stay afloat and pay their staff (or bot go bankrupt), that is what they have to do when the money stops flowing all of a sudden. Knowing things like that, what would you have done different?

Hertz paid their CEO $8 million in 2018, $9.1 million and 2019 and then she resigned in 2020 when they filed bankruptcy.  They paid their CFO $3.9 million on 2019.  These people obviously were not worth what they paid them, other wise the company wouldn't be bankrupt.  Sure the pandemic hurt, but not everyone went bankrupt, they filed bankruptcy like 1 month in, so they were headed there anyway.

And Wall Street Journal reported last May that Herz paid out $16 million in bonuses to 340 executives as they laid off 10,000 people and sold all these cars off.  So $13 million wasted on the 2 people that led them into trouble, and then $16 million on undeserved bonuses, because no executive at a company filing bankruptcy deserves a bonus.  So there is $39 million wasted right there, they could have kept 1,500 cars with that money rather than sell them, and that is 1,500 they wouldn't have sold at a loss and now had to overpay to get back now.

Also why didn't they have a cash reserve to survive a few bad months?  

[daves87rs]

Sweet....if used car prices weren’t high enough, now you have to fight businesses for them too...