In Bozeman, Montana, a rental car will zap you $350 a day plus gas, or $650 for something fancier than a compact. In Manchester, New Hampshire, $250 a day plus gas. In Dallas, Texas, and Denver, Colorado, it’s better at $80 but the wait times are very long. Many people find themselves without and instead take Uber. In Salt Lake City, Utah, and Savannah, Georgia, you will throw down $150 per day plus.
The only real deals out there – by which I mean not $14 per day like it was six months ago but $70 – require that you grant the agency choice over what car they give you: the answer is whatever they happen to have on the floor. Also watch for a change in terms of service. Some companies have dropped “unlimited mileage:: a woman in Denver found herself with a $28,000 bill from driving 200 miles.
As with most such dramatic economic changes, people don’t know what to make of them. They blame the wrong party: the enterprise itself rather than the government that forced this fiasco on everyone. Fortunately, the political class is not hip to this yet; otherwise they would impose gouging rules that would deplete supply in an instant plus drive further bankruptcies.
Let’s look more closely at what’s going on here.
I was explaining the new and used car crisis to a friend. He said: sounds like a good time to rent a car. It’s a reasonable response, one that would have made sense any moment in the last 40 or so years. But these are not normal times. Not even close. The expected and predictable is suddenly and weirdly unexpected and unpredictable.
In the spring of 2020, governments around the country and the world shut down their societies to kill a virus. The result was an economic meltdown. I had a sense of foreboding. Most sensible people did. Two days, two weeks, maybe. But a full year? What kind of unholy mess will this unleash? We took the potential of a medical crisis and turned it into a massive public health, political, and economic crisis. Great going politicians!
Among the industries hardest hit immediately following lockdowns were rental cars. When flights stopped – airports were ghost towns for many months – two-thirds of their business vanished. The Wall Street Journal reported on May 4, 2020: “The vehicles now sitting on rental-car lots are rapidly losing value in a slumping used-car market and yet the rental firms must still make monthly payments on them, adding to financial strains, analysts say.”
To survive, many of the companies ending up selling off many in their fleet of cars. Eventually Hertz filed for bankruptcy while Avis sought a rescue. So things sat for the better part of the year. The cars just sat there gathering dust. Sometime in the late summer last year when I rented one, staff took an extra 15 minutes to completely fumigate the car before giving me the keys, under the ridiculously mistaken view that the Coronavirus found a happy home on upholstery and leather.
This year consumer demand returned to normal but now a new problem has arisen. There is an extreme shortage of new cars that rental companies rely on. They will buy anything, new or used, at inflated prices, which only adds to shortages elsewhere in the car market.
In fact, it is forecast to persist until year’s end. It’s due to a chip shortage because manufacturers cancelled orders, so instead of merely waiting it out, factories around the world retooled to serve home appliances and computers. When car demand returned, and fresh cash was burning a hole in people’s pockets, manufacturers couldn’t ship product because the cars were inoperable.
You have people desperately making up for lost time, trying to travel here and there. That has caused a spike in the market for renting cars at the very time when companies can’t buy the cars. Rental prices are up, sometimes by a third but up to four times since January, but the demand is still outstripping supply. In addition, there is a huge shortage of used cars too, even as broken supply chains mean that parts are not available.
The human tragedies unfolding now are many. A family member in Texas relies on his truck for business. It developed a mechanical problem. It can’t be fixed anytime soon due to the parts shortage. There are no new trucks available now and they are back-ordered six months. The used car lots are depleted. Private sellers have them available but always with needed fixes. He tried to rent but found it unaffordable. He is stuck at home, watching his business unravel.
Other people are ready to vacation and give support to the asphyxiating hospitality industry around the country. Hotels, vacation spots, restaurants, concert venues – they could all use the business right now. But people take a look at the cost of flights and car rentals and change their plans. What used to be a minor expense of a trip (snagging a rental for a few days) has turned into a major one. It’s enough to make people rethink, at the very time when the hospitality industry is ready to rock.
This is a tremendous illustration of the interconnected and delicate systems that make up the market economy. When it is allowed to work, it is reliable, plentiful, efficient, responsive, and wealth creating. It’s so much part of our lives that we take it for granted. The digital economy has made trade, exchange, and production easier than ever before even as the reason it works so well is less understood than ever – and ever more under attack.
When you break it by force – I’m still astounded that this actually happened – you create conditions for disaster both immediately and down the line. We are finding out now just how bad this can get.