USED CARS MARKET

The coronavirus and the related drop-off in travel have pummeled the rental car industry. That means car shoppers may find deals on used vehicles this summer as the rental companies trim their fleets — but not necessarily bargain-basement discounts.

Auto rentals fell abruptly when the pandemic brought business and leisure travel to a near halt in March. Hertz, one of the world’s largest auto rental companies, filed for Chapter 11 bankruptcy protection in May.

The fate of Hertz’s fleet remains uncertain, but analysts say the company may sell at least part of its holdings. (The company declined to comment on the outlook for its fleet, which is subject to negotiations in bankruptcy court.) Even before the bankruptcy, Hertz said it had accelerated sales of its cars and canceled orders for new ones. Other rental companies did so as well; Avis said it sold 35,000 cars in March, or about 10% of its fleet in the United States.

The additional rental cars for sale, along with a steady stream of cars coming off lease agreements, may push down prices for used cars, said Jeff Schuster, president of Americas operations and global forecasting at the research firm LMC Automotive. “It’s good for consumers,” he said.

But the auto market is complex and economic conditions remain in flux, so used-car experts say they can’t predict the size of any discounts shoppers may see. 

Wholesale prices — what dealers pay for used cars at auction — fell steeply in April, as demand dwindled and auctions were halted because of the pandemic, said Zo Rahim, manager of economics and industry insights at Cox Automotive. (The company’s holdings include Manheim, which runs auctions and tracks the used-car market.) But demand and prices began rebounding in May, as states started to reopen their economies, Rahim said.

It’s uncertain how much Hertz’s bankruptcy will affect prices overall. Hertz’s fleet comprises more than half a million vehicles in the United States, and a big influx of cars at one time would probably affect prices, Schuster said.

But the holdings represent a small fraction of the roughly 40 million used-car transactions that occur each year, Rahim said. “It isn’t enough to put huge downward pressure on prices,” he said.

Plus, it’s uncertain how many Hertz cars will end up on the market. Chapter 11 proceedings allow companies to reorganize and keep operating, rather than liquidating holdings. Hertz’s various outlets, including its Dollar and Thrifty locations, remain open for business.

George Chamoun, chief executive of ACV Auctions, which conducts online used-car appraisals and auctions, attributed the rebound in vehicle values to more demand for used cars as people avoided public transportation and ride-hailing services out of concern about the virus. Used-car values in some states are nearly back to where they were before the pandemic, he said, and in some — like Florida — are higher.

But even as some people are buying cars to commute to work, others may be continuing to work at home, which may reduce demand for cars. Auto manufacturers cut production in response to the pandemic, and that may push more buyers to used models, buoying demand — and prices.

All of that doesn’t mean there won’t be deals to be had, Rahim said, but consumers shouldn’t count on fire-sale prices.

Here are some questions and answers about buying a used rental car: 

Q: What are the pros and cons of buying a car from a rental agency?

Rental cars have many drivers, some of whom may not have treated the vehicle as gently as they would their own car. For that reason, buying directly from a major rental company may be preferable to buying from smaller outlets, which tend to buy used cars from the big companies and hold on to them for another cycle of rentals, said Jon Linkov, deputy auto editor at Consumer Reports.

“It’s had a life already,” he said. “Best to stay away from the third life.”

Most big rental companies replace their cars when they are one to two years old, but most warranties expire after a certain number of miles, Linkov said. So even if the model is relatively new, the time left on the manufacturer’s warranty may be limited.

Still, Linkov said, it’s wise to register a used car with the manufacturer, if there is any time left on the original warranty, to make sure you get notices of recalls and other updates.

The rental companies typically include limited warranties with their used vehicles. Hertz, for instance, offers 12 months or 12,000 miles, but that warranty is likely to be worthless if Hertz goes out of business, experts said.

Q: How do I buy a car from a rental agency?

The major rental companies, including Hertz, Avis and Enterprise, offer websites where customers can search inventory, then visit a lot for a test drive. Prices on the direct-sale websites are typically fixed, with no haggling, Caldwell said.

Hertz has 90 sales locations and offers home delivery in 21 states; delivery is free within 75 miles, with fees of up to $1,000 for greater distances.

Avis offers home delivery at 14 sales lots. Enterprise offers it in some areas, according to its website.

The companies typically offer at least a few days for buyers to drive the car and return it if it doesn’t meet expectations. Linkov suggested having a trustworthy mechanic inspect the car during that time. 

Q: What financing terms are available on used-car loans?

The average used-car loan in the first three months of this year was $20,273, up from $20,137 from a year earlier, according to Experian Automotive. The average interest rate fell to 9.65%, from 10.06%.

Edmunds reported that the average interest rate for used cars in May was 8.3%.

Linkov advised approaching the purchase of a used rental car as you would any used car: Line up financing ahead of time so you aren’t forced to use the agency’s financing if your preapproved rate is lower.

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