Easter Weekend came in the wake of encouraging reports regarding COVID-19 vaccinations, as well as the steady loosening of pandemic-related restrictions nationally.
Travel industry experts forecast busier skies and highways as summer approaches if those trends continue. That’s welcome news to a business that has been pummeled over the past year during the pandemic.
Significant challenges remain, however.
That’s particularly true for a rental car industry that finds itself in a precarious position of trying to meet a high demand despite resources that were ravaged by the pandemic. It’s a far cry from last spring, when business dropped upwards of 90% before rebounding months later as car travel became the preferred method for personal and business needs.
David Kilduff, CEO of Illinois-based DK Consulting Group who’s been in the industry since 1982, said he’s never seen anything like it.
“It is the largest negative impact in my lifetime,” said Kilduff. “It has financially stressed the global rental car industry, causing massive layoffs, huge fleet reductions and locations closures.”
Some rental car companies unloaded idle vehicles in 2020 in order to provide much-needed revenue while facing an uncertain future. Now, those same companies are struggling to rebuild fleets as the demand for vehicles swells. The need is outpacing inventory, creating a spike in rental prices and causing some customers to turn to other options.
That included Hertz, which as recently as three years ago held nearly 20% of a crowded marketplace and in 2019 was ranked as the most satisfying car rental agency according to J.D. Power. But the rental giant — which also operates the Dollar and Thrifty brands — filed for Chapter 11 bankruptcy last May and sold more than 200,000 cars in order to shore up finances.
Hertz wasn’t alone when it came to shedding inventory. According to Jonathan Weinberg, founder and CEO of travel website AutoSlash.com, Avis sold 31% of its fleet in a move he described as “survival instinct.”
Meanwhile, fewer cars were built to replenish the supply because of conservative preorders. Example: Avis approved only about 20% of its usual purchase amount.
“Vehicles are the most expensive asset for a car rental company,” Weinberg said, “and having more sitting around than you need to service a given demand will mean that you are losing money. So selling them off was imperative.”
Contributing to the lack of available vehicles is a global shortage of semiconductors directly attributed to COVID-19 supply-chain hits. Those chips control computers and smartphones, but are also critical components in car manufacturing as they control engine emissions, collision avoidance systems and infotainment systems.
On Monday, President Joe Biden was scheduled to meet with industry leaders, including Intel Corp. CEO Pat Gelsinger, to discuss semiconductor supply chain issues. Part of the problem could be alleviated thanks to a $20 billion commitment by Intel to build two new chip factories in Arizona. Still those facilities won’t be operational in time to replenish the fleets and stem looming issues.
Altogether, reduced car inventory will likely lead to higher rental prices, more location closures and longer wait times. And expect more high-mileage cars as the companies and drivers alike will hold onto them longer.
It’s a cycle that will only spin faster as summer approaches and more people decide to venture out. According to Weinberg, the surge in demand actually began months ago.
“At AutoSlash, we first noticed it on President’s Day/Valentine’s Day weekend,” Weinberg said. “We saw that 18 out of the 20 airports in Florida were completely sold out, as well as the Phoenix area, and there were also shortages in Las Vegas and Denver. The problem eventually migrated to Hawaii, and that’s one of the hardest-hit areas right now in terms of shortages.”
Weinberg offered tips for securing a vehicle:
- Book a car rental as far ahead as possible. A month in advance is generally a safe bet, but data accrued over the past few weeks indicate sellouts further and further out. Booking weeks ahead will both ensure the rental and the most reasonable price.
- Don’t book flights and hotels while treating the car rental as an afterthought. People who wait until the last minute to reserve a car may come up empty. When booking a flight, check rental pricing in advance to make sure it’s both available and affordable. There is anecdotal evidence of people canceling trips because rental cars were either too expensive or not available.
- Steer clear of prepaid rates, which can be cheaper but have potential downsides such as cancellation penalties. Stick with a flexible pay-later rate that provides the freedom to cancel and the ability to rebook if a better deal comes along.
- Track the rental for potential price drops. The odds of a price drop increase the further out a booking is made — even if just for a few hours or days — and that presents an opportunity to cancel a pay-later rate and rebook at the lower price.
- Widen searches to include airports, off-airport locations and rental offices that are farther away if prices are too high to expand better rates and availability.
- If flying and picking up at an airport, join the rental company’s free loyalty program as many allow the opportunity to skip the rental counter and go straight to the car, thus avoiding a potential long wait in line.
“As Americans start planning their summer getaways, too many travelers are blissfully oblivious to the apocalypse that awaits them in 2021,” Weinberg said. “They may think they can simply go back to the vacation game plan they relied upon before the pandemic — lock down their flights first, reserve a hotel soon afterward and book a rental car whenever they get around to it. But doing things the old way won’t work this year.”