By Desiree Homer
And What the Rental Car Industry Downturns Are Doing to Used Inventory
The travel and leisure industries have taken a hit during the pandemic. Cruise lines, airlines, and hotels are all seeking assistance to stay afloat. When consumers aren’t working or traveling, another industry getting hammered is the rental car segment. With a direct channel into the vehicle auctions and supplying dealerships with quality pre-owned vehicles, the rental car industry often directly affects the flow of pre-owned inventory for dealers. When a company the size of Hertz faces potential bankruptcy, dealers can also expect to take the hit in used inventory valuations as a result.
Hertz Global Needs Help
The 102-year old company is hanging on and working through potential offers of lending leniency, as it faces substantial financial losses due to COVID-19. Now, it’s banking on a helping hand from its partners. Otherwise, it may be facing bankruptcy and subsequent fire liquidation of its devalued rental fleets. The bank lenders aren’t facing ideal options either, as it chooses between allowing forbearance to pay its asset-backed securities or denying a reprieve and allowing the company to go bankrupt. Rental car companies like Hertz, dumping thousands of used vehicles in the market, can have a catastrophic and lasting effect on resale values at the dealership level.
Dealers Should Prepare Now for Used Inventory Sales
With the shutdown of automaker lines over the last several weeks, dealers can prepare for a slow to return to new car inventory recovery. Dealers should also prepare for the influx of lease returns and used cars, especially from rental car companies selling off their unused fleets. Dale Pollak, Executive Vice President of Cox Automotive, talks about the importance of prioritizing selling off the aging inventory, in a recent Dealer News Today podcast. Used car values have plummeted almost 12%, according to Pollak. And as the rental car industry continues to suffer, the pre-owned devaluation may continue in the coming weeks, as well.
Dropping Pre-Owned Values Will Have Lasting Implications
As the experts cite various industry recovery models, some pandemic effects will last far beyond the lifting of mitigation restrictions. Used inventory values dropping now, with increased supply and months of a near, dead stop in demand, can be damaging across a variety of industries for months. Dealers with 90+ day-old inventory, are losing money on the books. Rental car industries are losing money with unused fleets. Auctions will be inundated with hoards of one to three-year-old lease returns. Dealer owners who can manage the values of what they have now, by either wholesaling quickly or via local sales, can help streamline their efforts to prepare for an unknown landscape ahead.
Much like the cash for clunkers program, today’s car-buying landscape of relief checks and lender forgiveness may have lasting effects. The cash for clunkers siphoned thousands of used vehicles out of the market in a short amount of time, creating consequences in used car values during the months and years that followed. The pandemic is taking a toll on rental car industries. This and the temporary curbing new vehicle production at the manufacturing level will have a lasting impact on how dealers manage their used inventory down the road, as well.
