The rental car industry woes could cause used car prices to drop dramatically by late summer.
Published on May 26th, 2020. Last Updated on .
The nation's shelter-in-place mandates have not been kind to rental car companies. Air travel has all but stopped, vacations have been cancelled, and business trips foregone and replaced by Zoom calls. To top it off, nobody has any place to go, and that's not good if you're a rental car company.
As a result of this travel moratorium, rental car fleets sit idled, with scores of multi-acre parking lots filled with minivans and SUVs, waiting for the country to get back to business. But, as Tom Petty has said, "the waiting is the hardest part". As a result, rental car executives can see the writing on the wall, and realize that hundreds of thousands of vehicles sitting on the pavement is not good for either their balance sheet or their income statement. Idled cars don't appreciate in value as they get older, and their carrying costs remain high, as insurance, maintenance and storage costs all continue, regardless of customer use. With such, rental execs understand that they need to unload much of their 1.5 million in inventory, and do so ASAP.
Like the airlines, revenue for the rental companies have hit the brakes hard, and they're leaving skid marks. We have already seen Hertz declare bankruptcy, and it's likely that more will follow Hertz' lead. Not only do the rental companies likely have over a 1/2 million vehicles to shed from their inventory, but it's at a time when no one is driving-anywhere. As a result, demand for both new and used vehicles is low, and dealer inventory levels are high as well. With such, we have a glut of used vehicles on the market. As any economics student can tell you, low demand coupled with high supply, leads to lower prices-and again, that's not good news for the rental companies.
The online company that tracks vehicle depreciation, www.usedfirst.com, estimates that even under normal circumstances, new vehicles will lose 23% of their value just in the first year alone, providing used car buyers a substantial discount versus buying new. UsedFirst.com now estimates that this 23% discount could rise to 30% or more before the end of the year, affording those looking for a slightly used vehicle with quite a bargain. The marketplace is already seeing this, as prices at the recently-opened auto auctions are starting to show some pressure-and this is before the rental car companies have really begun to lessen their fleets in earnest. As the summer drags on, and rental companies look to significantly pare back their respective inventories before a new model year begins, be on the lookout for substantial price cuts at the dealerships-especially for those models that have been popular with the rental companies-Nissan, Toyota, Chevrolet and Chrysler.
If you need a new ride, and are willing to be patient, the end of the summer sales ought to be sizzling indeed. To see the vehicle makes and models that do the best in terms of annual depreciation, visit UsedFirst.com/ranks, or for a comparison of models you are considering, click on UsedFirst.com/compare. Happy hunting!