U.S. automakers have long relied on sales to car rental agencies to boost sales and raise cash, but as rentals have slowed with the weakened economy, it will be harder for the Big Three to unload their excess vehicles.
“For a long time fleet sales have served as a pressure valve for U.S. automakers,” said Michael Kane, president of Vehicle Replacement Consulting Group. “These sales gave the automakers an easy place to unload inventory and smooth out their herky-jerky production.”
The economic downturn means fewer people are traveling, translating into lower rentals, especially at airports. “Business is down for everybody. It’s just a matter of degree,” said Patrick Farrell, vice president of corporate communications at privately held Enterprise Rent-A-Car Co, the largest U.S. car hire agency. “The airport business is being hurt, which has an impact on people who rent cars.” Enterprise, which cemented its place as a colossus in the industry last year when it bought the National and Alamo chains, reported revenue of $10.1 billion in 2007.
The credit crunch also makes it harder for the rental agencies to sell their used cars to consumers, who are struggling to obtain car loans. And as the resale value of many of the vehicles of U.S. automakers has plunged, when the rental agencies do sell their used vehicles, they get less cash for them. As a result, rental agencies are likely to need fewer vehicles from Detroit. That’s a bit ironic since just last year, the three U.S. automakers — in an effort to return to sustainable profitability — decided to cut back on fleet sales to the rental chains. Selling the cars en masse at reduced prices had undercut their value.
Source: the Guardian
