Rental Agencies Uncharacteristically Buying Used Cars

Matt Posky
by Matt Posky

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]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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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.

  • TheMrFreeze That new Ferrari looks nice but other than that, nothing.And VW having to put an air-cooled Beetle in its display to try and make the ID.Buzz look cool makes this classic VW owner sad 😢
  • Wolfwagen Is it me or have auto shows just turned to meh? To me, there isn't much excitement anymore. it's like we have hit a second malaise era. Every new vehicle is some cookie-cutter CUV. No cutting-edge designs. No talk of any great powertrains, or technological achievements. It's sort of expected with the push to EVs but there is no news on that front either. No new battery tech, no new charging tech. Nothing.
  • CanadaCraig You can just imagine how quickly the tires are going to wear out on a 5,800 lbs AWD 2024 Dodge Charger.
  • Luke42 I tried FSD for a month in December 2022 on my Model Y and wasn’t impressed.The building-blocks were amazing but sum of the all of those amazing parts was about as useful as Honda Sensing in terms of reducing the driver’s workload.I have a list of fixes I need to see in Autopilot before I blow another $200 renting FSD. But I will try it for free for a month.I would love it if FSD v12 lived up to the hype and my mind were changed. But I have no reason to believe I might be wrong at this point, based on the reviews I’ve read so far. [shrug]. I’m sure I’ll have more to say about it once I get to test it.
  • FormerFF We bought three new and one used car last year, so we won't be visiting any showrooms this year unless a meteor hits one of them. Sorry to hear that Mini has terminated the manual transmission, a Mini could be a fun car to drive with a stick.It appears that 2025 is going to see a significant decrease in the number of models that can be had with a stick. The used car we bought is a Mk 7 GTI with a six speed manual, and my younger daughter and I are enjoying it quite a lot. We'll be hanging on to it for many years.
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