Amidst the coronavirus pandemic, the global shortage of semiconductors has diminished vehicle production drastically, so much so that rental companies are unable to maintain a fleet of new cars. So instead, they’re opting to buy used vehicles at auction, reports Automotive News.
The chip shortage, which was primarily caused by the ongoing pandemic, has seen virtually every automaker affected, many enforcing temporary shutdowns to production. It’s a rare occasion where vehicle manufacturers are not able to meet the demand of their consumers. The global microchip shortage severely restricts automakers from producing the numbers required, resulting in a knock-on effect for cars on sale in the used market. According to the Manheim index (used to quantify car prices at wholesale auctions), used car prices have gone up 52 percent in the last year.
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The situation is proving to be a herculean challenge for rental car companies like Enterprise Holdings Inc. and Hertz Global Holdings Inc. Rental car companies have traditionally purchased new vehicles in bulk for lower prices. They would then rent these cars out for up to a year before selling them at auction. But with supply unable to meet demand, rental companies are now looking to buy used. While most big-time rental companies had previously dabbled in purchasing used cars to meet seasonal demand, such used-car-buying has never been witnessed to this extent.
The pandemic has compounded the situation. One year ago, when the threat of Covid-19 halted travel across the world, rental companies were forced to sell hundreds of thousands of cars to keep their heads above water. Then, when governments finally eased travel restrictions, auto production was crippled by the lack of semiconductors.
Manheim’s mid-month April report revealed that rental companies are now forced to hold onto their cars for much longer before selling them. The report identifies that rental cars at auction had an average of 79,000 miles on them, which is 54 percent higher in comparison to last year. Ordinarily, rental companies would get rid of vehicles in their fleet before they hit the 40,000-mile mark. This cloud, however, does, in fact, have a silver lining. According to Johnathon Weinberg, current CEO of AutoSlash, consumers are ready to pay ‘top dollar’ if they are able to get their hands on the cars they want. Speaking to Automotive News, Weinberg reported seeing average rental rates rise to up to $100 a day in Florida, $200 a day in Hawaii, and $600 in Puerto Rico, enough for rental companies to enjoy sizeable margins, having faced the prospect of bankruptcy last year.
