Industry Trends: What’s Driving the Rental Market Today?

This cover article appears in the recently published 2024 Auto Rental News Fact Book.

It’s been several years of ups and downs for the car rental industry. After the COVID-19 pandemic, rental operators experienced an unprecedented supply crisis coupled with a tidal wave of travel based on pent-up demand that drove rates — and profits — through the roof.  

Now, production constraints are easing, as are new vehicle costs.

“My business has come up because vehicle supply has come back from the past few years,” said Al Patel, owner and founder of AMPM Car Rentals in Los Angeles.

For insight on recent trends, Auto Rental News talked to four non-corporate car rental operators. Here’s what they said about vehicle availability and cost, fleet mix, car rental rates, incorporating technology and telematics, growth and change, and more.

More Fleet Vehicles Available

Fleet vehicles are becoming more available, but it’s not necessarily the opportunity for huge fleet buys, said Solomon Cramer, licensee owner of Budget Rent a Car in Harrisburg, Pa.

Recently, there has been a better supply of SUVs of all trims. “They are available for delivery this year, especially if you are looking at the Japanese or Korean companies,” said Phil Spink, franchise manager of Sixt Rent a Car and Tom Wood Automotive Group in Indiana.

Vehicles are being delivered with all the parts, unlike the supply chain chip shortages of 2021 and 2022. “We don’t seem to have a chip issue this year,” Spink said. “We’re not getting items missing off the vehicles so they are fleeted the way that they should be.”

However, a consequence of the United Auto Workers (UAW) union strike is the big three domestic brands are postponing deliveries.

“They’ve accepted orders, but they’re postponing all deliveries until I think they can figure out if there’s going to be enough for their dealership groups,” Spink said.

Although the strike has ended, it was seemingly just another black swan event in a series of them, only starting with the pandemic. “Just when we think that production is becoming normal, something comes up,” Patel said. “It has been the Russia-Ukraine War and now the strike. So, all these things can affect the vehicle supply.”

Sedan Production Down, SUVs Up

Because there’s more vehicle availability, operators have been able to better manage their fleet mix.

“I’m pretty happy with our mix,” Cramer said. “There are still areas where we are a little bit soft in, but we were able to buy a lot of the sub-$25,000 vehicles.”    

However, it can be difficult to get the right vehicle at the right time. For Spink, it’s been harder to find mid-size and full-size sedans.

“A lot of the fleet vehicles available through the end of the year are mid-size SUVs or bigger,” Spink said. “When we do find a sedan, it’s a fully loaded sedan. (This) puts them out of the price point for the reservation pricing. We just aren’t going to get that cost-effective sedan.”

Patel decided to expand his fleet mix to include luxury vehicles. “I started buying luxury cars because they were available on the market,” he said, adding that Lexus and Mercedes models are now in the mix with his traditional value-priced fleet of Corollas, Camrys, and Sonatas.  

Operators Buying More Fleet Vehicles from Dealers

Recently, Paige Eckhaus, franchisee owner of Hertz San Luis Obispo, has been fleeting up by seizing opportunities through local dealers since the pandemic instead of through the Hertz corporate program.

On the other hand, when the dealers lacked supply, Spink went to Sixt corporate, which was able to deliver reasonable pricing with small incentives.  

In addition to the vehicles available through Sixt, Spink has found that his other automaker partners have delivered close to, if not all, of the vehicles he had ordered.

When buying from dealer inventory, Spink is getting better pricing than a year ago, but nowhere near prices enjoyed pre Covid. “Buying out of dealer stock is getting much better, but the trim levels are higher than we want.”

However, Spink mentioned he’s not seeing dealer prep fees that were added during the vehicle crunch. “We’re not seeing window tinting and other dealer add-ons that would justify the cost over MSRP.”

Flexibility is key in this environment. Eckhaus said she used a fleet broker to make large purchases of vehicles from a single brand because that’s where the best deals are. 

For Patel, he doesn’t buy his vehicles directly from the dealerships. “We work with certain brokers in the rental space,” he said. “They can get deals with certain OEMs.”

Selling Higher Mileage Vehicles

In the recent resale market, the mileage on rental vehicles has increased. In 2019, the average mileage of Spink’s vehicles to remarket were in the high 20s or low 30s. Today, that mileage is in the mid-40s.

In this higher mileage band, Spink has new tires and brakes put on the vehicles.

However, “We aren’t seeing any major hits with an increase in maintenance costs,” he said.

Patel’s rental company is keeping vehicles longer, from 25,000 to 40,000 miles. “We are holding cars a lot longer than at the beginning of the pandemic,” he said. “You could short cycle those vehicles when we had the supply chain crunch.”

Eckhaus has been making good money in the used market after not selling for several years. Dealers in her area have been eager to buy vehicles.

“I just sold about 40 vehicles from model-year 2020,” she said. “All the cars that I’m selling now are the ones that I would have sold two years ago but couldn’t. I used to sell a vehicle before it hit 40,000 miles, but the cars that I’m selling now are in the range of 60,000 to 70,000 miles.”

Rates and Pricing Easing Off Highs

With aftermarket pricing, Cramer is experiencing the recent slide in auction values. “They haven’t cratered, but they’ve certainly softened,” he said.

After over two years of sky-high used vehicle pricing — which produced an ironic anomaly that some call “negative depreciation” — Cramer knew the market had to come back down to earth. 

Vehicles bought in the last 12 to 18 months came with much higher prices, and they haven’t shown up en masse in the aftermarket.

“I think we are going to start seeing some losses,” Spink said. “Some of the fleet acquisition over the last 18 months will show on the balance on the profit and loss statements starting this spring.”

Demand for Electric Vehicles Varies

Electric vehicles are still very new for most operators. But those starting to rent them are beginning to find the right formula.

“We love the Chevy Bolt,” said Spink, whose fleet is 5% EVs. He likes the Bolt’s cap cost, particularly with the $7,500 federal incentive, and depreciates it over a two-year period as opposed to the shorter service life of ICE vehicles.

For Cramer, he didn’t have the customer base for EVs because the infrastructure isn’t yet in place. “We had renters who would walk away from them even when they were set on renting an EV.”

Finding New Tech Options

Rental companies continue to look for different technology options to streamline their operations.

With his company under a franchise agreement with NextCar and Priceless, Patel has access to the rental software program ASAP Rent. He referred to it as “one-stop shop” where inventory can be managed. Additionally, it helps monitor fleet, rates, and reservations.

“We are in the first year of development for ASAP Rent,” Patel said. “This system has enabled us to get our act together when it comes to customer service.”

To help streamline the renting process, the system sends a message for the renter to fill out his or her driver’s license and insurance details online before arriving at the rental office.

For Eckhaus, she’s always looking for technology options that can make her business easier, faster, and more efficient. In the past, she tried many telematics brands that plugged into the OBDII port. She's now in a pilot program with Zubie using Direct Connect telematics (no plug in required) from Toyota.

Industry Anticipates Continued Growth

For Spink, his company is looking to grow its fleet size in 2024. “We are now above pre-Covid 2019 numbers,” he said. “The Indianapolis Airport location had a record year for rental car transactions. We also don’t see rental transactions slowing down in Cincinnati or our local market.”

Now that Eckhaus has access to new vehicles again, she’s hoping to work on making fleet a bigger part of her business. “We are trying to deflate now and get down a little further until springtime. Orders for new vehicles should be coming in around February and March.”       

However, she’s finding that it’s harder to track rental patterns. “Normally, the summer is very busy for us but that wasn’t the case this year,” she said. “Now we are slammed in October. There hasn’t been a regular pattern since Covid hit. It’s been a weird year for rental demand.”

Hiring employees continues to be a hardship for many rental operators, including Eckhaus, who works in the college town of Cal Polytechnic State University, San Luis Obispo.

“It’s been so hard to find new employees,” she said. I don’t understand where everybody went. Pre Covid, most of our rental employees besides management were young adults. There are still kids in college here, but they apparently don’t need jobs anymore.”