Nobody is safe from the never-ending semiconductor shortage. Not manufacturers, who are unable to build new cars. Not consumers, who can’t buy them. And not even rental car companies, which typically buy their fleets from automakers in bulk but have recently had to turn to purchasing used vehicles at auction due to the lack of supply.
Don’t feel too bad for the rental companies, though. They’re going to be just fine.
In fact, Avis just capped its best first-quarter performance since 2015, according to Bloomberg. Rates for ordinary models, like the Chevrolet Spark, are surpassing $100 a day in some parts of the country, like at Detroit Metropolitan Airport, NBC News reported last month.
Carmakers are prioritizing deliveries to dealerships rather than fleets, so rental firms have less inventory to loan out than before the pandemic. That’s forcing them to get creative with how they source their cars. Hertz, for example, says it’s looking to “a variety of channels including auctions, online auctions, dealerships and cars coming off lease programs” to fill its lots.
But demand has been so strong, particularly as the weather’s warmed up and summer draws closer, that Avis, Hertz, Enterprise and the like have been able to jack up their rates to make up for the dwindling supply.
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“We’re seeing some eye-popping numbers.” Jonathan Weinberg, chief executive officer of rental car booking agency AutoSlash, told Bloomberg. Weinberg quotes average daily rates of $100 in Florida, $200 in Hawaii and $600 in Puerto Rico. “We think it will get worse in the next couple of weeks. Vehicle travel is up and vehicle inventory is down.”
Unsurprisingly, the renewed demand for rental cars is mirroring the renewed demand for air travel. Airfares are climbing once again, and the pandemic lows appear to be a thing of the past. The price of an Alaska Airlines ticket for a peak summer flight is already higher than it was in 2019, according to USA Today.
It’s really a perfect storm: You have the pent-up desire for travel, coupled with fewer cars to go around because of the semiconductor shortage. Rental firms’ inventories are shot, forcing them to plumb the used car market and exert yet more pressure on what little supply there is, causing secondhand prices to climb higher. The average price of a used car already rose 17 percent over seven months last year, signaling to economists that we could be in for some serious inflation. From Bloomberg:
The demand is sending used-car costs soaring. The Manheim Index, which measures prices at wholesale auctions, shows they’re 52% higher than they were a year ago.
“We expect to see records in the Manheim Index through June before demand softens enough to align with supply trends,” said Jonathan Smoke, chief economist of Cox Automotive, which owns Manheim, the nation’s largest used-car auction. “We expect retail prices to continue to rise into the summer, as retail trends tend to follow wholesale trends with a six-week lag.”
The end result? There’s less of everything and it’s more expensive than ever before. After the struggles that airlines, rental car companies and any business associated with travel endured last year, they’ll be eager to charge whatever they can to cover their losses. Ultimately, consumers will be the ones getting pinched — just like always.