As billions of people shelter in place, many household brand names are struggling to find their footing. Hertz Rental Car is one of them. With the drastic decline in travel (both business and personal), Hertz is faced with more uncertainty than ever before. As Hertz contemplates filing for bankruptcy, our team at CarEdge is considering what impact that would have on the used car market, and specifically used car prices and deals for consumer.
Should you buy a used car today, or wait a few weeks or months to get a better deal? That’s the money-saving question, and Hertz’ bankruptcy decision will certainly implicate what makes the most sense.
With a total fleet of over 856,800 vehicles globally (as of 2018), it’s safe to say that Hertz has a lot of vehicles under their ownership. What would happen if Hertz has to liquidate those assets to pay back their creditors? In the United States alone, the company has more than 500,000 vehicles under their ownership. If Hertz files for bankruptcy and has to sell all of these used cars, what would happen to used car prices?
Used car pricing is demand driven
It’s important to understand that car dealerships base their used car prices off of “market value.” Like I’ve written about in the past when discussing how much dealers mark up their used car inventory, dealerships use software like vAuto to constantly adjust their used car prices to reflect what people are paying for similar cars in their region.
That being said, if there was an influx of used cars that flood the wholesale market, we would anticipate that demand to purchase those cars would not keep up, ultimately lowering the price per vehicle. We’ve already seen a decrease in wholesale prices for used vehicles, with a historic 9.2% drop in whole prices recorded in April, according to data reported by Manheim Auto Auctions, the largest purveyor of used car auctions in the United States.
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Hertz, and their creditors desperately want to avoid having to liquidate their inventory of vehicles, because they know prices are already suppressed. According to Bloomberg, they’re looking for any option other than a “fire sale.”
But what would happen if hundreds of thousands of used cars immediately flooded the market? Because of the sheer scale of their liquidation, it’s not likely that Hertz will be able to liquidate many vehicles directly to consumers. That means car dealers will buy up their inventory at suppressed prices, and in return sell them at lower prices (of course with a margin still built in).
If the supply side of our equation increases by 500,000+ units, and the demand side stays the same, you ultimately have a decrease not only in wholesale prices, but also retail prices. Car dealers will need to sell their inventory to sustain their cash flow, and in theory, good deals should be for the taking. Ultimately a large increase in used car supply will trigger car dealership’s “dynamic pricing” tools to rapidly lower their selling price, while still maintaining some profit margin, at least that’s our supposition.
Is buying a used rental car a good value?
One of the questions I get asked frequently is if buying a rental car is a good value. The answer is, it depends.
With Hertz potentially liquidating hundreds of thousands of cars, I can assure you there are some vehicles they’ll be selling that you’ll want to avoid, and some you’ll certainly want to take a closer look at. How can you tell which rental cars make good used cars? Here’s my advice.
Take into consideration where the car was driven. To find this out you can look at the vehicles CarFax report. Although it won’t tell the full story of what a vehicle has been through, knowing where it spent most of its time is helpful.
For example, very recently we helped a client purchase a used car in Anchorage, Alaska. The vehicle was previously a rental car, and it only had 14,000 miles on it. Why? Because in Alaska they have an incredibly short summer rental season, and this car had been driven hard for three months, and then was ready for sale to a local resident. What did that mean for our client? They got a great car, at a great price, with relatively few miles, in driving conditions that focused entirely on highway roads, not city streets. In this example, buying a rental car is a great used car value.
On the other hand, if you’re looking to buy a rental car and it spent most of its days in a major city center, you may want to think twice. Scratches and dings are almost certainly going to be present. How many potholes can one car drive over before the tires need to be realigned? The brake pads may be worn, etc, etc.
If you do want to buy a rental car as a good used car value, you’ll want to get a pre-purchase inspection completed in advance, to confirm everything is in good working order.
How to buy a used car directly from Hertz
Whether Hertz goes bankrupt or not, you can buy vehicles from them. Hertz Car Sales is a business unit within Hertz that comprises 75 retail store fronts nationwide. Hertz Car Sales would not be able to support the liquidation of all Hertz inventory in the event of bankruptcy, however it is likely they would see an increase in used car sales.
That being said, Hertz Car Sales takes a “one price” approach, which means you will not be able to negotiate the selling price of a vehicle. Time will tell, but you may end up getting a better deal if you buy a car through a dealer instead.
Keep in mind other car rental companies, like Avis, Budget, and Enterprise also offer similar programs which may be worth investigating at this time too.
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