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Shortage of ex-renters looming

Staying at home: A downturn in the travel market has flowed through rental car sales.

Rental-car market switches off as travellers stay home

General News logo2 Jun 2009

DEALERS who rely on former rental cars to top up their used-car stocks had better stay on their toes for a few months – a shortage could be looming.

The upside is that anything you have on your books now may maintain its value – could we even hope for a rise in value? – as the shortage develops.

The cause of the shortage is a major anomaly in the rental market. Sales of passenger cars, sport utilities and light commercials to rental agencies have been down about 60 per cent for the past four months and don’t look like recovering their old vigour for some time yet.

There is always a lull in January in rental sales, but in the past there has always a bounce back in February of at least 100 per cent. Not this year.

Not only did sales stay down in February, they fell even further in March, at a time when government and business sales started scrambling off the bottom of the graph.

The cause of the rental slump appears to be a downturn in travel, both international and domestic. There is an umbilical link between car rental and travel and, while the bar graph behind the rental line looks like it is going up, that is actually the usual annual pattern.

International arrivals range between 450,000 and 600,000 a month over 12 months, and a distinct downtrend has developed over the past nine months.

Apart from July 2008, every month in the second half of last year saw a downturn in arrivals of international visitors, as high as eight per cent in September and six per cent in November.

But there are 10 times as many domestic travelers who spend at least one night in another state. That translates to 16.8 million overnight visitor stays in the December (5.6 million a month) quarter, and that was down 5.6 per cent compared with the previous December quarter.

In the face of the downtrend in tourism, vehicle renters showed great resilience in the second half of 2008, with purchases averaging more than 5000 a month, a quite respectable number.

But it looks like the penny finally dropped in January, when purchases plunged from 4000 to one third that, about 1400 in January. Worse, instead of bouncing back by more than 100 per cent, as they usually do, they stayed down there in February. And March. And April.

“It is definitely an anomaly,” one industry source said about the weak 2009 rental demand. “It’s because of the global financial crisis.” So there is the genesis of an opportunity for dealers. If you have a reliable source of ex-renters for your yard – most of them come from the car-makers because they get them back under guaranteed buy-back plans – keep your foot on it because the supply could dwindle, and that could lead to a shortage.

A GoAuto calculation indicates that sales to rental companies in the first four months of 2009 are down by more than 10,000 units. That’s 10,000 vehicles that won’t be popping out the other end of the rental cycle beginning now.

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