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So, Hertz just missed a lease payment on its rental fleet and is preparing for bankruptcy. In normal times, or for a smaller company, the lender would just repossess the cars and sell them at auction to recover their money. Obviously, if the lender floods the market with 300,000 used cars all at once, they would get a fraction of what these cars are truly worth. Accordingly, the lenders agreed to forebear the missed payments until later this month.
However, nothing is changing- travel is not coming back anytime soon, and Hertz will likely miss its next installments too.
Wanted to hear some thoughts on what this will do to the used car market. In my opinion, it's a matter of "when" not "if" Hertz and other rental companies have to start selling a significant portion of their rental fleet, either by choice or in bankruptcy/repossession. It just doesn't make sense to maintain such a large fleet when travel is at an all-time low.
Seems this will crush used car values, and by extension, new car sales (even beyond what the recession is already doing). If you can get a low mileage used car for a fraction of the cost compared to 3 months ago, why buy new? Really interesting times ahead for the automobile market, among everything else that is happening out there.
So, Hertz just missed a lease payment on its rental fleet and is preparing for bankruptcy. In normal times, or for a smaller company, the lender would just repossess the cars and sell them at auction to recover their money. Obviously, if the lender floods the market with 300,000 used cars all at once, they would get a fraction of what these cars are truly worth. Accordingly, the lenders agreed to forebear the missed payments until later this month.
However, nothing is changing- travel is not coming back anytime soon, and Hertz will likely miss its next installments too.
Wanted to hear some thoughts on what this will do to the used car market. In my opinion, it's a matter of "when" not "if" Hertz and other rental companies have to start selling a significant portion of their rental fleet, either by choice or in bankruptcy/repossession. It just doesn't make sense to maintain such a large fleet when travel is at an all-time low.
Seems this will crush used car values, and by extension, new car sales (even beyond what the recession is already doing). If you can get a low mileage used car for a fraction of the cost compared to 3 months ago, why buy new? Really interesting times ahead for the automobile market, among everything else that is happening out there.
About time car prices used and new got lower. U.S. used to be known for the affordable cars, not anymore.
So, Hertz just missed a lease payment on its rental fleet and is preparing for bankruptcy. In normal times, or for a smaller company, the lender would just repossess the cars and sell them at auction to recover their money. Obviously, if the lender floods the market with 300,000 used cars all at once, they would get a fraction of what these cars are truly worth. Accordingly, the lenders agreed to forebear the missed payments until later this month.
However, nothing is changing- travel is not coming back anytime soon, and Hertz will likely miss its next installments too.
Wanted to hear some thoughts on what this will do to the used car market. In my opinion, it's a matter of "when" not "if" Hertz and other rental companies have to start selling a significant portion of their rental fleet, either by choice or in bankruptcy/repossession. It just doesn't make sense to maintain such a large fleet when travel is at an all-time low.
Seems this will crush used car values, and by extension, new car sales (even beyond what the recession is already doing). If you can get a low mileage used car for a fraction of the cost compared to 3 months ago, why buy new? Really interesting times ahead for the automobile market, among everything else that is happening out there.
A few comments on this:
1) Not all rental car companies own their cars. Many of them are on re-purchase agreements with automakers. Really only Enterprise and Hertz are big players when it comes to owning their own cars.
2) For those who don't own their cars, certainly as repurchase agreements expire those vehicles won't be replaced but there won't be an immediate flood of rental cars into the market. It may be a slower stream of cars coming into the market over the next few months, but the market will correct for that now, to a degree.
3) Any used market erosion will probably hit the sedan and small/midize SUV markets the most as far as used vehicle prices. Won't be a big impact on larger SUV's and trucks due to rental car companies not having a ton of these to begin with. Even on sedans, I think it will hit the values of base model trims the most, while loaded up sedans in the market won't get dragged into the mud as much. (The used supply of used sedans with top-end powertrains, leather, moonroofs, etc won't rise as much as regular/cheaper models.)
4) Most people I talk to over the past couple months seem to think the used car market may drop 20% due to all of this and the COVID impact. New car prices won't drop as much (for now) due to the supply still being at a reasonable level given production stopped. Used cars will take it on the chin first and then maybe in a few months, once production resumes, better new car deals will come but even then you won't be seeing 20% price drops on new cars. There just isn't that much room to play with on new vehicles so any market erosion on new vehicles will be less than the impact on the used market.
I priced my vehicle using Carvana's online purchase tool and along with their valuation this note was attached so I guess this is Carvana's take on the current and quick peek at the future of used car market.
YOU CAN TRADE THIS VEHICLE
"We're sorry, but we're currently over-supplied with vehicles and can only accept your vehicle as a trade-in with purchase.
Save your offer to get started with your trade-in".
ABOUT YOUR OFFER
"We understand that our offers may appear lower than usual, as they reflect an unprecedented decline in the used car market since the beginning of March. It’s important to note that used car pricing guides will need time to adjust to this rapidly changing market.
It’s always our goal to be transparent and present customers with fair offers that reflect current market conditions. We will continue to update our offers in realtime as the market changes".
1) Not all rental car companies own their cars. Many of them are on re-purchase agreements with automakers. Really only Enterprise and Hertz are big players when it comes to owning their own cars.
2) For those who don't own their cars, certainly as repurchase agreements expire those vehicles won't be replaced but there won't be an immediate flood of rental cars into the market. It may be a slower stream of cars coming into the market over the next few months, but the market will correct for that now, to a degree.
3) Any used market erosion will probably hit the sedan and small/midize SUV markets the most as far as used vehicle prices. Won't be a big impact on larger SUV's and trucks due to rental car companies not having a ton of these to begin with. Even on sedans, I think it will hit the values of base model trims the most, while loaded up sedans in the market won't get dragged into the mud as much. (The used supply of used sedans with top-end powertrains, leather, moonroofs, etc won't rise as much as regular/cheaper models.)
4) Most people I talk to over the past couple months seem to think the used car market may drop 20% due to all of this and the COVID impact. New car prices won't drop as much (for now) due to the supply still being at a reasonable level given production stopped. Used cars will take it on the chin first and then maybe in a few months, once production resumes, better new car deals will come but even then you won't be seeing 20% price drops on new cars. There just isn't that much room to play with on new vehicles so any market erosion on new vehicles will be less than the impact on the used market.
Really nice points, thanks. On your pont #2- I agree- as long as the rental companies can stave off bankruptcy/repossession, it seems like they should start dribbling their cars into the market bit by bit. The rental demand won't likely return for quite some time.
On #3, I saw something interesting in the past. I once tried to buy a car from Enterprise, and they actually offered the option of upgrading the cloth interior to leather. I didn't go through with the transaction for other reasons, but I was impressed that they did offer some customization, and it wasn't much. I wonder if they'll upgrade some of their cars themselves if what you say comes true- that leather and other upgrades might have a stronger market such that the upgrades would have a good ROI for them.
On #4, I agree. They can't really cut prices; the manufacturers will just have to try to manage their fixed costs during times of lower production so that they can stay profitable at lower volume. Because if the used car prices dip and the new car prices are stuck where they are at, they're just going to sell fewer new cars (but not necessarily at lower prices, as you point out).
they will just leave cars in unattended lots, keys inside, Lojacks removed, and have them stolen. then, claim insurance money. Or, maybe, do oldest insurance claim in the world - massive lot fires.....
Like the 9 11 WTC property owner, who bought them and insured for some billions - right before the crash. And, got paid. easy.
NEW Car prices are about to go in the dumpster. The projected sales are 11 million new cars this year. They had projected 18 million. I personally think they won’t break 10 million new cars sold for the year.
As far as used cars....you’re not gonna see a 2000 dollar car all of the sudden selling for 500 dollars unless the seller is that desperate. If the seller is that desperate most likely they are living in that car.
As far as the rental cars...rental cars are usually basic transportation cars. You’re not gonna find GT500s for half off on a rental lot. You’re gonna find a 4 cyl LX something or other that is a daily driver. Which is fine if you’re looking for a basic vehicle. But I doubt you’ll find cars all of the sudden going for 75% discount.
If you’re looking for that new, dream, project, car wait a while. Right now we’re still under CV19 quarantine. If the economy doesn’t get moving you’ll start seeing some big drops
The lease on my 2017 Mazda CX9 9s up in August. I think the buyback was about $23,000. The residual will probably crash but I don't think it would be enough to buy it outright. I had been looking for a Lexus RX350. I would prefer the L. The price on that before this, nicely equipped in the 2015-2018 range was between $23,000 and $28,000. It might just be worth to for me to lease a new one now.
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