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What might happen to used vehicle prices, if rental car companies go bust?

2020-06-02 04:30

Lance Branquinho

vw polo vivo

VW Polo Vivo

Rental cars might be the butt of many jokes and a grudge transaction for most of us, but they account for about 15% of new vehicle sales.

South Africa has traditionally featured a robust rental vehicle sector, driven initially by business travellers and expanding over the last decade, due to tourism. 

Many large South African companies have production assets all over the country and flying staff and skills to a nearby airport, while completing the final portion of the journey by rental vehicle, is most efficient. 

By the same token, South Africa has an abundance of rural tourism treasures, best explored by vehicle. Tourists prefer to complete their inbound flight schedule at a regional airport, and then start their South African adventure by car. 

When rental car plans, go bad

With business travel significantly reduced and leisure travel currently cancelled, the rental car market has stalled. This has genuine consequences for private buyers too, as those rental car deliveries which were planned for 2020, are now going to be deferred. 

Even worse, is that if local rental car companies go bankrupt and have to liquidate their vehicle stock, it will flood the market. The consequence of this could be reduced residuals for private owners of the same vehicle type. 

 toyota etios

Toyota Etios. Image: Quickpic

Some of South Africa's most popular rental vehicles are the Toyota Corolla Quest, Etios, Kia Picanto and VW Polo Vivo. These also ranks amongst the most successful vehicles in their respective sales segments. The reason is simple: they are reliable and proven in local conditions, so rental customers feel comfortable paying money to use them. 

Gravel roads are a South African driving reality, and that means that most of the large local vehicle rental agencies, also stock SUVs and bakkies. And those are mostly Toyota's Rav4, Fortuner, and Hilux. 

If travel restrictions continue, much of South Africa's vehicle car park could be de-fleeted. And that means the market might flood, with low-mileage vehicles at a time when demand could be at new lows. 

Toyota Hilux

Image: Calvin Fisher

Who will buy all the rentals?

There is doubt that Toyota's Rav4, Fortuner and Hilux are amongst South Africa's most popular vehicles. Dealers would quite happily take additional stock of these models, being sure they could sell them onto private buyers. 

It is worth remembering that rental stock are not new vehicles, and if too many low-mileage models enter the dealer channel at once, it could have unhappy costs for private owners. Demand and supply dynamics set residual values, and rental car companies buy vehicles which are affordable to run, but also models they are confident of selling at a profitable transactional price, in future. 

If too many rental vehicles become available and crush the price floor for some of South Africa’s most popular models, it might be private owners who suffer. Especially those who are looking to exchange their current vehicle, for something more affordable and in urgent need to buy down. 

The world's most famous rental car company, Hertz, recently filed for bankruptcy in America. The automotive industry is already anticipating significant fallout from this, and hopefully, South Africa can normalise its travel regulations swiftly, to allow most rental car companies an opportunity to survive. 

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Read more on:    lance branquinho  |  car rental  |  coronavirus

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