Rental Agencies Uncharacteristically Buying Used Cars

Matt Posky
by Matt Posky
rental agencies uncharacteristically buying used cars

With rental companies coming off a particularly lean 2020, fleet downsizing turned out to be a necessity for many agencies. Unfortunately, demand for rental vehicles has begun to return and some markets have found themselves operating with an insufficient number of cars. The upside to this is the ability to charge exorbitant fees for models nobody wanted to rent in the first place. But businesses can’t cash in on vehicles that didn’t get rented, leaving agencies desperate for new product that’s been backlogged by the auto industry’s semiconductor shortage.

The solution is a novel one, at least for rental companies. Rather than gamble the business on whether or not supply chains normalize before summer, they’ve been prowling auctions and hoovering up used cars in record numbers.

Normally, rental agencies buy their fleets in bulk straight from the manufacturer, with second-hand models usually just being there to help address holes in the mix of vehicles offered or strengthen regions that are experiencing unexpectedly high demand. But this year required them to procure cars by any means necessary.

While the semiconductor shortage plays a major role here, the keystone issue is the massive selloff renters engaged in when demand dried up during lockdowns. Most firms sold far more cars than they would have in a normal year, leading to a glut of cheap, low-mileage automobiles that helped surpass secondhand valuations. Now the inverse is becoming true, with the asking price for used cars increasing dramatically. The Manheim Index, which tracks wholesale auction pricing, has them 52 percent higher than they were this time in 2020.

But it’s not bad news for an industry that’s coming off a particularly harrowing financial period. With demand spiking, rental firms can now move just about everything within their fleets at substantially higher prices. The only major downside is that consumers have to pay those wild prices while used vehicle values also go through the ceiling.

“We expect to see records in the Manheim Index through June before demand softens enough to align with supply trends,” Jonathan Smoke, chief economist of Cox Automotive, which owns Manheim, told Bloomberg this week. “We expect retail prices to continue to rise into the summer, as retail trends tend to follow wholesale trends with a six-week lag.”

From Bloomberg:

Avis Budget Group Inc. posted record margins in the Americas during the first three months of the year and grew revenue per day by 12 [percent] to almost $60. The company lost $170 million on a net basis, but made $47 million in adjusted earnings before interest and taxes — its best first quarter performance since 2015. It declined to provide full-year guidance, citing volatility in vehicle supply and other issues.

“The global semiconductor shortage is causing uncertainty in fleet supply and resulting in tighter fleets throughout the industry,” Avis Budget said in a statement. “We have historically navigated through significant vehicle recalls, and believe we have the logistics in place to effectively manage our fleet during this disruption in supply.”

Hertz is adding as many cars to its fleet as it can to support the travel rebound, including used cars, spokeswoman Lauren Luster said in an email.

Don’t expect this to result in rock-bottom pricing on your next rental car, however. Prices are already high just about everywhere and unlikely to go down over the next few months. Rental companies claim they’re just ensuring adding vehicles to serve more customers and estimate vehicles storages will remain a problem in areas where people typically like to vacation. If there’s anything of interest in the state you’re renting, rates of over $100 are likely even if you booked weeks in advance. But we’ve seen fees momentarily eclipsing $500 per day in places like Hawaii and Puerto Rico, suggesting their average rates will be substantially higher.

[Images: IJzendoorn/Shutterstock]

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  • Readallover Readallover on May 04, 2021

    I would think this situation would be manna from heaven for Mitsubishi and Fiat. But, maybe they don`t want fleet sales.

  • Cimarron typeR Cimarron typeR on May 05, 2021

    I'm in the camp that only magazine editors abuse rental cars. Our JLR dealer uses Enterprise for its loaner cars, and they only give out JLR products. I think its cheaper from a liability standpoint . They probably buy them from them from Enterprise after a year to be used as CPO . Last month mine was a 4 cyl. Velar with NY plates. I suppose they shifted vehicles to places more likely to be rented.

  • SCE to AUX Toyota the follower, as usual. It will be 5 years before such a vehicle is available.I can't think of anything innovative from them since the Gen 1 Prius. Even their mythical solid state battery remains vaporware.They look like pre-2009 General Motors. They could fall hard.
  • Chris P Bacon I've always liked the looks of the Clubman, especially the original model. But like a few others here, I've had the Countryman as a rental, and for the price point, I couldn't see spending my own money on one. Maybe with a stick it would be a little more fun, but that 3 cylinder engine just couldn't provide the kick I expected.
  • EBFlex Recall number 13 for the 2020 Explorer and the 2020 MKExplorer.
  • CEastwood Every time something like this is mentioned it almost never happens because the auto maker is afraid of it taking sales away from an existing model - the Tacoma in this instance . It's why VW never brought the Scirrocco and Polo stateside fearful of losing Golf sales .
  • Bca65698966 V6 Accord owner here. The VTEC crossover is definitely a thing, especially after I got a performance tune for the car. The loss of VTEC will probably result in a slower vehicle overall for one reason: power under the curve. While the peak horsepower may remain the same, the amount of horsepower and torque up to that peak may be less overall. The beauty of variable cam lift is not only the ability to gain more power at upper rpm’s on the “big cam”, but the ability to gain torque down low on the “small cam”. Low rpm torque gets the vehicle moving and then big horsepower at upper rpm’s gains speed. Having only one cam profile is now introducing a compromise versus the VTEC setup. I guess it’s possible that with direct injection they are able to keep the low rpm torque there (I’ve read that DI helps with low rpm torque) but I’m skeptical it will match a well tuned variable lift setup.
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