“Can you even get a reservation?” “How long are you ready to stand in line?” These are some of the questions business travelers may have to ask themselves this summer when car rental companies don’t have enough vehicles to service them, according to David Kilduff, CEO of DK Consulting Group. If travel resumes sooner than expected, some car rental companies that are already managing reduced fleets may run short due to ongoing small fleet orders and a global shortage of semiconductors, which are critical components in automotive manufacturing.
Suppliers will start with smaller fleets in 2021 due to last year’s cost-cutting measures. “When demand plummeted by 90 percent in the spring, the industry was able to lay off tens of thousands of employees immediately and empty the fleet by canceling orders,” said car rental advisor Neil Abrams. Not picking up new cars while cars that are likely to be phased out anyway are aggressively dumped “hundreds of thousands of cars” for troubled suppliers, he said.
According to the company’s fourth quarter earnings report, Avis Budget Group sold more than 22,000 vehicles to consumers in 2020.
Don Moore, senior vice president of business rental sales and global corporate accounts at National Car Rental, told BTN, “The market will be smaller in terms of car availability. There are certain companies that have had to restrict their fleets in order to be viable to stay.”
Changing rental patterns and increasing demand could challenge these smaller fleets as the corporate market awakens in the second half of 2021.
Business travelers, many of whom drive more than flying than flying during the pandemic, are also holding onto their rentals for longer periods of time and over longer distances. “We have noticed a significant increase in customer willingness to drive. You are definitely going further than before, ”said Moore. “Our rental period for companies has increased. The typical rental period for companies is between four and six days, depending on the type of rental. Now it’s more like six days. I don’t think this trend will change much in the next few quarters.”
Joe Ferraro, CEO of the Avis Budget Group noted the same trend this month during the company’s fourth quarter conference call. “What we are seeing is that our commercial customers keep their cars for much longer,” he said. “If you look at our fourth quarter, our commercial customers kept their cars almost 80 percent longer than last year.”
More travelers are likely to rent vehicles in the second half of 2021 than in 2020. “Traffic warriors say, ‘I want to get out and travel,’ especially if we keep up with vaccines,” said Kilduff. Leisure travelers, he said, will be more of a recovery driver than business travelers. “There will be a lot of leisure travel this summer,” he said.
Some car rental companies have ordered very few cars in the future, enough where availability can be problematic for business travelers when renting in the summer and in the future when the trip starts again. “
– David Kilduff from the DK Consulting Group
Moore said he was cautious about the third and fourth quarters to be “reasonably good”.
Avis Budget and Enterprise Holdings each have stated that they are still signing corporate accounts and maintaining high customer retention rates, with Ferraro finding a retention rate “somewhere in the 98-99 percent range, which is very good”. Meanwhile, Kilduff said he had seen an increase in business inquiries for car rental deals.
Looking for semiconductors
However, financially troubled car rental companies have not increased their car orders, Kilduff said. “Some car rental companies have ordered very few cars going forward, enough where availability for business travelers can be an issue when renting in the summer and in the future when the trip starts again,” he said.
“We have already ordered thousands of vehicles by the end of the calendar year,” Moore told BTN. Kilduff said Enterprise Holdings, the parent company of National Car Rental, ordered more new cars than other car rental companies.
In addition to the less industry-wide orders, there is a semiconductor shortage that can delay delivery of the few orders. In North America, General Motors, Ford, Stellantis, Toyota, Volkswagen, Honda, Nissan and Subaru have to adjust their production plans due to semiconductor shortages Car and driver. Some financial analysts believe the shortage will continue into the next year MSN’s MarketWatch.
“Semiconductor shortages will affect new cars in general and our industry,” said Ferraro. “We believe this will have an impact on fleet delivery and availability in our industry,” he said
“At Hertz, we have long-standing close relationships with our OEM [original equipment manufacturer] Partners and we are working closely with them to get fleet orders as quickly as possible, but expect some delays, “a Hertz spokesman told BTN.
Curb a shortage
President Joe Biden signed one on Wednesday supreme command Require a 100-day supply chain review for semiconductors and other critical materials to formulate guidelines that will boost domestic production. The White House said the contract will not solve the semiconductor shortage in the short term and is intended to aid long-term plan formulation. In the meantime, car rental companies will compete for their share of fewer vehicles in the market.
If there aren’t enough cars to meet customer demand, both leisure and business travelers will feel the consequences. “Leisure prices will most likely skyrocket because fleets are currently very reduced and some rental car companies are currently ordering very few fleets for delivery,” said Kilduff. “While corporate accounts are tied to their prices over the long term. What will happen will be availability issues as travelers travel from this summer and beyond.”
A shortage of rental cars can lead to increasing inconvenience for travelers, according to Kilduff. “Location closings are also problematic – a traveler with a company books a car and when they land the location is closed,” said Kilduff. “In other words, [the car rental company] not removed the tariff from the system, but closed the location beforehand The person gets there and there is no car. “
Car rental companies are confident that their logistics, staff, and relationships with automakers are strong enough to weather a potential shortage. “Based on our discussions, we believe that we in our team have the logistics and the in-house expertise to adequately manage our fleet size,” said Ferraro during the conference call when asked about the semiconductor shortage.
“We can grow our fleet by adding new cars, and we can also grow our fleet by not selling the cars that we should be selling,” said Moore. “Since we own a million vehicles, we sell thousands of vehicles every month, but if we decide we can’t, we’ll get our new cars that come in, but we’ll keep the ones we intended for an extra or two Months to sell. “