The ongoing semiconductor chip shortage has had a massive impact on automakers, as Ford alone has been forced to cut its production in half during Q2 simply because it cannot procure enough chips to build vehicles. This has led to a ripple effect through the automotive industry, causing new and used inventory shortages, record dealer profits, and rising prices. However, the vehicle shortage is also having a big impact on car rental companies that were forced to slash inventory when the pandemic first began.
When COVID-19 halted air travel and led to a severe glut of rental cars just over a year ago, car rental companies were forced to drop their rates to bargain-basement levels and shed inventory, with the entire industry selling off around a half-million vehicles, or around a third of all combined fleets, just to create some revenue to get through the pandemic’s early days.
Now that people are beginning to travel again, rental companies are having trouble rebuilding their fleets because of the chip shortage. This has led to dwindling inventories, and as a result, record rental car prices. Thus, rental car companies are now turning to used cars to beef up their respective inventories.
Companies like Hertz and Enterprise are buying used cars at auction, a big departure from the traditional method of purchasing new vehicles in bulk at a discount. Generally, rental car companies would then rent the new vehicles out for around a year, then sell them off at auction. However, the current state of the market has flipped that completely around.
“You would never go to an auction to buy routine sedans and SUVs,” Maryann Keller, a former Dollar Thrifty board member turned analyst, told Automotive News. “These are special circumstances. There is a shortage of cars.”
“The global microchip shortage has impacted the entire car rental industry’s ability to receive new vehicle orders as quickly as we would like,” added Hertz spokesperson Lauren Luster. “Hertz is supplementing our fleet by purchasing low-mileage, preowned vehicles from a variety of channels including auctions, online auctions, dealerships, and cars coming off lease programs.”
Exploding used vehicle demand and subsequent prices means that this isn’t a cheap endeavor for car rental companies, but high demand for rental cars leading to record rates figures to mitigate that extra expense. “We haven’t seen rates like this in a long time,” said AutoSlash CEO Jonathan Weinberg. “They [rental car companies] will have very good profits.”