Car rental prices have reached record levels already in 2024 due to higher car prices and high interest rates. Residual values have consistently dropped while the used market continues to suffer from a restricted supply of 12-24-month-old stock.
Ismael Aumeerally | Managing Director – Liquid Fleet
Many parts of the automotive sector have experienced more changes in the last four years than the last four decades thanks to the global pandemic.
One of the sectors most affected since 2020 has been daily rental mainly due to vehicle manufacturer production volumes being compromised by a global microchip shortage.
The transition from pre to post pandemic for the rental market has been massive. A plentiful supply of vehicles from the manufacturers at healthy prices dried up overnight alongside a healthy supply of 12-24-month-old cars into the used market.
This major shortage of new cars continued until 2023 when manufacturing volumes began to improve alongside an easing of microchip supplies.
However, although new car supplies have improved, some manufacturers have chosen to restrict their supply to the rental sector, favouring instead to supply more cars into the higher margin retail sector.
The impact of this behaviour is already hiking up daily rental rates which is making them less competitive whilst continuing to restrict the used market from a steady supply of good quality ex-rental cars.
Liquid Fleet has seen wholesale vehicle purchase prices rise by an average of 29% since 2019 while interest rates have gone up 189%. When combined, this has put a huge pressure on monthly daily rental rates.
Meanwhile, the average value of the 12-24 months old used car market dropped by an average of 12% between September 2023 and December 2023, led by vehicle valuation guides attempting to correct their own inflated valuations from months/years prior.
However, this adjustment has been too severe in a period of time thus causing the holding cost of these cars to skyrocket. The fear within the industry is that automotive trade valuation organisations are trying to dictate future values rather than report on values achieved.
Wholesale monthly cost to rental brokers of a typical mid-size SUV has risen by 83.3% over a relatively short period of time which is a challenge the entire rental industry, including its customers are struggling to come to terms with.
The time has come for rental suppliers to change consumer expectations on price when renting a vehicle by educating them about how the market has changed post Covid. Rental brokers could look at focussing on providing added value and customer service to justify the increase in rental prices, rather than constantly looking to achieve the best possible daily or weekly headline hire rate.
We also cannot underestimate the impact on franchised dealers of OEM’s current behaviour. Their forecourts are missing tens of thousands of used ex-rental cars. We will go as far to say that the industry is impacting consumer choice as companies like Liquid Fleet are the largest source of 12-24-month-old used stock in the country. There are major shortages of this type of stock for dealers to sell.
But what happens when the vehicle retail market softens? Will manufacturers start re-prioritising the rental market again to take up that slack in volume? As a business, Liquid Fleet will strive to keep its customers abreast of the industry changes and will continue to be as flexible as possible so our customers can carry on providing added value to their drivers at all times.
