Car rental rates have been very high but even as travel demand reduces, rates will remain elevated.
New Report Suggests Few New Cars
As automated as vehicles are today, they need computer chips to run and that has been a problem. Unfortunately, it’s not getting better any time soon:
“It’s clear that the global chip shortage shows no sign of abating anytime soon. In fact, it seems to be getting worse. While the White House is racing to expand chip manufacturing in the US to avoid future shortages, it could be years before that government investment actually pays off for consumers. So for now, the chip industry will continue to be hampered by the fallout from the Covid-19 pandemic, as products ship with missing features and higher prices — often after long delays.” – Vox
Drive by a car dealership and you’ll find very few new vehicles and very long waits to receive orders. I recently tested this out with one manufacturer who wouldn’t guarantee a delivery date but suggested it was at least four months out if ordered today, maybe longer. General Motors is having trouble in a very public fashion:
“Starting next week, General Motors is again halting the assembly lines of several pickup truck plants because the company doesn’t have enough computer chips. The plants had been back up and running for just a week following a shutdown in July, which was also caused by the chip shortage.
These production halts may not stop anytime soon. “I do think we’ll continue to see impact this year, and it will have a tail into next year,” warned CEO Mary Barra on Wednesday. And Intel CEO Pat Gelsinger similarly predicted last month that things won’t get back to normal for at least a year or two.”
They aren’t alone. Ford put the reduction in produced vehicles at 50% for 2021 a few weeks ago and the situation has not improved.
Not all manufacturers are experiencing the same issue. Tesla has increased production over 2020 by 14%, BMW has held steady, and Toyota was able to overtake GM for the first time due to the issue.
That creates another problem. With fewer new cars available for purchase, volume discounts are a complicated matter. Manufacturers of cars that price vehicles higher than a base model Chevrolet, for example, will also keep prices elevated even as inventory returns.
Delta Variant and Business Travel
The theme for this week appears to be the Delta variant of COVID-19 and its coming effect on future travel. With rising cases, more businesses suggesting they won’t return to normal operations until at least the fall, and a likely negative impact on business travel, car rental agencies will be preparing for the worst heading into the fall.
Leisure travel will slow as the school year resumes and many students return to in-person classes reducing the availability for distance learning that removed school schedules from the leisure trip criterion.
Without business travel, brands that rely heavily on this market will have difficulty keeping rental counters busy and customer service concerns low.
Hertz entered bankruptcy at the slightest beginning of COVID in the United States. The driving factor was its over-leveraged state of affairs, though an undeniable uptick in demand and daily rental rates allowed the agency to escape what could have meant the end for Hertz. They won’t be as apt to invest heavily even when given the opportunity to avoid the mistakes of the past.
Enterprise Holdings (EHI), which owns Enterprise, National, and Alamo lost a considerable number of cars during a tragedy. At the Southwest Florida International Airport a tragic fire destroyed hundreds of vehicles. The Fort Myers airport car rental location saw a fire in the parking garage of RSW airport and destroyed every vehicle on a level of the parking garage. This drove car rental in Fort Myers through the roof as replacement cars were in limited supply. Events like these put a strain on the entire inventory and make getting to Fort Myers Beach very expensive. It was an important reminder at a critical time that even best-laid plans can suffer setbacks. Car rental Fort Myers (airport locations) was a good example of just how challenging this business sector can be even outside of chip and worker shortages.
EHI is a good example of the wide-ranging decision-makers that inform future investment decisions. Enterprise is self-insured and private, there was no insurance company that came in to replace the cars and their inventory losses. Hertz was publicly traded but in financial shambles, Avis and its group of companies took hits on the market but strong performance and rate recovery helped it to recover quickly.
How much appetite is there to reduce sky-high rental rates by increasing inventory even if it were magically available? In whose best interest is that model of investment? The consumer’s certainly, but not the business’.
Some of these concerns may be temporary. It’s possible that the Delta variant subsides and the country returns to normal soon. Most industry players don’t appear to be planning for this scenario, but it’s possible. More likely, however, is that current supply chain issues will persist both domestically and abroad,. prolonging the problem. Without reliable business travel to save the day, rental car agencies will once again examine their operations and look for opportunities to reduce costs. Higher wages will also compound the issue at a time where wage increases couldn’t be more impactful. Higher car rental rates appear here to stay for as long as the next two years. It’s times and challenges like these that typically lead to the greatest innovations so perhaps it won’t remain a substantial challenge for the duration of the estimates by experts.
What do you think? Will rental rates remain elevated?