The 3-year-old compact vehicles typically found in rental fleets were just what dealers wanted this year: late-model, fuel-efficient cars.
Dealers snapped them up. As a result, prices of those vehicles appreciated 8 to 10 percent this year, compared with flat prices for similar vehicles that weren't from rental fleets, says Alec Gutierrez, manager of used-vehicle valuation at Kelley Blue Book.
But even after the price increase, vehicles sold heavily into rental fleets are still available at a discount relative to other vehicles in their segments, making them a good buy for dealers, Gutierrez says.
Here's why: Vehicles going into rental fleets are typically cheaper than similar vehicles in their segments because their sticker prices and trim levels are lower to start. Once out of service, their condition is generally rougher and their mileage generally higher than their nonrental peers.
"Overall, dealers can expect to save more than $2,000 when purchasing a 3-year-old" compact heavily sold into rental fleets, compared with buying a 3-year-old nonrental compact, Gutierrez says.
He predicts used prices for the entire market, including compact cars, will remain flat into January and then begin to climb in February as dealers stock up for sales next spring.
Former rental cars are doing well because they are in the age bracket that is in particularly short supply these days: 3 years old and under, says Tom Kontos, executive vice president of customer strategies and analytics at ADESA Auctions Inc. "The tight supply almost dwarfs all factors as far as what's going on with used-car prices," he adds.
Tom Webb, chief economist at auction company Manheim, says rental-car fleets are diverse, reducing the chances that too many of any one model will return to the market at a given time, depressing prices for that model.
Webb and Kontos say dealers don't care whether a vehicle is a former rental unit. What matters is its condition and equipment. "The dealer is interested in a particular make, model and price point," Webb adds.
Still, the tight used-vehicle supply will continue to buoy prices, analysts say. Supply is tight because of weak new-vehicle sales in 2008-09, a shortage of off-lease vehicles, and the Detroit 3 making good on promises to reduce rental fleet sales in general and program vehicles in particular.
Program vehicles are cars and trucks that automakers buy back after they are retired from rental service. They dominated rental fleets from the early 1990s until just prior to the onset of the recession. Once rental-fleet companies bore the responsibility and risk of selling out-of-fleet vehicles, those companies became more cautious in their purchases of new cars and trucks.