Photo via iStockphoto.com/Tina_RencelJ
It was a dark and stormy night at Ajax Rent A Chariot. Brutus and Cassius were meeting in the backroom.
“We’ve been putting off our fleet plan long enough,” Cassius said. “If we don’t order our chariots this week, we will not have enough chariots for the Feast of Dionysus. You know how those Sicilians get if we can’t fill their reservations.”
“So do we order ‘risk’ or ‘repurchase’?” Brutus said.
“It looks like the chariot makers will do anything to sell a few more chariots these days. That doesn’t bode well for used chariot prices,” replied Cassius.
“I think it’s time to look at repurchase again.”
“Sounds good. Now let’s get back to that conversation on Caesar.”
While your rental company might not have not been in the fleet business at the time of Ajax Rent A Chariot, some things never change. When you look over your rental fleet, you see your biggest asset and your biggest liability.
If you buy right, depreciate right and sell right, you make money. If you depreciate wrong or buy wrong, you’ll end up selling wrong and losing money.
Changes to the Ecosystem
The car market is an ecosystem made up of sub markets that nourish each other. New cars flow into franchise dealers, car rental companies and commercial and government fleets. Franchise dealers sell and lease new cars, take trade-ins and buy and sell used cars at auctions.
Car rental companies sell their risk cars to wholesalers, auctions, dealers and end users. Cars flow from one market to another as they age and accumulate miles.
But the ecosystem faces new challenges this year, which will affect how you operate your fleet. The challenges are both new and old. Here’s what to watch out for:
A Chase for Market Share
For the last few years, buying risk cars was a good decision. Reduced new car availability and a lack of lease car returns — combined with an improving economy — made for a strong used car market.
Sales of new cars into rental fleets by the manufacturers have returned to normalized levels after the supply disruptions from 2008 to 2011. One would hope that the manufacturers have learned that the race for higher market share by over fleeting the rental industry does not work to anyone’s advantage.
Nonetheless, some manufacturers have announced a corporate goal to increase market share. In the past, this meant increased incentives to the retail customer and increased volumes to the rental car market. This, in turn, reduces residuals and hurts the rental car company’s profits.
Return of Off-Lease Vehicles
The used car market is bracing for an influx of off-lease vehicles.
Manufacturers restarted the leased car market in 2011. Those vehicles are starting to enter the wholesale market and will continue to over the next few years.
Since many rental fleet managers have gotten used to leaving their vehicles in service longer, those higher mile vehicles will be competing directly with this growing inventory of off-lease vehicles.