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Rental Companies Buy Up Used Cars as Microchip Crisis Gets Worse

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Bloomberg, May 3, 2021 – The semiconductor shortage has slashed vehicle production so much that rental-car companies can’t get the new cars they need, so they have resorted to buying used vehicles at auction.

This is uncharted territory for the likes of Hretz Global Holdings Inc. and Enterprise Holdings Inc., which have made their profits by purchasing new vehicles cheaply in bulk, renting them out for as much as a year and selling them at auction. In the past, they have bought some used cars to shore up an occasional unforeseen burst in demand, but rarely for the mainstays of their fleets.

“You would never go into auction to buy routine sedans and SUVs,” said Maryann Keller, an independent consultant who used to be on the board of Dollar Thrifty Automotive Group, which is now part of Hertz. “These are special circumstances. There is a shortage of cars.”

The demand is sending used-car costs soaring. The Manheim Index, which measures prices at wholesale auctions, shows they’re 52% higher than they were a year ago.

“We expect to see records in the Manheim Index through June before demand softens enough to align with supply trends,” said Jonathan Smoke, chief economist of Cox Automotive, which owns Manheim, the nation’s largest used-car auction. “We expect retail prices to continue to rise into the summer, as retail trends tend to follow wholesale trends with a six-week lag.”