Rental-car companies stockpiling older, high-mileage cars
It's getting harder to find a low-mileage new car at the rental lot, but what you'll get is usually better-equipped than in years past.
By the time the average rental-car retires, it's a year old with between 35,000 to 40,000 miles on the clock, about 75 percent more mileage than in 2005. At that time, rental companies were replacing a greater number of cars that were only four to six months old with about 17,000 miles, according to Tom Webb, Manheim's chief economist. Many major rental companies now keep cars for as long as 16 months, said Chris Brown, executive editor of trade magazine Auto Rental News.
Just eight years ago, most rental companies -- with the exception of Enterprise, the largest of them all -- were effectively leasing the bulk of their fleets by selling cars back to automakers under fixed terms and prices, Webb told MSN Autos. Today, rental companies own nearly all of the cars in their respective fleets, a practice the industry refers to as "risk units" for their older age and greater costs required for maintenance, repairs and depreciation.
Hertz stocked about 86 percent of its rental fleet with these older, higher-mileage cars as of the third quarter of 2012, a 16 percent increase over 2011 and a 55 percent increase since 2005, according to Manheim. Avis and Budget will run up to 65 percent of its fleet as risk units this year, up from just 1 percent in 2005. Enterprise, Dollar, Thrifty and small rental companies use higher-mileage cars almost exclusively, the report said.
It's not entirely by choice. After the 2009 recession and criticism of inflated sales numbers, domestic automakers began cutting fleet sales -- partially since new-car sales were tanking, but also in an effort to boost retail sales and residual values of certain models. High fleet sales typically reduce a model's value and profit over time because too many models -- often equipped with the same features -- can flood the used-car market all at once. Webb said that domestic automakers had been forced by uncompetitive labor agreements to dump an oversupply of cars into rental fleets, which eventually became unprofitable.
"That's when manufacturers had to keep the factories open because they had so much fixed costs," Webb said. "They were big money losers."
While domestics continue to make up the bulk of today's rental fleets, their numbers have sharply declined. Between 2002 and 2012, General Motors and Ford cut their sales to rental companies by 42 percent and 50 percent, respectively, while Chrysler dropped by 17 percent in the same period. By comparison, Japanese brands have surged into rental fleets. Toyota and Nissan increased rental sales by 65 percent and 126 percent, respectively, since 2002.
But despite their age, higher-mileage cars aren't any more troublesome for rental customers than newer cars. Brown said that as long as rental companies keep the cars clean and swap in a new set of tires, most customers don't mind the miles.
"Cars are being built much better now that holding onto cars longer is not as problematic as it would have been 10 years ago," he told MSN Autos. "You don't get into big maintenance issues until the car is well past the service life for what a car-rental company would consider."
Even better, today's rental cars are not the bargain basement specials of a few years ago. Due to dealer demand, rental car companies have been buying more well-equipped cars that sell for "unprecedented" prices, Brown said.
"The days of the roll-up window in rental cars are pretty much done," he said.
[Source: Manheim; Photo: AP/NBCNews]
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