Automakers have shifted most of the remarketing responsibility for the cars and trucks they sell into rental fleets over to those rental car companies. That was supposed to shift the risk of depreciation and deteriorating values onto the rental fleets.
It hasn't worked out that way. What was supposed to be a risk has turned into a reward.
Rental companies are keeping vehicles longer and packing on more miles. Most years there would be a penalty to pay for selling older, higher-mileage cars at auction. But because of an industrywide tight supply of used vehicles, rental fleets are getting more money for those older vehicles.
That's just one of several unexpected turns in the rental-fleet world.
For decades, rental fleets played a straightforward role in the automotive world. They bought trainloads of cars, often from automakers that had overproduced. After running those cars in their fleets for a year or less, they shipped them to closed auctions -- auctions that sold, for example, Ford Motor Co. cars retired from rental fleets only to Ford dealers. That provided a steady flow of nearly new vehicles to dealers.
But that has changed. Now rental fleets play a more complex role in auto retailing. They're selling retired vehicles in auction sales open to all dealers, including independent used-car dealers, which is driving up prices. Because they're often holding vehicles longer, the flow of used vehicles to dealers is less predictable. And they're selling directly to consumers, cutting out dealers completely.
And in some cases they're even buying used vehicles, competing at the auctions with the very dealers they supply.
The most fundamental change came with the shift in who bore the financial risk for cars sold to rental fleets.
The 1990s and 2000s were the heyday of so-called program vehicles -- vehicles for which the factory assumed the depreciation risk and remarketing expenses.
The auto industry, and especially the Detroit 3, relied heavily on sales to rental fleets at discounted prices to keep their factories humming and their sales numbers rising.
But after as little as four to six months, those rentals returned to the market, often in large numbers. That wave of returning cars and trucks depressed used-vehicle prices, slashing residual values and bringing heavy losses for the automakers, which were responsible for remarketing them.
It was a loser's game, but an addictive one. Early on, the sales manager at an automaker who pushed several truckloads of cars into a rental fleet got credit for higher sales. The problem of losses on the remarketing of retired fleet vehicles fell to some other poor sap -- and, of course, the automaker's bottom line.
As the years went by, program cars became ingrained in automakers' sales strategies. Indeed, automakers bought rental-car companies, which became effectively captive markets.
The automakers began weaning themselves from program vehicles, but slowly. In 2003, 65 percent of rental vehicles were program cars, down from more than 90 percent in 1995. In 2007, just before the recession hit, program vehicles slipped below half of all rentals.
Coinciding with that shift was a drop in rental-fleet volumes. New-vehicle sales to rental fleets dropped by a third, to 1.4 million in 2011 from 2.1 million in 2006.
The General Motors and Chrysler bankruptcies led to cuts in factory capacity. That in turn reduced the pressure to use rental fleets as an outlet for excess production.
Today, so-called "risk" vehicles -- those for which rental companies, not automakers, assume financial responsibility for remarketing -- make up the bulk of rental fleets.
Tom Webb, Manheim's chief economist, says risk vehicles made up about 75 percent of the 1.4 million new vehicles sold to rental companies in 2011, with program vehicles making up the rest.
Risk vehicles now typically stay in rental fleets 12 to 18 months and have upwards of 40,000 miles on the odometer when they are retired.
Prior to the recession, risk vehicles typically stayed in fleets less than a year and went into the remarketing pool with mileage in the high-20,000s.
By comparison, program vehicles today typically stay in fleets less than one year and have about 20,000 miles.
Despite their higher miles, risk vehicles had an average auction price of $14,192 in 2011, Manheim data show. That is up from $12,229 in 2010 and $11,748 in 2009.
Webb said Manheim does not compile similar price data on program vehicles. But Tom Kontos, ADESA Auctions executive vice president of customer strategies and analytics, citing data from AuctionNet, said program vehicles had an average price of $19,850 in December, up 4 percent from December 2010.
The AuctionNet database contains 80 percent of the auction transactions in the United States.
The rise in prices is part of a broader trend in the used-car market.
The collapse of new-vehicle sales and leasing in 2008-09 has left a skimpier supply of used vehicles throughout the market.
That shortage sent used-vehicle prices soaring last year, and prices are expected to remain high this year.