Struggling Rental Car Market Could Be Solution for Pre-Owned Inventory

After more than a century in business, Hertz Global Holdings Inc. filed for bankruptcy on May 22, 2020. The Estero, Florida-based corporation operates more than 10,200 Hertz car rental locations in 150 countries and includes Hertz Car Rental, Thrifty Car Rental, and Dollar Rent a Car under its umbrella. Collectively, the three rental companies have more than 30,000 corporate and franchise locations. As recent as 2018, Hertz Global Holdings was on the Forbes’ Fortune 500 list in the 335th spot.

The bankruptcy announcement isn’t just about another major business that’s been irreparably damaged by COVID-19 and the subsequent financial crisis. It points to a much larger issue in the industry – a consumer sentiment that shared transportation is still scary.

In the bankruptcy proceedings, it’s expected that Hertz Global Holdings Inc. will need to sell off a majority of its fleet. They’re sitting unused right now since air travel makes up two-thirds of the rental car business, and 94 percent of flight travel has been suspended. A bulk of the remaining third isn’t vacationers – it’s collision repair businesses, and since the pandemic began, they’ve been much slower than usual, or even shut down. That leaves hundreds of thousands of vehicles sitting idle on borrowed lots. 

Ready to Retail Units

The vast majority of rental cars are eventually sold off and replaced to keep the rental fleet fresh, attractive, and low maintenance. This time, they won’t be replaced anytime soon. And while used car sales have resumed their normal volume, these rental vehicles are ideal to fill in the open spots on used car lots across the nation.

Hertz Car Sales operates direct-to-consumer in many states, but the volume of cars required to sell off is far beyond their own scope. Hertz will need to wholesale hundreds of thousands of cars, liquidating assets to improve access to operating funds. How that happens is still to be determined.

Dealers should be prepared to move quickly on rental vehicles that come to market. Snatching up batches of a particular make and model, or vehicle style, could be a great way to position a dealership in their locale. Cars bought from rental agencies tend to have extremely low reconditioning costs and offer an easy way to sell used cars at a higher volume.

Related: Why Your Dealership Might Consider Working with a Car Rental Company

How Dealers Can Respond

The wholesale industry is moving rather slow right now as ADESA and Manheim are operating under COVID-19 restrictions. It’s possible Hertz liquidations could take place outside these venues for expedient sales. However it happens, dealers should be prepared to move quickly when the time comes. 

• Have a campaign ready to go. Structure a sales campaign around an influx of high-quality certified pre-owned cars that can be released to existing and new customers quickly. 
• Develop a sales strategy for rental cars. A negative connotation is still present among rental cars with consumers believing they’re used harshly. With cars today lasting longer than ever and manufactured to a higher standard, it’s no longer the case that rentals are a poor choice. Develop a list of common myths and debunk them for your customers. 
• Ensure you have appropriate real estate available. Expect that you’ll need to buy in batches for the best value, and ensure you have somewhere this inventory can be dropped that won’t mess with your lot. 
• Reach out to your local branch. While the sell-off may not be possible locally, any jump you can potentially get on the competition is good strategy.

Dealers can also expect an impact from lower fleet volume coming through the dealership. Sales often aren’t impacted, but the service department will likely see a decrease in PDI work as a result. Luckily, an increase in reconditioning work from these rental units will more than balance it out.

Did you enjoy this article from Jason Unrau? Read other articles from him here.

Car Biz Today, the official resource of the retail automotive industry.