The rental market is the latest industry sector to feel the weight of the global semi-conductor chip shortage. In order to maintain a healthy bottom line, rental companies are being pushed by manufacturers to keep a smaller inventory of premium vehicle models. This perfect storm has led to an overall shortage of units, and travelers looking to rent a car are stuck paying the price, assuming they even follow through with their rental reservation. For example, you will be hard-pressed to find a customer willing to shell out the extra cash for a luxury SUV when they expect to cruise around in a budget-friendly economy model.
Rental companies are responding by purchasing used vehicles to refleet while shifting their inventories to hot markets. The two-part strategy makes sense because it allows agencies to offer more budget-friendly options to renters while conducting enough business to navigate these uncertain times. However, obtaining used vehicles and getting them to their respective end destinations comes with logistical challenges. Rental companies are now finding themselves needing to re-locate inventory around the country, which is a daunting task if you don't have access to your own car carrier trailers.
RPM has taken note of the nationwide rental shortage, increased need for businesses to reallocate inventory, and elevated costs to all parties involved. We'll outline the scope of each one of these problems before concluding with a seamless solution to solve supply chain issues within the rental market.
Rental car companies and their customers feel frustrated with the current state of the market. As indicated earlier, original equipment manufacturers (OEMs) are pushing hard for rental agencies to adopt top-tier models that produce higher margins. But OEMs are instructing rental companies to adopt this strategy for a reason. The global chip shortage caused a logjam in production, forcing a number of automakers to cease manufacturing certain models. In some cases, the proverbial pause button was hit on entire lines of vehicles.
With fewer new models in production, rental car companies are left with depleted inventories and have been forced to carry on with a limited number of units. The idea has worked as an interim solution to the rental shortage. But rental car companies should not expect to sustain this business model. A large number of the population are already resuming travel in 2022, and there simply isn't enough inventory to go around. Car rental companies are restocking their aging fleet by buying back cars that had been previously sold off at auction to used-car dealerships.
Increased Need to Reallocate Inventory
Buybacks are helping car rental companies combat their inventory issues, but the buck doesn't stop there. Increasing transportation costs are pushing units into hot rental markets throughout the year due to inventory constraints across all locations. So even if a car rental company can refleet with more units, they are still faced with the task of diverting them to newer sites. For example, Orlando, Fla., is a huge car rental market due to its popular tourist attractions, but the city lacks public transportation. If a business like Orlando Rental Cars Company adds to their fleet, but the cars are located in San Diego, they'll need to ship the units across the country.
Elevated Vehicle Costs
Even after reallocating inventory and refleeting with used vehicles, rental car companies are spending more money than ever before. Cars are in such short supply that businesses are forced to pay over MSRP for pre-owned models. The price hikes are not only impacting car rental companies but everyday shoppers looking to get into a new or pre-owned vehicle. A May 2021 study from Cox Automotive found that 40% of car shoppers are willing to pay $5,000 over MSRP. It's a precarious situation for all involved. The bottom line is that car prices remain high and rental companies are circumnavigating the issue with used cars. At least that's the case for car rental companies. Your everyday car shopper will simply have to wait for costs to come down if they are unwilling to pay high sticker prices.
Solving Supply Chain Problems
As one of the country's largest vehicle logistics providers, RPM offers a unique solution to address these challenges facing the rental sector. Car rental companies can work with the provider’s network to ensure same-day shipping and quick transport windows, generally executed within five to seven days. More importantly, RPM offers a live tracking portal available 24 hours a day, seven days a week. The portal makes it easy to check on a shipment's progress, so you know exactly when to expect it. To put it plainly, RPM provides end-to-end supply chain visibility for car rental companies moving units from one area of the country to another.
You can learn more about solving supply chain issues within the rental market by visiting RPMmoves.com.