|At the beginning of the Covid-19 pandemic demand for rental car companies dropped by 90 percent, and suppliers scrambled to cut costs. Now, as vaccine distribution begins and more travelers get back on the road, demand is surpassing the supply, which could cause the car rental component of your trip to be the highest segment of travel.|
Car Rental companies were faced with identifying immediate opportunities to reduce cost and overhead. During the early months of the pandemic, all were forced to review options including staff reductions, eliminating rental locations, and dramatic reductions in fleet sizes. To add to the crisis, profitability was dramatically reduced due to the low demand for used cars. Companies including Hertz Global Holdings, Inc. – a 102 year old institution – and Advantage Rent A Car, filed for bankruptcy protection.
Although some companies were forced to sell their unused cars at reduced margins (for example, Hertz sold 182,500 vehicles, at a profit of $900 per car), many were able to take advantage of the rebound in demand during August, such as Avis, who reportedly sold over 75,000 cars.
An additional obstacle faced by rental car companies is the international shortage of semiconductors – an essential part for maintenance – due to factory closures. In North America, General Motors, Ford, Stellantis, Toyota, Volkswagen, Honda, Nissan and Subaru have all been forced to adjust their production schedules due to the shortage, which some experts predict could continue into next year. As suppliers try to buy new cars now that travelers are returning, the delivery of these orders is being delayed, rendering suppliers unable to keep up with the quickly-growing demand.
Business travelers have been driving more than flying, and many have a willingness to drive longer distances due to reduced flight routes to regional airports. Rental car companies are also noticing across all brands that rentals are being held for a longer period of time per rental, with 80% of all 4th quarter rentals being held longer than the same period in 2019.
As vaccine availability increases, and individuals are ready to get out and take advantage of new destinations for leisure travel, the second half of 2021 is expected to see significantly increased demand. This demand generation will undoubtedly be led by the vacationing traveler, absorbing the majority of the available inventory.
Now that supplies are so low, and the demand for rental cars is picking up, renting a car could become one of the most expensive parts of the traveler’s journey. Based upon the BTN Corporate Travel Index for 2019, the average daily rate for an intermediate rental car in Chicago was $35.05 per day. A similar search for March of 2021 has a daily rental rate of $98.99, equating to an increase of 282%.
Historically, rental car agreements have always been part of your preferred travel program but rarely took the majority of negotiating time or required significant stakeholder attention. This is changing as the challenges faced by rental companies over the next year could dramatically impact your budget. We have outlined best practices for your consideration.
While nothing is guaranteed, and the rental car industry continues to adapt to these changes, being prepared and planning well ahead of time should ease the rental car process for both travelers and travel managers. If you need any assistance with your rental car programs, or require contacts for supplier representatives, reach out to your Client Success Manager for assistance – we are here for you!
Travel Incorporated has provided a Covid Hub which includes significant information for you and your traveler’s education and information. This includes helpful links to data, testing and reentry requirements, as well as practical tools to support your revised policies and Duty of Care program.