Yes, the situation has officially reached Code Red. But in the disruption lies opportunity for car rental operators willing to adjust their plans.
In June, the prognosticators were forecasting that new car supply volume would correct itself by the second quarter of 2022. By August, the predictions were pushed out to 2023. Those same folks are saying today that 2023 is just the beginning of daylight, and that true normalcy won’t happen until 2025. Fleet allocation for car rental? The majors will be lucky in 2022 with anything over 25% of a normal year. Anyone else, fuhgeddaboudit.
Human nature has a way of underestimating the magnitude of things at the onset of a crisis. Remember last March when we thought the pandemic would end by August?
Here’s what’s happening now: OEMs are out of programs for rental. Banks are getting nervous about funding vehicles with cap costs $3,000 more per unit than normal. Orders are trickling in, but only if you placed them earlier in the year. And those orders aren’t guarantees — many are being cancelled outright.
What do the independent and franchised rental operators have to say? Here’s a roundup of quotes from the ground:
“We can’t get factories to talk to us right now.”
“I have close to zero confidence in my 2022 orders. I think I’ll get a good chunk, but what exactly will come? That’s the challenge.”
“We’re paying cash for cars. Lenders aren’t financing.”
“Every dealer in town knows I will pay sticker and my phone never rings.”
“Most of my fleet is now worth more than what I paid for it April and May. But so what, I can't replace it.”
“I literally just told a rep ‘I’ll buy whatever you have available for whatever you want to charge me.’”
“Buy any new vehicle you can get your hands on. Don't think, don't wait, don't take a breath. Just say yes. Or give them my number.”
For anyone selling a car, there is a silver lining: With the Manheim Index now at 204.8, used car prices have officially touched the sun. But who can afford to sell right now?
The continued chip shortage and supply chain issues mean used car values will stay strong through to 2023 at least. That’s a boost of confidence to your P&L, but it’s not the time to sit back on your traditional customer base and enjoy those astronomical rates.
What You Can Do
The smart car rental operators are finding creative solutions to find cars and are exploiting new business opportunities emerging out of the disruption. Here are a few action items to consider:
As new car dealers have channeled anything with four wheels into retail, including their loaner fleet, they’re desperate for loaner cars. This presents opportunities for local rental companies: Cultivate relationships with your local dealers now for loaner business, even if it’s for just a few cars. Treat those dealers right and they’ll remember you in normal times.
Car rental operators with seasonal business are holding fleet they would’ve normally sold over the fall and winter. Residuals will be strong enough to pay for parking and depreciation until next spring and still make a profit on those units.
Remember when car rental lost short-term business to Uber and Lyft, which offered subsidized cheap rides and a car in 10 minutes, any place, any time? Exiting the pandemic, ride hailing has seen a slower return than other travel verticals. Prices are high and drivers are scarce. Car rental is retaking a chunk of that business. Look into how you can recapture this market.
New car dealers are diverting fleet inventory to retail buyers, this is true. Yet consider stair-step programs, in which OEMs incentivize dealers to reach sales targets. Those per-unit incentives are hefty and are often retroactive to the entire year.
Talk to dealers at the end of the month when they’re looking to hit their targets. Get on their waitlists. If they can unload a handful of units in one fell swoop to make as much as $800 extra on each car, that’s the definition of win/win.
With certain segments, particularly passenger vans where there is virtually no new inventory, prices on used units are actually higher than new. In this new reality where all bets are off, it’s time to rethink the old sales sources.
Some smaller operators are having success buying from Enterprise Car Sales to replenish their fleets. They’re finding that Enterprise’s retail prices for used rental units are actually lower than what they’d pay at the auctions.
Car dealers are sourcing cars through Facebook marketplace more now than ever. Do the same — scour Facebook and Craigslist and assess those cars for your rental fleet. Those sellers will take over book for the car and you’ll both be happy.
Remember the push for guaranteed reservations in car rental a few years ago? The industry traditionally suffers a 20% to 30% no-show rate. With limited supply, this is changing.
In 2019, prepaid made up only about 10% of the reservations for the NP Franchise Group brands (Nextcar, Priceless, and Rent-A-Wreck). They report today that prepaid now constitutes over half their reservations.
See how you can market prepaid to your returning customers. Offer them a slight discount, give them the guarantee of a car, and then enjoy the operational benefits of greater utilization certainty.
Have you ordered via a QR code at a restaurant recently? Do you think we’ll go back to plastic menus? This mindset carries to car rental. Don’t drop your plans to instill greater efficiencies in your process.
New keyless technologies allow operators to rent after hours as well as place rental cars in hotels, body shops, and dealerships without extra staff. Remember, we’re in a labor shortage too.
With the world opening again to travel — and new vehicle affordability at a record low — car rental is back in high demand. Make sure you’re engaging your customers where they want to be met, in the most efficient way possible.
