Fleets join the club of those looking to acquire vehicles

Brett Myslewski said his store has fielded the calls: rental-car companies looking for deals on vehicles, similar to how they would buy discounted fleet cars from automakers.

"They want us to give away the cars," Myslewski said with a laugh, "and we barely even have cars to sell for us — let alone fleet deals."

Everyone needs cars and trucks: dealers, customers and now — apparently — rental-car companies.

This shortage of new and used vehicles has created a conundrum for dealership staffers across the U.S., including Myslewski, the used-car manager at Meegan Ford in Connellsville, Pa., an hour southeast of Pittsburgh. His store has about 88 used vehicles on its front line ready to sell. In a typical month, 50 to 60 will be sold.

"Most of these vehicles, I could send them to auction and I can get what I'm asking for them online," he said. "The problem is, I have nothing to replace them with."

Major rental-car companies with their large fleets are known to buy when prices fall and sell when they rise. But instead of unloading their fleets to make a decent profit, with prices currently soaring, rental-car companies have been scouring the country for additional vehicles while holding on longer to the ones they have.

And like auto retailers large and small, the rental-car companies also have turned to customers for vehicles.

"Right now, we are seeing rental companies attempt to purchase used units, both at wholesale and also direct from consumers," said David Paris, executive analyst at J.D. Power.

He noted an email from Enterprise that included a button to value one's vehicle with the words, "We want to buy your car even if you don't buy from us."

The overall shortage of vehicles comes as more Americans emerge, ready to travel, from various levels of staying at home for more than a year during the coronavirus pandemic. Demand, combined with the lack of vehicles, has driven up rental-car rates.

In an emailed statement, Enterprise Holdings Inc. noted that it, like the rest of the industry, is seeing increased demand for vehicles for spring and summer travel.

"Our teams are continuing to do everything we can to help customers," Kurt Kohler, the company's senior vice president of fleet acquisition and remarketing for North America, said in a statement. "This includes implementing a fleet preservation strategy, with less remarketing of our vehicles to ensure we have as many vehicles as possible available to meet their transportation needs."

In a call with investors and analysts, Avis Budget Group Inc. CEO Joe Ferraro said the company is working "hand in hand" with automakers, including daily conversations about how to deal with the situation. The company is carefully managing its fleet, he said, and one silver lining of the pandemic has been "our vehicles just didn't have as many miles put on them, allowing us the flexibility to hold them slightly longer."

The company also is investing in preventative maintenance to get more miles out its existing fleet, Ferraro said.

According to Cox Automotive, the average mileage for rental risk units in April was 82,800 miles, a 62 percent increase from the same time last year. That figure was up 23 percent from March to April of this year. Rental risk units are vehicles that rental-car companies own outright, and they represent the vast majority of rental cars in operation, said Zo Rahim, manager of economics and industry insight at Cox Automotive.

The average price for rental risk units sold at auction was up 32 percent in April compared with the same time a year earlier, and it was up 7 percent from the previous month. Rahim said that year-over-year comparisons can be exaggerated because April 2020 figures were unusually low given the early stages of the pandemic.

"What's notable is, of course, the price moves on a month-over-month basis," he said. "Not only are prices moving up for rental vehicles, or rental cars that are entering the wholesale market, these are higher-mileage vehicles."

Increasing prices along with higher-mileage vehicles is another unusual byproduct of a topsy-turvy used-vehicle market.

Rental-car companies are "de-fleeting vehicles that are definitely near the end of their service period," Rahim said. But not much. Figures from J.D. Power show that year-to-date rental fleet sales through May 2 are down 33 percent compared with the same period in 2020 and are 55 percent lower than that time in 2019.

Meanwhile, the surge in demand from consumers — for both retail and rental vehicles — has led to a rising value for bankrupt Hertz Global Holdings. The company's shares were trading at 66 cents on March 4 and closed at $6.80 on Friday, May 14.

Last week, after a competitive bidding process, Hertz picked Knighthead Capital Management and Certares Management to buy the company out of bankruptcy.

Hertz, too, noted in an email a surge in demand for leisure travel throughout the U.S. amid limited availability for rental cars. The company in November secured $4 billion in financing to help shore up its vehicle fleet.

"Hertz is supplementing our fleet by purchasing low-mileage, pre-owned vehicles from a variety of channels, including auctions, online auctions, dealerships and cars coming off lease programs," Lauren Luster, director of communications, said in an email. "We're buying a variety of makes and models, including many small and midsize SUVs, which continue to be in high demand for rental customers."

John Healy, an analyst with Northcoast Research, said he does not expect Hertz's bankruptcy, at this stage, to be a big factor in the used-vehicle market.

"Typically, rental-car companies impact the used-car market when they're selling cars," he said. "Right now, you're actually seeing the opposite."

Healy said rental-car companies will typically sell more vehicles in the fall, but the way things are going, he doesn't see that happening.

The rental-car market returning to normal will depend a lot on automakers producing more cars and trucks.

Still, the low level of vehicles going into rental fleets likely will impact the used-vehicle market considerably longer than the lack of new vehicles will affect rental-car companies. Commercial vehicle production has slowed and even halted for more than a year, said Dale Pollak, the creator of vAuto inventory tracking software and executive vice president at Cox Automotive.

Once that commercial fleet supply resumes, it will have to eventually cascade down into the wholesale and used-vehicle markets — but only after those vehicles have been in the rental-car companies' fleets for a while.

"It's going to take years for that pipeline to reestablish itself anywhere near what it's been in historical times," Pollak said. "So there is going to be a shortage of late-model used cars for years — literally for years."

In the meantime, a shortage of all vehicles persists. Myslewski, the used-car manager, said there's a small Hertz rental location at one of the Pennsylvania dealership group's collision centers. As of late, it's been closed.

"Because all the other bigger locations need cars," Myslewski said, "they don't even have any vehicles at that location for them to rent out."