Avis Budget Group's stock price closed at an all-time high on Friday, a sign that rental car companies' fleet-shrinking strategies are paying off financially - even as they leave consumers fuming.
Major rental car operators last year sold off more than 770,000 cars as the pandemic crushed demand and kept Americans home, according to Jefferies Group, an investment bank. More than 1 of every 3 rental cars that were in service before the pandemic are no longer available.
For customers, smaller fleets mean higher prices and longer waits. But for the rental companies, shedding car leases and cutting billions of dollars in planned purchases was the key to survival. Now that the economy is growing faster than anticipated and people want to travel, the companies are struggling to find enough cars.
"Usually car rental is an afterthought," said Benjamin Tuttle, a computer-assisted design programmer from Minnesota, who was taken aback when Hertz quoted him a price of $240 per day to rent a sedan to tour Colorado's Rocky Mountain National Park.
The industry backfire illustrates that the post-pandemic recovery, while strong, may not be entirely smooth. As more retail businesses reopen, many report trouble hiring enough workers to cope with surging demand. Manufacturers complain that raw materials are scarce - a semiconductor shortage that hobbled auto production is making it hard for companies like Avis to restock.
"The COVID shock was unlike anything we have experienced before. As we go into the recovery phase, we're going to see friction and disruption in the normal flow of economic activity," said Kathy Bostjancic, chief U.S. financial economist for Oxford Economics. "It's going to be a bit erratic and disrupted, but the pace of growth will be very strong."
If the rental car industry - pulverized by last year's recession - becomes a drag on this year's recovery, it will be the result of both political and economic forces. The companies' limited lobbying punch meant they were largely ignored during federal bailout talks. And the financial imperatives of the business required a short-term approach to fleet management that left them unprepared for the economy's zero-to-60 restart.
Many Americans are flush with cash and want to spend it on the road. Popular travel destinations, including Disneyland, are ready to welcome them. New York Mayor Bill de Blasio said Thursday he wants to "fully re-open" the city by July 1, which probably would draw even more tourists. But rental agencies are not expected to adequately restock their fleets until 2022, meaning there could be millions of frustrated would-be customers during the busy summer travel season and beyond.
Indeed, many forecasters expect the United States this year to post its strongest growth since 1984. The $1.9 trillion American Rescue Plan, coupled with a $900 billion stimulus package approved in December, has awakened demand while coronavirus vaccinations are allowing Americans to resume normal activities.
Almost 1.4 million passengers cleared airport security checkpoints on Monday, more than 10 times the number of travelers on the same date one year ago.
Yet the jump in demand is outpacing rental car supplies.
Kelly Gaule, a Massachusetts-based consultant for nonprofit organizations, prepaid for a Hertz car earlier this month when she needed to make a last-minute trip for a funeral. Upon arriving at the New Orleans airport, she stood in line for an hour just to reach the counter before waiting an additional 90 minutes for her car.
The pandemic clobbered every part of the travel and entertainment industry. Hotels emptied. Passenger jets were grounded. And few people needed rental cars.
When lawmakers assembled the $2 trillion Coronavirus Aid, Relief and Economic Security or CARES Act, the airlines got $25 billion in payroll support, $25 billion in subsidized loans plus tax relief while the rental car companies walked away empty-handed.
The flip side of shrinking the fleet in bad times is the ability to add cars when demand returns. But today, rental companies' efforts to stock up are crashing into an auto industry production crisis.
A global shortage of computer chips is crimping production of new cars by General Motors, Honda, Ford, Toyota and others. With a limited supply of chips, the automakers are concentrating on supplying their dealers rather than feeding the less profitable fleet sales channels. That means producing full-feature pickups and sport-utility vehicles coveted by car buyers, not the sedans renters gravitate toward.