Because manufacturers prefer retail sales over fleet, Black Book does not expect rental sales to resume at least until 2023. Activity at auctions – leasing companies buying instead of selling – was the biggest driver of wholesale prices in the fourth quarter of 2021.
Source: Black Book Analytics
Problems with supply chains, shortages of production and declining dealer inventories are forcing the car rental industry to the brink. Most car segments are actually appreciated, and many units are sold at a price higher than the sticker, leaving rental companies trying to stock up on whatever they come across.
Dr. Alex Yurchenko, head of the Black Book’s data science department, and his team are responsible for forecasting wholesale car prices, and it starts with consumer demand in retail space.
Supply versus demand
Despite the fact that consumer confidence jumped by about 10% in April, it is still at its lowest level in ten years, said Yurchenko, who shared this and other trends at the seminar in 2022. International Car Rental Exhibition in Las Vegas on April 25th.
Yurchenko said that initially the rise in gas prices has not changed consumer behavior. They still bought what was available – big SUVs and trucks, but not so many cars. However, over the last few months this behavior has changed. Due to high gas prices, there is now increased demand for smaller, more fuel-efficient vehicles such as compact SUVs and cars, he said.
According to Yurchenko, the return of property has traditionally been a good source of used equipment for car rental companies, but over the past two years, the channel has almost dried up due to a moratorium on foreclosures. Assistance from both the government and credit institutions has led to the fact that these cars have not returned to the market.
“We are talking about a million cars a year,” Yurchenko said. “Recent trends point to an increase in output. The figure is still small, but the volume of output is increasing.
Problems with supply chains – including the constant shortage of chips – continue to be the biggest factor driving this whole scenario. Yurchenko’s most optimistic forecast is that by 2023 the industry will reach a normal level in terms of production, but dealer lots will not return to normal in the near future.
Stock constraints and new sales incentives are reaching record lows each month. According to Yurchenko, before the pandemic, the average incentive was about 11% of the MSRP. The average incentive in March 2022 was about 3.5%.
Black Book expects new car sales to grow in the fourth quarter of 2022 compared to the month, but this year total car sales will reach 15 million.
Source: Black Book Analytics
“Most consumers pay more for the sticker, which was unheard of a few years ago,” Yurchenko said. He added that dealers are struggling to be the first in line to get inventory. The big question is whether manufacturers can produce enough vehicles to suit dealers and rental companies. As a result, for the third year in a row sales of the leased fleet will be at a historically low level.
Asset valuation
According to Yurchenko, before the pandemic there were more than 3 million cars in dealerships. Now there are about 1 million of them. Used inventory is also hard to find.
“With all the problems that arise with new products, in the next few years the profitability of second-hand goods will decline, and this will maintain high prices for second-hand,” – said Yurchenko. “We will be in this limited environment of used cars for some time. Rents do not return to the market. In the long run, unsold leases this year will not be returned in the next three years. “
Rental sales fell by about 50% in 2020-2022; thus, supplies of new used cars will be limited in the next few years. Rental sales are projected to decline by about 15% in 2020 and 2021, which will help reduce deliveries in use in three years.
Source: Black Book Analytics
According to Yurchanka, before the pandemic, the average annual depreciation was somewhere in adolescence. When the pandemic started, in the first half of the year there was a drop in volume and then it started to increase. In general, vehicles have risen in price by almost 30%. Depreciation is projected to return to normal this year.
Last year, each segment rose in price, some by almost 50%, Yurchenko said. Demand was high, but supply was limited, which caused prices to rise. Full-size vans have appreciated for almost two years. They are not so much produced, and demand for them is high, so prices are rising.
“Now is a good time to sell them, but few people have to sell,” – said Yurchenko, adding that the change in prices for the week is about 1%. There are three different classes of vehicles by their age group, and the trends are mostly similar. In the typical spring market, consumers are looking for vehicles priced around $ 10,000. Three years ago, this meant that you bought a car at the age of 2-8. Now, to reach the same price range, you need to look at cars that are more than 10 years old.
High wholesale and retail prices
According to Yurchenko, even with the projected decline in prices in the next two or three years, wholesale prices will still be 30-40% higher than we were before COVID-19.
“If the level of production normalizes next year, depreciation will return to normal seasonal levels.
According to Yurchenko, a three-year-old dondemic car has retained about 50% of its value. While the remnants will decline, they will still be much higher than the figure before the pandemic.
EV factor
Sales of electric vehicles (EVs) are projected to increase gradually, to about 20% of new sales by the end of this decade; however, much needs to be done for mass implementation, including charging infrastructure, creating a second-hand resource market, and creating a market for a second life battery. Last year, more electric cars appeared on the market, and their penetration for rent is higher. The number of used EVs returning to the market is also increasing.
“Electric locomotives are still a relatively small segment,” Yurchenko said. However, EV prices have risen, as in other segments where Tesla dominates. However, the cost of EVs is also projected to decline in three to four years.
Scramling for rental units
In the first quarter, rental companies almost stopped buying rent in the hope that new stocks will appear. In the last month or so, rental companies are returning to the U.S. market to purchase more units. The problem is that there are few new or used cars with low mileage left.
By the end of 2022, the Black Book expects prices to fall, but not return to COVID-19 levels. Declining sales of new cars in 2021 will reduce the supply of used cars in three years, leading to higher prices.
Source: Black Book Analytics
“For a small car rental fleet, it’s hard to get new cars, and they probably have to pay the price of the sticker because of the difference,” Yurchenko said, adding that the used car market is drying up for rent. “Now there aren’t many places where you can buy a car with a low mileage of ’19 or ’20. Many of them bought larger rental companies last year. The inventory of those used cars with low mileage is being reduced. ”
The total volume of the auction decreased compared to the level before COVID-19, as well as sales from dealer to dealer, sales directly to dealers and purchases from consumer to consumer.
“The pandemic has pushed the industry to do so,” Yurchenko said. “This is not new territory; it has just accelerated the change that dealers now require vehicles across multiple channels. They go directly to consumers, fleets and rental companies to buy vehicles. ”
https://www.autorentalnews.com/10171802/black-book-residual-values-volume-sales-trends-to-2024
