When travel stopped, due to the COVID-19 pandemic, rental car companies were saddled with a lot of inventory and not a lot of demand. So they made the logical choice to sell off much of their vehicle inventory. Hertz for example sold an estimated 40 percent of its fleet.
But then vaccines became available, and people who had been cooped up for more than a year jumped at the chance to get away. Demand shot up nearly as fast as it had disappeared a year before. Car rental companies thus faced the opposite problem: too much demand, not enough inventory.
The result, as any basic economics textbook would predict, has been substantial increases in prices. Consumers are encountering astronomical daily and weekly rates, like $300 per day for a subcompact car—if they can even get a reservation. In popular vacation destinations like Florida, visitors have to search far beyond the airport to find a rental agency that has cars available. In Hawaii, there simply aren’t any cars to rent.
Although the rental companies are, naturally, working hard to rebuild their fleets to meet this demand, the continued disruptions to global supply chains—such as a worldwide shortage of critical microchips that go into every new car produced—means that they do not have ready access to cars to purchase. In the meantime though, they are charging and getting prices that are four, five, and even ten times higher than before the pandemic. Such revenues are a relief for these travel firms, after a year of drastically reduced income and, in some cases, requests for bankruptcy protection.
For consumers, the prices have sparked some other creative efforts. Some of them have found affordable moving vans and trucks from U-Haul, which tends to operate many rental sites, including locations that are attached to home improvement stores. These vehicles are thus more widely available, as well as being quite affordable (e.g., $19.95 per day for a van). The trucks and vans help consumers get from point A to point B, though perhaps somewhat less comfortably than would have been possible with a passenger car.
Ride-sharing and car-sharing services also report increased bookings. The Turo platform, which allows owners to rent out extended access to their vehicles, notes a shift in the profile of customers. Whereas once, the renters were mostly local people who needed a car for a day or two, the platform increasingly is linking the local car providers with tourists, who ask for the car to be available at the airport. Other consumers are giving up on a conventional vacation process, involving a flight and rental car, altogether and embracing the RV option. According to the sharing site RVshare, bookings have increased by about 50 percent compared with previous years.
- Were the car rental companies right to sell off their car inventories in response to declining demand due to COVID-19? Try to argue both sides of the debate: What factors justify their response, and what factors suggest that the move was short-sighted?
- Should car rental companies keep increasing prices? Is there a point at which the price becomes too high?
- What strategic tactics might car rental companies and competitors in this sector (e.g., ride-sharing firms) adopt to take advantage of the current levels of supply of and demand for vehicles?
Source: Elaine Glusac, “How to Deal with the Rental Car Crunch,” The New York Times, April 21, 2021