Deadra Rahaman of Detroit tried to book a rental car ahead of flying to Fort Lauderdale for her daughter’s senior-year spring break trip to Florida, but there weren’t any available online.
As travel ramps up because more Americans get vaccinated, rental car companies that sold off their vehicles in a hot used-car market last year to survive are facing a supply shortage. Yet fleet sales, the consistent workhorses of the automotive industry, are being sidelined as the automakers face a global semiconductor shortage and favor feeding the pricier retail segment whose demand has recovered more quickly than fleet.
When Rahaman, who works in marketing and advertising, and the four teenagers arrived last month in the Sunshine State, the lines to rent a car wrapped around the side of buildings, she said. After a long wait, she finally got a Toyota Corolla compact from an ACE Rent a Car — for $2,000 for the week. Three teens squeezed into the backseat, and luggage that didn’t fit in the trunk crowded the front.
“It’s just really the uncertainty,” Rahaman said. “Yeah, you can use Uber if there’s one or two of you. It was five of us. That might be challenging, and what if we couldn’t go somewhere? All those things were running through my head, just how we are going to get around.”
Non-retail fleet sales — including to rental agencies, landscaping companies, police departments and more — plummeted to just 9% of U.S. auto sales in the second quarter last year after the COVID-19 pandemic shut down production and closed many dealers across the country, according to market research firm J.D. Power. That figure has steadily risen to 16% in the first three months of 2021, but remains below the more typical 20% to 25% of sales.
General Motors Co.’s fleet sales dropped 35% year-over-year in the first quarter compared to a 19% increase on the retail side. Ford Motor Co. and Stellantis NV did not disclose their overall fleet figures. Cox Automotive Inc. estimates they were down 35% and 37% respectively.
“The COVID supply shock, microchip shortage, tire shortage, resin shortage — every day there is practically a new supply challenge,” said Tyson Jominy, J.D. Power’s vice president of data and analytics.
“Automakers are prioritizing more profitable sales, which are from trucks and SUVs and higher trims. The fleet channel is not as profitable as retail. There are usually less-equipped models in the fleet channel.”
Now, rental car companies and auto dealers that sell to painters, plumbers and delivery companies say the vehicles they need are hard to find. And the problem is likely to continue deeper into the year.
“You can’t get them,” said Bill Golling, president of seven Metro Detroit dealerships, of popular fleet vehicles like the Ram ProMaster van, whose year-over-year sales rose 14% last quarter. “They are basically sold out.”
Hertz Global Holdings Inc. said the microchip shortage is affecting its industry. It announced in November it had secured $4 billion to rebuild inventories.
“Hertz,” spokeswoman Lauren Luster said in a statement, “is working closely with our automotive partners to add new vehicles to our fleet as quickly as possible while also moving vehicles to the area with highest demand.”
The Florida-based car rental company is encouraging travelers to book as early as possible and try neighborhood locations. The drop in business travelers and tourists last year contributed to $1.7 billion in losses and a 46% year-over-year decline in revenue. The company now is reorganizing in bankruptcy court.
The pandemic, it disclosed, led to a $4 billion reduction in purchase commitment volumes, while trimming leased and owned cars. At the end of 2020, Hertz had less than 300,000 vehicles, down 42% from the year prior.
Avis Budget Group, likewise, lost $125 million last year even after it disposed of 250,000 vehicles worldwide.
The strong used-car market and the companies’ ability to dump those cars into it is likely what kept the industry afloat, said Neil Abrams, president of Abrams Consulting Group, an advisory and research firm for the global rental industry.
“But demand started to come back a lot quicker than they anticipated,” he said. “The result of that one-two punch is very high pricing. You’re paying more potentially for a rental vehicle on a daily basis than a hotel room. That’s been very rare in my experience.”
It’s unlikely, he adds, that stocks will be replenished fully and prices will return to as low as they were: “It was too good a transaction for their customer. The rental companies could push pricing beyond what it was and get it. They’ll be doing more with less.”
Much of the sales to these daily rental customers are negotiated directly with manufacturers, while certain dealers work with mom-and-pop shops and some regional and national companies with household names. This segment is faring better, decreasing 7% year-over-year in the first quarter, according to Cox, compared to 28% for fleet overall.
“These are one or two cars, and those orders are easier to be taken up,” Zo Rahim, Cox’s manager of economic and industry insights, said of commercial fleet sales. “That’s not a major impact on inventory in your current market than an order of 200 vehicles from the manufacturers.”
Alan Rosner, fleet director at Sam Pack’s Five Star Ford serving the Dallas-Forth Worth area in Texas, is telling his customers to order early, as he is delivering vehicles now that were ordered in October and November. State and local government orders have pulled back in the face of declining income amid the pandemic, but other business has been steady.
Popular vehicles from the Super Duty pickups to the F-150 truck to the Transit cargo vans have had production disrupted, Rosner said: “They’ve been severely limited as to what they are able to produce. What’s left?”
Freeland Chrysler Dodge Jeep Ram in Antioch, Tennessee, has around 55-65 fleet vehicles compared to a typical inventory of 200-215 just as the dealership has seen a significant upswing in demand over the past few months, said Bill Rogers, the dealership’s fleet and commercial sales manager.
“A lot of that has to do with the pent-up demand from last year,” he said. “With the COVID restrictions beginning to relax in different areas, including our home state and surrounding states, there’s reached a threshold of frustration. ‘OK, I am done with that. Time to get back to the real world, whatever it takes.’”
Ram’s parent company, Stellantis, disclosed it actually saw a 24% increase in commercial fleet sales during the first quarter that excludes daily rentals, though the company did not make an interview available on the matter. Fleet overall represented 19% of sales.
“Stellantis has been proactive in helping the dealerships in knowing what is available and not available, and what is built and on the ground,” said Rogers, adding the company has been proactive in finding workarounds and supplying vehicles without certain semiconductors that may not be necessary for some fleet buyers.
“Fleet is a little less impacted because our customers are buying on need, not on emotion,” Rogers added.
As more people get vaccinated and are able to return to entertainment venues and exotic vacations, there is likely to be an overcorrection resulting from a leveling in retail sales, J.D. Power’s Jominy said.
“We expect to see a slight pullback in customers in that area,” he said, “and fleet customers getting off the sidelines who had been forced onto the sidelines.”