Extended Hold Times vs. a Short Cycle

Compared to two years ago, car rental companies have increased the number of months they keep rental units in fleet. What's behind the increase? Through Manheim auction data, a survey conducted by Auto Rental News and operators' insights, we make sense of the new normal.

External Factors

The higher mileage trend was driven less by the choice of car rental companies and more by external factors. It started with skyrocketing fuel prices in the summer of 2008, which wrought havoc on the used-car market and caused wild swings in residual values. Though the trend had already been set in motion, OEMs lost their appetites for repurchase programs. The subsequent collapse of the bond market produced liquidity issues and forced RACs to scramble to fund fleet purchases.

Then came the Great Recession and manufacturer bankruptcies. OEMs shut down the factory pipeline, which severely limited supply to match stagnant new-car demand. With less need to keep factories open and fewer units to dump into rental, OEMs had no reason to play "Let's Make a Deal" with rental companies.

Credit has thawed, but the days of cheap money are over. Travel demand is returning, inch by inch. The market is releasing pent-up demand for new cars, while reacting to the Toyota recall. Revenues remain depressed, but so are costs. Tight fleets are keeping rates high. As a result, revenue per unit is at its highest in more than 10 years. Can we expect this trend to continue? And do car rental operators really need to drive up hold times to survive in this market?

The New Normal

"We've increased our hold times, often until near the warranty limits," says Chris Barber, a Nextcar licensee in Maryland. "It's simply cheaper to keep them longer. It's working out well, but we are spending a big part of our savings on increased maintenance costs."

Monty Merrill, a San Antonio-based Dollar and Thrifty franchisee, has stretched his fleet from an eight-month hold time to about 18 months. "It started with credit," he says. "Then the manufacturers quit making the cars and the deals were just not very good."

However, Merrill is getting the same money for his used cars this year than he did last year for cars with fewer miles. "It doesn't make any sense to get in a hurry to sell them right now."

"We used to live on short cycling," says Charlie Mullen, vice president of the ACE affiliate system. Without great new-car deals, "I can't find a way to make quick cycling cars work," he says.

David Funston of Funston Fleet Services says the "for sale" lists he receives from the major rental companies now have cars in the 40,000-mile range, though that's fewer miles than last summer when wholesale supply was severely limited.

Mike Maloney, a Budget franchisee in San Antonio and El Paso, has gone from an 18,500-mile ceiling to 22,000-23,000 miles for his fleet of Toyotas, which he runs almost exclusively. He credits the modest increase to Toyota's high resale values, though the recall has caused recent disruptions.

CONTINUED:  Extended Hold Times vs. a Short Cycle
« Previous  |  1  2  3  4  |  Next »

Comment On This Story

Name:  
Email:  
Comment: (Max. 10000 characters)  
Please leave blank:
* Please note that every comment is moderated.

Newsletter: Sign up to receive latest news, articles, and much more.

Read the latest

Auto Focus Blog: A blog covering fleets, auto rental and the business of cars

The Customer Isn’t Always Right

Not caving to a customer with a blatant agenda may have consequences, especially for a small rental company that relies on stellar Yelp ratings to advertise. But business integrity must prevail.

The Truth Behind Compact Van Depreciation

Why are large van values holding up better than their compact counterparts, and will it last?

Car Rental’s Call to Action on Autonomous Vehicles

The car rental industry has built-in advantages to support a world with driverless cars, but it needs to take the next step in partnering with autonomous vehicle stakeholders.

Job Finder: Access Top Talent. Fill Key Positions.