NEW YORK (BLOOMBERG) - The semiconductor shortage has slashed vehicle production so much that rental-car companies can't get the new cars they need, so they have resorted to buying used vehicles at auction.
This is uncharted territory for the likes of Hertz Global Holdings and Enterprise Holdings, which have made their profits by purchasing new vehicles cheaply in bulk, renting them out for as much as a year and selling them at auction. In the past, they have bought some used cars to shore up an occasional unforeseen burst in demand, but rarely for the mainstays of their fleets.
The demand is sending used-car costs soaring. The Manheim Index, which measures prices at wholesale auctions, shows they're 52 per cent higher than they were a year ago.
"We expect to see records in the Manheim Index through June before demand softens enough to align with supply trends," said Jonathan Smoke, chief economist of Cox Automotive, which owns Manheim, the nation's largest used-car auction. "We expect retail prices to continue to rise into the summer, as retail trends tend to follow wholesale trends with a six-week lag."
Vehicle production fell 4.6 per cent in the first quarter, and that's compared to 2020 when factories had already lost weeks of work when the Covid-19 pandemic caused shutdown, according to LMC Automotive.
Despite the acquisition expenses, the car crunch is a boon for rental companies, which stand to benefit from improved profitability as they rent out every car they own at much higher rates than they could charge before the Covid pandemic. But consumers will take a hit if they want to rent a car for vacation, Mr Keller said.
Avis Budget Group posted record margins in the Americas during the first three months of the year and grew revenue per day by 12 per cent to almost US$60. The company lost US$170 million on a net basis, but made US$47 million in adjusted earnings before interest and taxes - its best first quarter performance since 2015. It declined to provide full-year guidance, citing volatility in vehicle supply and other issues.
"The global semiconductor shortage is causing uncertainty in fleet supply and resulting in tighter fleets throughout the industry," Avis Budget said in a statement. "We have historically navigated through significant vehicle recalls, and believe we have the logistics in place to effectively manage our fleet during this disruption in supply."
Hertz is adding as many cars to its fleet as it can to support the travel rebound, including used cars, spokeswoman Lauren Luster said in an email.
"The global microchip shortage has impacted the entire car-rental industry's ability to receive new vehicle orders as quickly as we would like," Ms Luster said. "Hertz is supplementing our fleet by purchasing low-mileage, preowned vehicles from a variety of channels including auctions, online auctions, dealerships and cars coming off lease programmes."