Auto Rental News, January 2021

2 Fact Book 2021 AUTO RENTAL NEWS E D I T O R S C O R N E R WELCOME TO 2021 CAR RENTALS RECOVERY YEAR The coming year will begin with upside down fleet patterns a constricted lending environment a looming tax liability and a changed rental customer Yet by the second half business could be gangbusters Will you be ready C CONGRATULATIONS If youre reading this youve adjusted your fleet staff and operations to meet the challenge of the most disruptive year in your business Whats next Welcome to 2021 Well call it the Recovery Year Next year will be a tale of two halves In the first half a resurgence of COVID 19 cases will put a chill on travel in some areas though local business and local leisure rentals will make up some of the business from lost air travel But with vaccines apparently widely available by June the third and fourth quarters of 2021 could be gangbusters for everyone With all normal projections out the window planning 2021 wont be easy Here are some factors to guide you UPSIDE DOWN FLEET PATTERNS Fleet cycles are upside down from normal patterns Spring in fleeting was put on hold due to the virus followed by a summer sell off into the crazy hot used car market During falls normal de fleeting period operators acquired vehicles to meet increasing demand Once tight new car supply is easing somewhat Franchisees and established independents have leverage with OEMs and wont have problems acquiring fleet but smaller rental companies will have to get in line behind dealer retail That means smaller companies will have to work harder for units in the local market though they may not find the usual dealers wholl part with end of month inventory to up sales numbers Brokers may be able to help Knowing the market is still hungry for used cars one Florida affiliate operator is offering to sell his local dealers two of his used rental units if theyll sell him one new car Smaller operators could also look to buy used fleet in Q1 There will be no basement bargains however as strong demand in the recovery and lingering supply issues will keep wholesale prices firm throughout 2021 Whatever your fleet needs start planning immediately If by the end of the second quarter were anywhere near back to normal itll be a scrum for rental units CONSTRICTED LENDING ENVIRONMENT A major fleet supplier lender and a few smaller rental lessors exited the U S market in 2020 while existing lenders have tightened their criteria and are lending in smaller increments Like fleet supply the larger established rental companies wont be too troubled but the smaller ones looking for a foothold will struggle If youll need to fund fleet for the ramp up over communicate with lenders the good the bad and the ugly They all know that balance sheets are suffering across the board In times of economic shock theyre judging how operators are reacting to market conditions to decide which clients to fund Talk to lenders now not when you urgently need cash flow LOOMING TAX LIABILITY With the sunset in 2018 of like kind exchange LKE as a tax deferment strategy in its place some car rental companies have taken advantage of 100 bonus depreciation But similar to LKE that only works when the fleet is growing because the tax bill is put off only if youre buying more vehicles With this years unprecedented fleet constriction some smaller and medium sized rental fleets are facing additional multiple millions of dollars in tax liability Without legislative intervention this could sink some companies just as theyre digging out of the pandemics hole Though the bill wont come due until 2022 consult your tax accountant now to see where you stand and to devise a mitigation strategy THE CHANGING CUSTOMER Out of necessity the pandemic has forced new efficiencies in business processes Its also produced heightened awareness of customer care BY CHRIS BROWN