By on May 4, 2021

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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18 Comments on “Rental Agencies Uncharacteristically Buying Used Cars...”

  • avatar

    Given that many auction cars are already former daily rentals, it’s likely your next Altima with 39k miles on it is a rental on it’s second tour of duty. When new car supply eases up and those rentals get sent to auction, that Altima will have already done duty as a rental in two different fleets. Imagine the abuse heaped on a rental that’s on it’s second rodeo!

    • 0 avatar

      Imagine not only the abuse, but the minimal maintenance. When the agencies sold off such a huge portion of their fleet, they laid off a huge portion of workforce, and not just the desk agents.

      You have to wonder how many experienced mechanics decided to call it a career and didn’t come back. They’re likely to be replaced by younger, less experienced mechanics, who don’t know how to look for evidence of abuse, or how to take remedial action.

      • 0 avatar

        Brings up a question I have no idea how to answer: how much repair work is actually done by the rental agencies themselves? I imagine they would just take it to a dealer, since the car’s under warranty.

        • 0 avatar

          I worked at one and they did the majority of maintenance in shop. They were even approved to do certain recalls by some manufacturers. They keep all of the service records in their systems and have the cars on schedules to do maintenance.

          The company I worked for bought tons of used vws on the cheap for the summer seasons few years ago and even bought old rentals from our competitor

    • 0 avatar

      I’ll go out on a whim and say the vast majority of rental cars are not abused at all. People simply drive them and return them. Then it ends up on the used car lot a year or two old under full warranty for serious savings over a brand new one. You’ve likely had a rental and not even know it, all of us have.

      • 0 avatar

        MoDo, It’s not an issue of abuse as much as it is poorly maintained vehicles. Bald tires, warped brake rotors, rattles going unattended, delayed maintenance like oil changes and brake fluid flushes.

        Best case scenario is that rental cars weren’t abused but may or may not have been maintained.

        • 0 avatar
          SCE to AUX

          Why would a rental agency not maintain its vehicles? They are a money-making asset that does them no good if customers are left stranded with broken cars.

          I’d argue that a rental probably receives more regular service than a random used car on Craigslist.

          • 0 avatar

            SCE, I guess you’ve never picked up rentals with poor brakes, bald tires or service lights on. I have. Several times.

            They’d not maintain them for the same reason any big company cheaps out.

          • 0 avatar
            Art Vandelay

            I currently have a 2021 Highlander from National. I have it because the Armada they originally tried to give me had a check engine light. The Highlander at 6000 miles is the newest vehicle I’ve had in months. Still, it looks like someone tried to drive it into a garage with the hatch open and scraped it on the opening. About 1/3 of the time it won’t open when you hit the button and the “dealer service required” warning comes on.

            I rent frequently from all over. At least at National, the fleet has definitely become more hoptiefied in my experience.

          • 0 avatar

            I have rented cars with low tire pressure, and the facility doesn’t even have an air compressor. Most likely they don’t have motor oil on hand, either, much less brake fluid or wiper blades.

            I had a car reserved once, a few years ago, and when I arrived at the rental office, there were NO cars at all. Eventually someone returned a car, so that’s the one that I got.

        • 0 avatar

          In my experience working for a rental company., the average renter doesn’t drive the car crazy. They are usually business rentals to the hotel. Families are usually pretty careful because they worry about extra charges for any damage that may happen.

          The rental companies don’t always own all of their vehicles either. I know where I worked at they had lots of Stellantis products that were leased from the manufacturer. These leases usually had to stay under a certain amount of miles, usually lower than the rest of the fleet. When the vehicle got close to the limit the system would flag the vehicle and it would be pulled from service so it could be returned.

          • 0 avatar

            Even if they aren’t leased many mfgs have buy back agreements where they will purchase a certain percentage back from the rental company at a predetermined price, IF the car has the maintenance records, wasn’t in an accident, or otherwise damaged.

      • 0 avatar

        Rentals are usually not abused if they want to sell them later. Those who rent rental cars are no worse than the slum dwellers leasing from a 0 down subprime loans.

  • avatar
    SCE to AUX

    Our 09 Sedona was a Hertz rental in its first year of life. Maybe they’d like to buy it back now.

  • avatar

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

  • avatar
    cimarron typeR

    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.

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