Las Vegas Tourists Face Rental Car Shortage After National Fleet Selloff
Posted on: April 27, 2021, 11:29h.
Last updated on: April 27, 2021, 12:20h.
Las Vegas is facing a shortage of rental cars, like many other locations across the US. It comes after national rental companies sold off 30 to 40 percent — or maybe even more — of their fleets following the initial COVID-19 outbreak.
That leads to increased prices. In some US rental markets, the current cost for rentals is as high as $500 a day, warns Alfred Marcus, a professor at the University of Minnesota’s Carlson School of Management.
The rental car companies recognized the problem in recent months. They moved inventory to vacation areas such as Las Vegas.
But the problem proved too big to address by simply moving inventory around, said Stephen M. Miller, director of UNLV’s Center for Business and Economic Research.
It is nationwide, but most pronounced in tourist destinations,” Edward G. Anderson Jr., a professor at University of Texas’ McCombs School of Business, told Casino.org about the shortage.
Besides Las Vegas, other hard-hit locations “with often doubled- or tripled-prices” are Florida, Phoenix, and Austin, Texas, he said.
“Of course, that is assuming that cars can even be found in those locations, which is unlikely,” Anderson said. “You need to book ahead of time if you have any chance to get a rental.”
Last year, car rental companies faced pressure because there was almost no travel during the initial phases of the pandemic.
“Rental companies could not afford to hold onto cars that were not being rented,” Anderson said. “So, they sold off the majority of their fleets.”
Hertz received the most national attention for its sell-off, Victor V. Claar, an associate professor of economics at Florida Gulf Coast University, told Casino.org.
Car Production Slowed, Chips in Scarce Supply
Auto production slowed last year because of parts shortages linked to the pandemic. The current stock of cars to purchase is quite low, Anderson said.
The industry is also hurt by a lack of semiconductor chips. They are used to power the computers that control the engines, transmissions, and entertainment systems of cars and trucks. There are more than 100 of them in a typical car, Claar said.
The result is that now that demand for rental cars has risen sharply, rental fleets are too small, and there are no cars to buy,” Anderson said. “It doesn’t help either that rental car companies are a low margin business for the auto companies.”
Stephen Miller agreed the pandemic “devastated the demand” for rental cars.
Rental car companies began selling off their inventory, reducing it by 30 to 40 percent,” Miller told Casino.org. “When demand recently recovered, a shortage of rental cars emerged, driving up rental prices and leaving some demand unfulfilled.”
Miller adds that rental companies are “now scrambling to reinvest in their inventory of cars, which will take some time to complete.” Miller further warns if the pandemic “reemerges and slows demand again, then the rental car companies will get whipsawed, as they currently borrow money to replenish their inventory.”
Also, Zo Rahim, manager of Economic and Industry Insights at Cox Automotive, told Casino.org the entire auto industry is facing an inventory shortage for new and used cars.
Retail demand for vehicles is strong, thanks to low-interest rates, available credit, and government stimulus, Rahim said.
“This high-demand, low supply situation has rental car companies fighting for inventory to meet growing demand,” Rahim said. “During the crisis, new vehicle sales declined, including sales into the rental fleet channel.”
He says as the economy and consumption improve, “It has become harder for fleet buyers like rental companies to acquire new vehicles, given the supply constraints in the market.”
In addition, many travelers faced with the decision either to board a plane or rent a car to reach a destination opt for the rental because of COVID-19 risk, Claar said.
In the meantime, Alfred Marcus and other management and economics professors recommend tourists try car-sharing services instead of using rental companies.
But in Las Vegas, there is a shortage of rideshare drivers, and many delays for services like Lyft or Uber. Nevada officials are also enforcing local laws against drivers of illegal rideshare services. These are cash-only and do not use an app.