Carney: The Rental Car Business Is Suddenly and Unexpectedly Booming
For rental car companies, the weeks leading up to Halloween are typically a quieter time. The summer driving season has faded and holiday rentals are weeks away.
This year was different, according to data released on Thursday by the Department of Labor (DOL).
The DOL’s Consumer Price Index for car and truck rentals showed prices jumped 7.4 percent in October, a month in which overall inflation was non-existent. The “all items” index did not rise at all in October and the core inflation gauge, which excludes volatile fuel and good categories, came in as unchanged also.
This was not the case of a sudden snap back after a pandemic lockdown crash. That happened earlier this year when the pandemic, travel restrictions, and stay-at-home orders aimed at stemming the spread of the virus crushed the car and truck rental business with a savage fury. Avis said reservations fell 60 percent after travel restrictions were issued in March. Airports, a big source of demand for car rentals, were suddenly empty.
As demand fell, so did prices. Prices slid 2.2 percent in February but because of gains in the prior year they were still 8.6 percent above their February 2019 level. They plummeted 6.9 percent in March but were still up 3.6 percent year over year.
Then it got ugly.
April prices fell 16.3 percent, bringing the annual comparison into starkly negative territory. Prices were down 15.3 percent compared with a year earlier. They fell another 3.5 percent in May, making the annual decline 19.2 percent.
Making matters worse, the market for used-cars had collapsed. That made it difficult for the rental companies to make their regular fleet sales much less dump unneeded inventory. Cars either went unsold and had to be depreciated or the companies had to take bigger than expected losses on sales. The Wall Street Journal reported that used-car values hit their lowest levels in history in April. Hertz, the 102-year-old company which along with Avis is synonymous with car rentals, declared bankruptcy in May.
The snap-back came in June. Prices jumped 17.5 percent, according to CPI data. But the spring trough was deep that they remained 6.3 percent below the prior year’s level. Another four percent gain followed in July. The lower gain suggested that the recovery had slowed down — a troubling prospect because prices were still 3.4 percent down from the year-ago level and the summer driving season was coming to an end.
That’s when something surprising happened. Demand surged as Americans stayed away from fly-to destination vacations and took weekend road trips. City folk started craving the open road. Used car prices jumped 5.4 percent in August and then another 6.7 percent in September. Those prices pushed some would-be buyers into the rental market, adding to the already surging demand. Prices rose 4.6 percent in August, faster than they had earlier in the summer. And — even more importantly — prices were up on a year-over-year basis. Just 2 percent higher but that was quite impressive considering overall prices were up by less.
Prices accelerated further in September, jumping 4.9 percent. And that was followed by last month’s 7.4 percent gain. Compared with a year ago, prices of car and truck rental are up 9.4 percent.
The pandemic’s unprecedented combination of isolation, high unemployment, federal deficit-boosted household incomes, and a flight out of the biggest cities has created a number of wild economic fluctuations. But few of the roads have taken many unexpected turns as the car rental business.