Rental car companies continue used-market shakeup in Q1

Rental car companies are still contributing to used-vehicle value fluctuation as they turn to the used-car market to stock their fleets as more consumers return to travel. Avis ’ U.S.-based average rental fleet grew 1.8% sequentially and 50% year over year to 443,356 units in the first quarter, according to the earnings release. The number of rental days, too, jumped 52% YoY to 27,482, a sequential decrease of 1.8%, reflecting strong consumer rental usage. “By March in the Americas, we had more cars on rent than the highest peak — summer of 2021,” Avis President and Chief Executive Joe Ferraro said during this week’s Q1 earnings call. “Consumer demand for travel is the highest we've ever seen.” Driving used-vehicle value changes Still, rental car companies in February were continuing to rely on purchasing used cars from auction and dealerships instead of sourcing their fleets from OEMs amid scarce inventory. Rental conglomerates were also holding onto older vehicles to pad their fleets as rental demand returned following the outbreak of the pandemic. As a result, rental companies contributed to increased used-vehicle values, a phenomenon that hasn’t yet reversed. In fact, new-vehicle sales to rental companies remained down 3% YoY as of April, according to the April Manheim Used-Vehicle Value Index . [caption id="attachment_56408387" align="alignnone" width="2560"] Photographer: David Paul Morris/Bloomberg [/caption] Companies such as Avis and Hertz “have been buying since the middle of March. They just simply can't get the deliveries from the manufacturers that they traditionally [rely on],” Jonathan Smoke, chief economist at Cox Automotive , told Auto Finance New s. “Their fleets this time of year need to support the peak of travel season. There is no question that they've been having an impact on vehicle values.” Rental companies’ influence on the used market is difficult to quantify, Cox said, noting in April wholesale price increases were stronger on younger vehicles compared with older cars. “The sweet spot seems to be 3-year-old or less SUVs, which is precisely what rental car companies most want to add to their fleet,” he said. “The increases that we're seeing in wholesale are not showing up in retail pricing, which is an indicator that the rental car companies are actively causing younger vehicles to increase more in value than the older vehicles, which are already exhibiting a return to normal depreciation.” Hertz, for one, continues to act as both a buyer and a seller in the used-car market to address demand, Chief Executive Stephen Scherr said during last week’s Q1 earnings call. “We are buying low-mileage, high-quality used cars because the returns are attractive in a market that's displaying the kind of demand relative to supply that it is,” he said. “At the same time, we are looking at selling portions of our fleet because they are high-mileage cars; they're of deteriorating value.” Hertz grew its U.S. fleet by 26% YoY to 373,153 vehicles in Q1, a 2.9% decrease from Q4 2021, according to the earnings release. The number of transaction days also climbed 26% YoY to 25,579 days but fell 6% sequentially. The company’s liquidity position was $2.7 billion as of March 31, with $1.5 billion of unrestricted cash. Selling older cars Rental companies are back to selling higher-mileage cars, but at a much slower rate than a few years ago, Black Book President of Data Science Alex Yurchenko told AFN , noting companies like Avis and Hertz are selling off about 1,000 used vehicles, down from 10,000 historically. Travel demand slowed in the first two months of 2022 amid the spread of the omicron variant of COVID-19, Avis’ Ferraro said, noting the pullback allowed Avis to focus on selling high-mileage vehicles and perform needed maintenance on older vehicles remaining in the fleet. “We took this opportunity to dispose of our highest-mileage vehicles at optimum prices to crystallize significant gains while refreshing the age of our fleet,” Ferraro said, noting Avis was able to capitalize on increased consumer demand for affordable used cars. Avis’ partnerships with OEMs also allowed the company to source new vehicles and replace some of its older fleet, Ferraro said. “This very fluid situation of buying new cars from OEMs has caused us to rethink [how we use vehicles],” he said. “We refreshed our fleet in the first quarter. We've done a lot to take out higher mileage vehicles ... and we've augmented some of our fleets in other areas with both new and used vehicles.” Avis remains well-positioned to continue purchasing vehicles to ensure its fleet keeps up with demand. The company’s liquidity position stood at about $900 million in the quarter, with an additional $1.7 billion of fleet funding capacity through the asset-backed securities (ABS) market, according to the earnings release. Still, rental car companies typically buy more in the spring and fall in line with peak travel seasons, Cox Auto’s Smoke said. “We don't expect them to continue to be a force [in the used-car market], and that's another reason to expect values to essentially stay relatively stable and not move dramatically up or down.” The 23rd annual Big Wheels Auto Finance Data 2022 report is now available, providing exclusive statistics on the auto lending and leasing industry and a ranking of the top 200 auto financiers in the nation. Order your report .

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