It was hardly a secret that the rental car industry has experienced shortages and supply issues resulting from the coronavirus pandemic. Nevertheless, when actress Audra McDonald tweeted, “It’s the hunger games out here,” in reference to the rental car situation at Hertz in Atlanta, the crisis gained national prominence.
Although a perfect storm of events cast a shadow across the industry over the past year and a half, experts are now doing their best to gauge the next phase for the car rental business. While sky-high rental prices have started to recede, the pandemic is far from over and many people’s holiday travel plans have been upended by the emergence of the Omicron variant. The question remains as to whether we will approach a state of normalcy in the rental car business anytime soon.
Pandemic Puts Car Rental Industry into Lockdown
When the coronavirus started shutting businesses down, the car rental industry faced problems right away because most of their customers are business travelers and people on vacation. As soon as travel was put on hold due to restrictions and lockdowns, car rental companies faced huge drop-offs in their business.
Car Rental Companies Trim Their Fleets
In order to survive, many companies started selling their largest asset, their vehicles. In some instances, selling off unused vehicles became part of bankruptcy restructuring. According to one industry estimate, companies jettisoned over 770,000 of their cars.
It seemed like the prudent move at the time as companies like Hertz reported huge differences in rentals from the year before. Between April and June of 2020, for instance, Hertz reported 28% usage of its cars instead of 82% during the same time in 2019. Even with a shrinking rental fleet, revenues continued to drop. Clearly, rental companies had no choice but to pare back their fleets.
Rental Industry Unprepared for Bounce Back
As soon as the pace of vaccinations picked up, however, demand for rental cars rebounded before the industry had time to adjust. Adding insult to injury, people started purchasing more cars than ever, possibly due to a growing fear of using mass transit during Covid outbreaks. Consequently, car sales exploded this past year and have remained high.
Scarcity of Computer Chips Dooms New Car Supply
A host of different supply chain issues resulted in a global semiconductor chip shortage. Without computer chips, automakers were unable to ramp up new car production to meet demand. Unfortunately for rental car companies, retail consumers were usually given higher priority since profit margins for selling rental fleets are typically a bit lower.
Rental Car Agencies Change Course to Handle Shortage
In response to the shortage, many car rental companies have shifted their policies to hold onto cars longer before eliminating them from their fleets. Instead of sticking to a 25,000 or 50,000 mile cutoff, some companies have allowed their cars to reach as much as 90,000 miles. In addition, some rental companies have purchased used cars at auction to fill in gaps in their fleets. Furthermore, some have moved cars away from locations that relied on business travel and over to southern vacation locales to accommodate heavy demand.
Prices Remain High Throughout the Industry
Despite valiant attempts to bolster rental car fleets, demand still far outstrips supply and prices remain high. Back in August, Kayak reported that rental prices were up 70% compared to 2019. And the holiday season hasn’t made things any easier. Thanksgiving prices were similar to last summer, and no one expects things to be any different over Christmas or the New Year.
Indeed, the founder of Autoslash.com said people were forking over as much as $300 per day to rent cars in busy areas like New York with an average nationwide price of around $100 a day, more than 50% above what it was in 2019.
Consumers Respond with Creative Solutions
In response, some consumers are getting creative by renting U-Hauls or Home Depot pickup trucks. While it’s not always a perfect fit, renting cargo vans or moving trucks for leisure purposes can work in the short term. Others are taking advantage of services such as Lyft or Turo to reach their destinations.
Help Is on the Way but It’s Not Over Yet
The good news is that rental car companies have finally started to rebuild their fleets after the pandemic-induced selloff of 2020. With any luck, prices should return to normal soon. Hopefully, we can avoid last summer’s price-gouging when the spring and summer travel season returns next year. Nevertheless, industry experts predict the problem to last until the middle of 2022. One industry insider went so far as to say that things won’t ease up until 2023.
For the time being, you can do yourself a favor by booking a rental car as soon as you know your travel dates. And instead of booking your flight and hotel first, start with your car reservation and build around it. If prices drop in the meantime, you can always rebook your car at a lower rate and cancel the original reservation.