Though it hasn’t garnered as much attention as other COVID-19 crises, the rental car industry is suffering. Rental car companies like Avis, Hertz, and Enterprise have taken a painful beating at the hands of the coronavirus pandemic, and many are struggling to simply keep their doors open.
Rental Car Companies Lost Majority of Revenue
The first and most significant hit to the rental car industry occurred when air travel slowed and nearly stopped altogether. Most rental car companies get two-thirds of their revenue from airport locations. So when flying plummeted 94% in April and May, rental cars sat untouched and unrented.
Other non-airport business comes from customers involved in accidents, but the rate of accidents also dropped with less drivers on the road due to lockdown mandates.
The end result is an entire industry that lost its core customer base virtually overnight.
The Domino Effect to New Car Sales
Unfortunately, the struggles of the rental car industry are bleeding into the automotive industry in general. Normally, rental car companies account for at least 10% of new car sales in the United States. That equals as many as 19 million car purchases annually.
But without steady rental business, rental car companies can’t afford to purchase new vehicles. Even if they could afford it, the new cars wouldn’t have any immediate use. As a result, car manufacturers are bracing for impact.
Hertz Struggling to Pay Creditors
The domino effect even extends into used car sales. Hertz, which filed for bankruptcy in May, can’t make payments to creditors and must now sell 182,500 vehicles to raise funds for repayment.
Hertz will keep $900 from the sale of each vehicle, with the remainder going to creditors. And even with this arrangement, Hertz will only repay $650 million, or half of what the company is obligated to pay its creditors.
With so many used cars hitting the market, customers can expect used car prices to sink quickly. This is great news for shoppers seeking a good deal, but worse news for drivers planning to trade-in old vehicles.
This, in turn, will further hurt new car sales for automakers already struggling. Customers will have the option to choose late model, relatively low mileage used cars from rental companies at a fraction of the price of a new car.
The bottom line? If the rental car industry is going down, it’s taking the auto industry along for the ride.
Sources