Used-Vehicle Market Starts to Unfreeze, “Pent-up Supply” Looms

Now at least, price discovery can take place amid a more ample flow of vehicles. But the entire industry dreads a Hertz bankruptcy could cause lenders to liquidate its fleet.

By Wolf Richter for WOLF STREET.

The images are cropping up all over the Internet: Parking lots of temporarily shut-down stadiums and shopping malls densely packed with cars, SUVs, vans, and pickups. These are rental vehicles that rental car companies don’t know what to do with because they cannot rent them out because their travel market has collapsed. And some of them are off-lease vehicles that had been leased and whose lease expired. This is just part of the pent-up supply. The longer these vehicles sit, the more value they lose.

They need to be sold at wholesale auctions, but auction volume had collapsed in the second half of March and April because auctions were closed and then switched to digital channels, and dealers had shown little interest in stocking up as their own used-vehicle sales had collapsed. And the whole used-vehicle market sort of froze up. This glut of rental and off-lease vehicles is now waiting for the used-vehicle market to unfreeze. And this is beginning to happen.

By contrast, during the Great Recession, it was new vehicles that jammed up the pipeline, with automakers continuing to build and import vehicles while US consumers had gotten spooked and stopped buying them. Annual sales of new vehicles plunged nearly 40% from 2006 to 2009, before gradually recovering to surpass the total of 2006 eight years later, in 2014.

But this time, automakers have shut down their plants, and the supply of new vehicles has been cut off. What’s piling up is used vehicles from rental car companies and lease returns.

The numbers are huge. US rental car companies have been buying around 2 million new vehicles per year (1.9 million in 2019, according to J.D. Power). They keep them for longer than a year on average, so there are about 2.5 million to 3 million rental cars available to drive on average, with more vehicles in various stages of entering the fleets or being removed from the fleets, this being a constant massive flow of cars, normally. But the drain has gotten plugged up.

The drain being plugged up is a big issue because rental-car use has collapsed. Rental car companies need to shrink their fleets to be inline with demand. Cancelling new orders was the first step, and they already did that. J.D. Power estimates that rental car companies will purchase 1.05 million vehicles in 2020, down from 1.9 million in 2019. Now comes the hard part: selling a big portion of the fleet they have but don’t need.

Hertz is on the verge of bankruptcy. At the end of April, it disclosed it had missed a large amount of lease payments on its rental cars. Since then, it has entered into forbearance and waiver agreements with these lenders that give it until May 22 to come up with the money and a plan. Its cars, now parked at various parking lots around the country, are collateral for this debt.

At the end of 2019, Hertz’s US rental fleet was about 567,000 vehicles. Lenders don’t want to end up with these cars either, especially not in this environment where getting out from under them would be tough and painful, and they’re motivated to work out a deal that would keep those cars off their parking lots.

The entire industry hopes that a Hertz bankruptcy can be averted and that those cars don’t suddenly get liquidated by its lenders.

In the second half of March and in April, the used wholesale market essentially froze. The volume of vehicles going through the auction plunged, as many auctions were shut down and dealers weren’t buying. Prices took an all-time record hit. According to J.D. Power, weekly auction volume collapsed from the 110,000-vehicle range before the crisis to a low 18,000 in the first week of April. But auction volume has started to recover and in the second week of May reached 64,300 vehicles (chart by J.D. Power):

Manheim, the largest auto auction house in the US and a unit of Cox Automotive, reported in early May that used-vehicle wholesale prices, based on its Used Vehicle Value Index, had plunged 12.3% in April from pre-Covid February.

Amid signs that the used-vehicle market is beginning to unfreeze, Manheim reported today that in the first half of May, its Used Vehicle Value Index recovered a portion of the March/April collapse, but remained down 4.8% from May last year:

The year-over-year price declines in early May varied by segment, according to Manheim, with the top two on the list, the bread-and-butter units for rental car companies, getting hit the hardest:

  • Midsize cars: -10.8%
  • Compact cars: -10.7%
  • Pickups: -6.5%
  • SUVs and compact SUVs: -4.8%
  • Luxury cars: -3.7%

Amid further signs that the market is unfreezing: Used-vehicle retail sales were down only 6% year-over-year in the week ended May 14, after having collapsed by 67% year-over-year during the worst days at the end of March, according to a Cox Automotive analysis of DealerTrack transaction volumes on a same-store basis.

New-vehicle retail sales were still down 31% in the week ended May 14, after having plunged as much as 71% during the last week in March.

From a different perspective, J.D. Power reported two days ago that its Used Vehicle Price Index for vehicles up to eight years in age plunged 14.3% in April from March and was down 13.5% from April last year. This index generally experiences a seasonal dip in April from March, but this drop was by far the largest on record:

Now the pent-up supply of rental and off-lease vehicles is piling up, as evidenced in myriad photos of rental cars stuffed into parking lots of closed stadiums and shopping malls. These vehicle are waiting to go through the auction.

Total supply of used vehicles (from rental, off-lease, and trade-ins) was 1.17 million units in pre-Covid February, according to estimates by J.D. Power. Then as auction activity froze, supply plunged to just 645,000 in April. In May, supply is expected to jump to 1.21 million vehicles, in June to 1.43 million vehicles, and in July to 1.24 million vehicles.

And this assume that Hertz’s lenders aren’t trying liquidate its fleet during that time.

The surge in supply is composed of a big surge in rental and off-lease vehicles, offset by a decline in trade-ins due to lower retail sales. This scenario would increase supply by about 20% compared to pre-Covid estimates for this time of the year, and it would hit as consumer demand for used vehicles is expected to be soft. J.D. Power expects that this surge in supply, in face of soft consumer demand, will push prices down by 8% to 11% in June compared to its “pre-virus baseline.”

But then, going into the latter part of 2020 and into 2021, the glut of rental and off-lease vehicles will have been absorbed. And going forward, the supply from the rental fleets is going to thin out, as they have shed their excess units and have slashed their new orders. J.D. Power expects that this dynamic will eventually put upward pressure on wholesale prices into 2021, assuming that demand recovers.

This crisis is different from a typical crisis in the vehicle market in that it scrambled the supply of vehicles in addition to creating a classic demand shock. How all this will shake out remains highly uncertain in my opinion. But however this will shake out, now at least the market is unfreezing, and price discovery can take place amid a more ample flow of vehicles.

With tens of millions of people unemployed, even prime auto loans will get messy. Read… Subprime Auto Loans Blow Up, Get Very Messy

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  103 comments for “Used-Vehicle Market Starts to Unfreeze, “Pent-up Supply” Looms

  1. MiTurn
    May 20, 2020 at 6:32 pm

    Bad for sellers, I suppose, great for buyers. My son needs a good used van for his business and the other son needs a good used family SUV. And both got jobs with no lost time due to quarantine.

    • Thomas Roberts
      May 20, 2020 at 6:45 pm

      If the prices for used cars really drop big, I could really go for a good used great condition sporty sedan; to replace my aging, currently 12 year old one. Fingers crossed for that Hertz bankruptcy. Otherwise, I’ll just hold on to my current one for a few more years.

      • Tanstaafl
        May 20, 2020 at 7:08 pm

        I’m not sure if I would buy a used car that used to belong to a rental company. Too many drivers in the seat, maybe with reckless driving with cold motor, bumping down some bad roads etc. I would rather pay a premium for the car of that lil’ old lady down the road. Obviously it’ll be no sporty sedan, but you get my meaning.
        What’s your opionion about prices, in general? A former rental vs. a trade-in from somebody from the ‘hood? I’m not sure if you can buy at these auctions if you’re not a used-car salesman, so you have to go to the dealer and pay their price.

        • Ron in Ohio
          May 20, 2020 at 8:33 pm

          Yes, the public can buy at these auctions, but just on certain days of the week. I suppose different auctions have different rules. The good days are reserved for dealers-the public days are the dealer surplus. I have bought a couple of cars in Columbus, Ohio area at these auctions. One was a great car after I worked some bugs out of it. The 2nd was not. It has been a few years since I di this. Then you had to pay an annual fee to get in, but sometimes they have free days. I recommend anyone just to go to the auction just for the experience. They drive a car through, it does not ever really stop, before the next one enters the auction lane. And the auction I was at had 7 or 8 lanes. So maybe 30 seconds on a car. They did not have all the lanes running when I was there, but it is definitely a sensor overload-your head will be buzzing.

        • Apple
          May 20, 2020 at 8:36 pm

          Two kinds of cars go anywhere:

          4-wheel drive Jeeps
          and
          rental cars

          Hertz is selling its supply of 2019 Z06 Corvettes cheap.

        • Rusty Trawler
          May 20, 2020 at 8:45 pm

          I have a friend that was a mechanic for Hertz at O’Hare Airport. They never troubleshoot it any cars if there was a problem they replaced everything to get the car back online. I would have no trouble buying a used Rent-A-Car.

        • Brant Lee
          May 20, 2020 at 9:28 pm

          Shouldn’t prices come down in dealer lots as well as at auctions? I think I’ll look around at something I really want and make some stupid offers. It’s hard to say what this Fall will look like in the economy also.

        • aqualech
          May 20, 2020 at 9:47 pm

          Thing is, if it’s a dog just sell it back at auction through the same channel that you used for the purchase. Just a few hundred with the right connections, like the owner of a small lot.

        • Erle
          May 21, 2020 at 6:35 am

          Ron in Ohio, I did get a laugh from your post.
          I am rooting around for a replacement car. I have somewhat pared it down to later CTS/ CTS-V Cadillacs. I do not drive enough to heat up the oil, but a fun car would get me rolling. It is too bad that Hertz doesn’t do two seat lightwieghts with manual. I’d like a deal on one of those.
          This Wolf guy did one heck of a job on his last audio thingy, so I will likely send him some more dough for being so informative.

        • May 21, 2020 at 7:36 am

          Erle,

          Thanks you!!

          Enjoy your new set of wheels when you finally find the right set.

        • VintageVNvet
          May 21, 2020 at 7:55 am

          No matter the source of any used vehicle, car, pick up, suv, etc… ya really gotta pay attention, look it over very carefully, and if any question at all, take it to a qualified mechanic you know and trust.
          Been on both sides of buying from released rental to buying from the proverbial old lady more than once on each, and with both good and bad results from each…
          We got a 09 cobalt my spouse ”felt good about” that still runs well today, has had some problems, but all fixed by bil who is handy…
          I got a very clean and pristine vw bug years ago, with very low mileage, etc., that turned out to have a lot of problems from not being run enough. Eventually worked out the bugs, and it ran fine for me and a friend who kept it a long time after she bought it from me when I went traveling overseas.
          There used to be ”tricks” to fix almost any noise temporarily, such as banana peels in the tranny, or just really heavy oil, etc…
          Ya gotta pay attention and assume nothing…

      • May 20, 2020 at 9:38 pm

        Thomas Roberts,

        Hertz is selling its 60 Vettes. Maybe you can grab one of those, though your wife might throw you out 🤣

        • May 20, 2020 at 9:39 pm

          Or at least she should.

        • KGC
          May 20, 2020 at 9:56 pm

          Yes, they’re for sale.; at the same price as a new 2020 mid-engine ‘Vette. But you could buy one, and hope they appreciate like the Hurst Olds; and wait 50 years, paying for hermetic storage, and if they still allow gasoline automobiles to be used as transportation.

          Frankly I’ll be long dead and gone before that’s a good decision…

        • Ravi Uppal
          May 21, 2020 at 4:15 am

          Wolf ,my wife would . :-)

        • Erle
          May 21, 2020 at 6:42 am

          I’d rather have a fuelie 1957.

        • VintageVNvet
          May 21, 2020 at 8:00 am

          C’mon Wolf,,, have fun with it!! I have know several women who absolutely LOVE fast cars,,, passing on curves,,, talking ”stuff” to cops, etc., etc…
          Even my mom loved it when I took her up CA 1 from SF to Mendocino in my bathtub Porsche in ’74, although I will admit she was holding on tightly on some of that ride. That was before they straightened out many of the really curvaceous parts of that road.

        • JC
          May 21, 2020 at 9:04 am

          Wolf,

          I’ve been scouring the internet for a replacement car since last year. Also always looking at interesting junk on craigslist. I have a very eclectic taste I’ve been looking at everything from lightly used CTS’s, CT6’s, Avalons, Lexi etc to Bolts to plugin hybrids to nothing newer than 1980 larger American cars that I perceive highly maintainable. Not seeing price declines in New England on newer used all the way down to rusted out junk on craigslist. All way to expensive for what they are.

          The MMR tool also shows the retail valuations. Does this mean the spread between wholesale and retail is widening?

        • May 21, 2020 at 1:34 pm

          The prices on Craigslist are negotiable. You don’t really know what you can buy this car for until you come to a meeting of the minds with the seller.

        • Thomas Roberts
          May 21, 2020 at 12:09 pm

          Wolf Richter,

          I’m single now. So no wife worries. As for a car I’d get something sporty that can be driven year round. As for sports/sporty cars, there’s the old joke, that guys get them, because, of midlife crisises; the trick might be to get one when you’re young, never stop owning one, and then, you’re good.

        • May 21, 2020 at 2:09 pm

          Thomas,

          I knew I’d stepped into it when I wrote this :-]

        • Thomas Roberts
          May 21, 2020 at 4:53 pm

          Wolf Richter,

          Oh Wolf, you have no idea, the world might become a very crazy place soon, and I wanna end up towards the top.

          (ゝ‿ ・)

        • jc
          May 21, 2020 at 6:21 pm

          Wolf, I’ve been using my dubious access to Manheim, and voraciously using cars.com and autotrade.com for over a year. I’m power user of the latter 2 if there ever was one. The prices are not translating through in New England, yet.

        • TXRancher
          May 21, 2020 at 7:03 pm

          My wife drives a vette. I get the ranch truck.

      • Mark
        May 21, 2020 at 1:34 pm

        Hertz Rental Company
        Number of locations
        30,000 corporate and franchise between Hertz, Dollar, and Thrifty (as of 2018)
        Number of employees
        ~38,000 (December 2018)

        So you are hoping that 38,000 people lose their jobs so that you could save $1-2K on a used vehicle?

        • Dean
          May 25, 2020 at 4:22 pm

          I agree Mark. The selfishness of some people is quite concerning.

  2. andy
    May 20, 2020 at 6:36 pm

    Finally, back to normal. Markets recovered nicely, mega caps are green for the year, and Nasdaq non-profits are setting new records daily.
    It’s like these 30 million unemployed never existed.

    • Educated but poor Millennial
      May 20, 2020 at 7:59 pm

      Well, I can say this is can be the very famous ” Dead Cat Bounce”, lets see where this goes.

    • Bobby Dents
      May 20, 2020 at 8:07 pm

      Nasdaq nonprofits…..lol please. Gonna be fun with the drop coming. The puts being bought are the real clue.

    • CRV
      May 21, 2020 at 1:56 am

      Markets going up is deceiving. It’s fiat currencies going down. Because all fiat’s are going down, it’s not so clear to see. My portfolio of precious metals (mainly gold) is up 25% YoY; 11% since 1-1-2020. PM stocks double that. The fall of fiat’s was well underway before C19.

      • Cas127
        May 21, 2020 at 10:23 am

        Good point that isn’t made enough…economic metric “improvements” are frequently nothing more than the G pumping phoney-baloney money (the warped metric yardstick) into the economy.

        Frequently, unit volumes sold/delivered/etc. would give a much truer representation of economic progress.

        $ based measures are more and more becoming Weimar accounting.

        • VintageVNvet
          May 21, 2020 at 11:49 am

          You are SO correct re your first point; phony baloney money of any kind recently allowed,
          (I always check back to the $10/hr I earned the hard way, mowing, etc., in summer of ’57 to see how far this scam has proceed in just my working years) ,,,
          including, especially the very large USA dollars that are spread, both physically and digitally around the entire world these days,,, along with the approx. 286 USA Military ” active Duty Stations.”
          While I appreciate the beneficence of USA willing to take over the so called ‘World Currency’ etc., from England ( parading as Great Britain then and now ) a few decades ago,,, IMO, it is time and enough for our rulers/masters/whatever you want to call them, to let our USDs go back to bee exactly that and nothing else.

  3. 2banana
    May 20, 2020 at 6:44 pm

    Which car manufacturers will survive, or not, this time?

    “And going forward, the supply from the rental fleets is going to thin out, as they have shed their excess units and have slashed their new orders. J.D. Power expects that this dynamic will eventually put upward pressure on wholesale prices into 2021, assuming that demand recovers.”

    • Prof. Emeritus
      May 21, 2020 at 12:32 pm

      Mass market manufacturers are looking okay – maybe Ford will shrink, but they’ve been shrinking for years globally anyway, so there’s nothing new about that.
      The hyper-luxury end of the market is also safe, but in-between the reasonable priced zone and the Ferrari-market there is just too many exotic brand that won’t sell: the British are already talking of the 2nd apocalypse of their motoring industry (which was already in order since Brexit – so again, nothing unexpected).

      • c_heale
        May 25, 2020 at 5:26 pm

        There has been oversupply in the car market for a few years now. Removing UK car production will help alleviate this problem, so it really benefits the non-UK based car plants.

  4. Mike
    May 20, 2020 at 6:45 pm

    I’ve been watching to see some deals pop up in the used market. Prices haven’t dropped to my price point yet. I don’t need a second vehicle, so my price points are very low.

    One thing the article doesn’t mention is repo’s. Going into March, the number of people late on payments was high. It’s very high compared to historical levels, today. When that wave hits the used market, prices may come down further still. This is going to get worse before it gets better.

    • Erle
      May 21, 2020 at 6:49 am

      Mike, that is what I am looking for too. I am seeng just a little pressure on car dealer prices, but not enough to entice me. I made an offer on a horrible vehicle but said that the price would include tax, title, and license fees.
      I’ll give you a heads up if they take it.
      I want to see the deals come around on single engine piston hanger queen airplanes.

      • Erle
        May 21, 2020 at 6:50 am

        It would be of help to edit for spelling.

  5. Mindwerk
    May 20, 2020 at 6:45 pm

    Wolf, if you could, one day write a post about the non-GAAP numbers that some tech companies are posting, like Tenable recently. Can these numbers be trusted?

    • Bobby Dents
      May 20, 2020 at 8:12 pm

      Yes, they are lying.

    • May 20, 2020 at 9:37 pm

      Can GAAP be trusted? 🤣

      But you’re right. Non-GAAP is a lot fishier than GAAP.

      The thing is the market wants fantasy non-GAAP numbers. Every publicly traded company has to release financials under GAAP. And then they also release non-GAAP fiction. And what does the market look at? Non-GAAP fiction. Because it’s prettier.

      • Mindwerk
        May 20, 2020 at 10:28 pm

        Thanks Wolf, fell much better now :)
        I guess is better/easier to live on La-la-land than face the reality.
        Wondering if I provide some fantasy numbers to my bank they would lend me some fantasy money to buy the fantasy island :)

      • Cas127
        May 21, 2020 at 10:50 am

        Wolf,

        Non-GAAP (*and* GAAP) is crap…but I don’t think either of those is really the primary driver of absurdly soaring equity valuations…too many people (particularly those in a position to move institutional sized slugs of money around) are well aware of the crap.

        Multi-decade ZIRP matters much more…having essentially taxed away almost all possible return on risk-less investment. AND general fixed income…which is almost always priced by an (inadequate) spread to Treasuries.

        Leaving few liquid, traditional investment alternatives, available at scale.

        It isn’t that equity valuations are loved or trusted, it is just that the major alternatives are guaranteed stagnation…and not enough people have awakened to the fact that stagnation may be the best you can hope for in the dying days of the dipshit dollar empire.

        Investors have been systematically herded into the vast valuation stupidity that is the equities market, by “their” gvt.

        And unless investors are willing to exit the USD’s increasingly corrupt domain or develop alternative invt mechanisms (a private capital mkt with fewer inherent dangers of risk concentration, shareholder oppression, etc) investors can *never* expect anything better of the G.

        Entities that survive and thrive through inherent corruption don’t stop of their own accord.

        • VintageVNvet
          May 21, 2020 at 12:07 pm

          VERY acute and accurate IMO Cas,,, thank you for this, one of your best yet, and your continuing presence on Wolf’s wonderful site!
          As I commented earlier on this thread, IMO it is time and enough to get our USD ”the heck out of” being the global scape goat currency, and back to being the best convenient conversion modality/medium/etc., for trading in, and only in USA.
          With this, WE the PEEONS, will be able to regain some of the very clear balance that occurred after WW2,,, and, thus, to help all of the peoples of USA, from top to bottom.

    • Anonymous Coward
      May 20, 2020 at 9:47 pm

      I use Tenable products for work and here’s what I will say about them. They are ubiquitous. By far the most common of paid information security tools. They do not charge a lot for licenses. Their products are mediocre to not very good. One well-paid pen tester with open source tools is a lot more valuable and useful, but their customers (and their management particularly) are so clueless that anything is better than nothing. Nessus sells the anything that is better than nothing. Their deferred revenues seem high and their SG&A seems inordinately high. Milquetoast company that will perform middle of the road for its segment.

      • Anonymous Coward
        May 20, 2020 at 9:49 pm

        Tenable sells the anything that is better than nothing. Nessus being one of their products.

  6. aqualech
    May 20, 2020 at 6:46 pm

    I have been looking but don’t see any real bargains, especially on desirable models such as a Toyota Tacoma one of which I have rented from Hertz in the past.

    Rather disappointing, but then again, I was hoping for a lot more virus-related estate sales at which I could pick up some good vintage HiFi gear, and those also have not materialized.

    • MiTurn
      May 20, 2020 at 6:59 pm

      Patience, auqualech. I think that time will reward you with some good deals in all the things you listed.

      • Cas127
        May 20, 2020 at 8:56 pm

        Unless it is *his* stuff that ends up in a C19 estate sale…

        • aqualech
          May 20, 2020 at 9:36 pm

          Taking my chances living free and shopping. My Xterra and my tube audio gear would prob both make someone happy. Not my concern in that event.

        • Lisa_Hooker
          May 21, 2020 at 6:31 am

          aqualech – it’s not the tubes, it’s the HV transformers. Magnetics have much greater affects.

    • Icanwalk
      May 20, 2020 at 7:18 pm

      Thomas, mike, aqualech- anything ghoulish to your views of opportunity? A few bankruptcies, a few deaths and bam! You win!

      • Jos Oskam
        May 21, 2020 at 1:51 am

        People die and companies go bankrupt every day and their stuff gets passed on. That’s life, completely normal and nothing ghoulish about it.

        • Icanwalk
          May 21, 2020 at 9:09 am

          Jos, I see your point.

          “How was your day, today, honey?” “My father died.” “Oh, so just another normal day!”

          “ My company went bankrupt and I lost my job.” “Oh, so just another normal day!”

          One person’s normal is another person’s tragedy. Many times.

          Oh, well.

        • Cas127
          May 21, 2020 at 10:56 am

          JO,

          It is the circle of (commercial) life but…

          “I was hoping for a lot more virus-related estate sales at which I could pick up…”

          comes across as hand rubbing eagerness that used to be universally recognized as distasteful.

          Maybe it was just (very) poor word choice.

        • BuySome
          May 21, 2020 at 1:19 pm

          Sure, people drown and ships sink. We make model kits and movies and reproduce memorabilia…all for sale. The “ghoulish” comes in when it all goes electronic. All prices go upward. No cash witheld to drive them down. Transaction fees and storage fees for your credits…all to bleed you dry very slowly. And automated inheritence taxes when you die. Bit by bit, the playing field gets leveled for those not in the driver’s seat, and you can’t do anything about it. Kiss opportunity goodbye if your name isn’t Joe Billion.

        • Thomas Roberts
          May 21, 2020 at 4:48 pm

          Icanwalk,

          There’s absolutely no reason America, couldn’t be a far greater place. But, when we all live in this nonsense, that the general public is too comfortable with to change and instead actively encourages, until it crashes; I got to make the best of it or jump ship.

  7. LeClerc
    May 20, 2020 at 7:50 pm

    Hertz will not liquidate.

    Goodwill alone (yes, a GAAP entry) is probably equal to half the value of the fleet.

    Chapter 11 will free them from LBO-related debt and they will continue with a smaller fleet.

    • Paulo
      May 21, 2020 at 8:50 am

      Try selling a business with “Goodwill” as part of the asset backed selling price. Hilarious concept, that isn’t so funny when the company just liquidates assets and takes the tax hit when no one buys the shares.

      • LeClerc
        May 21, 2020 at 2:48 pm

        Nothing related to this economy has devalued or damaged the Hertz brand, customer loyalty or its commercial relationships, all key components of goodwill.

        The RAC business may contract substantially, but it will exist, at airports and elsewhere. Hertz (the brand) will survive in that industry.

        Post Chapter 11, new owners will pay to own Hertz goodwill (and its airport locations and loyalty programs) even if they reject 90% of its vehicle lease obligations.

        Management and operation of newHertz (like newGM) is another discussion.

    • May 21, 2020 at 1:31 pm

      LeClerc,

      “Goodwill” is an expense that has been temporarily parked on the balance sheet. It will be written off as an expense on the income statement in the future.

      The first thing you do when you look at a company’s equity (“book value”) is you subtract goodwill and other “intangible” assets from it.

      Hertz has $1.9 billion in book value, minus $4.3 billion in “intangible assets” ($1 billion goodwill, $3.3 billion of “other” intangible assets) = negative book value of -$2.4 billion.

      This means that the company has $2.4 billion more in liabilities than in assets. That might not matter much until there is the threat of bankruptcy, and unsecured creditors look at this and get scared.

      • cas127
        May 21, 2020 at 7:32 pm

        Makes you wonder if the Hertz’s of the world (or the JcPenney’s) qualify even under the Fed’s new loosey-goosey debt buying rules…which I’m fairly sure require corporate solvency.

        We’ll find out in short order just how much of Fed Supersizing was indeed an epic head fake…here is hoping that a lot of it was.

        There is the salutary example of the Fed letting hundreds of energy companies “go where the woodbine twineth” from 2014 to 2017.

    • fajensen
      May 22, 2020 at 3:12 am

      Sixt and others are eating their Buffet! If they want to go out of CH-11, they need to restructure the whole business back to what it once was.

      Hertz used to be really good, but, now with Hertz one gets not very nice cars (3-4 years old Citroen/Renault’s, of brands that obviously didn’t sell well new) and a lacklustre service.

      With Sixt one gets recent BMW and Mercedes, they always ‘bump it’ for free (of course because they lie and only have models higher than the booked model, but that’s OK, we still like the effort).

      One can even go to the wrong pickup place in London, Heathrow, and then get the car upgraded for nothing because they don’t have the menial car I booked at the wrong location (which is a shitty place on the LHT-periphery, Gatwick is much better, but, the lounge in LHT is epic).

      Making your problems go away, not compounding them, that is what service is about!

      • fajensen
        May 22, 2020 at 3:14 am

        Dammit … The correct location is a shitty place. The wrong one is very upscale.

  8. MonkeyBusiness
    May 20, 2020 at 8:21 pm

    Jeremy Powell will show up with a blank checkbook. Call it the new clunkers for cash program.

  9. Satya Mardelli
    May 20, 2020 at 8:37 pm

    I contacted a local dealer regarding a 2019 Ford F-150. Had to make the inquiry through there website. Got three responses from their sales force. #1 invited me to the dealership for a preview, #2 said the truck was sold, #3 said it was a different color than the advertisement. Three days later a sales manager called to see if I was still interested in the truck. He said it was in transit from Las Vegas and still needed a cleanup and detailing.
    If this is the normal routine at a major auto dealership then I think dealers are going to find it difficult selling cars in a buyers market.

    • Just Some Random Guy
      May 21, 2020 at 9:05 am

      Car dealers are stuck in 1980 when it comes to marketing and sales. I recently got a new truck. I had to deal with 3 separate people to make everything happen. What’s funny is one of the three keeps sending me automated emails asking me if I’m still interested in the truck and please call him if I have any questions.

      I did this all remotely, never stepped foot inside the dealership. But these dealers are so dependent on selling in person (it’s how they pressure people after all) that they fall apart when they have to use any kind of technology to make a sale.

      For new cars, you have to go through a dealer. For used cars, it’s always private party for me. Even if pricing were the same with a dealer, they’re clueless about the cars they sell.

  10. Michael Gorback
    May 20, 2020 at 9:02 pm

    Wait until Xmas, late in the month. The dealers are staring at another loan payment and the sales people are looking for Xmas money. I got a great deal during the GFC on a used Suburban that we used for family vacations.

    I’ve had great luck with used cars, especially used loaners. The warranty kicks in when it’s sold and 20% depreciated.

    The old “ridden hard and put up wet” is BS, especially wrt cold starts. That was a problem with carburetors, not modern fuel injected engines. Today’s cars last far longer than the old technology. Take it from someone who tried to maintain a Cobra AC.

    Lease arbitrage. Negotiate a high residual value (dealers love to brag about resale value so hold them to it), which will decrease your lease payment. I leased a J30 years ago with a R.V. of $24000. Toward the end of the lease I saw ads for factory refurbished J30s for $20,000. I knew I wouldn’t get $24000 for my non-refurb’d turn-in. I called a local dealer and said I was near the end of the lease and I would turn it in to him if he’d refurbish it and sell it back to me for the advertised $20,000. He was happy to do it. I drove
    that car for 11 years.

    I’m sure Wolf knows way more tricks than I do.

    Time and patience are your friend.

    • Lisa_Hooker
      May 21, 2020 at 6:45 am

      Sorry about the Cobra. Was it a 289 or 427? Mine was a 289, the 427 was way to front heavy for twisty roads. If you think you had troubles, I maintain a ’71 Lotus Elan :-( A curse be upon Lucas.

      • Erle
        May 21, 2020 at 7:02 am

        Lisa, I have a ’65 smallblock with a supercharger. It is a PITA. I’d rather go back to the Datsun 1600 (might do the ton) or a girly Miata.

  11. MCH
    May 20, 2020 at 9:19 pm

    Wouldn’t this eventually impact new car prices? After all, the auto manufacturers can’t keep their factory idle forever, eventually Something have to give, right?

    There’s also makes me wonder, even if the prices come down, will there be any demand, given the state of the consumer and the economy.

    • Ravi Uppal
      May 21, 2020 at 4:21 am

      MCH ,you are correct . it will be the auto manufacturers that will give in and then be bailed out for the umpteenth time .

  12. BuySome
    May 20, 2020 at 9:28 pm

    Any real cheap ’54 Merc Sun Valleys in the backroom at Hertz. Otherwise, forget it. I’ve got enough modern junk parked. In the future, car classes might be irrelevant as economy moves to being the new luxury in a buyerless buyer’s market of far-less-than-full employment with factory lines grinding to a halt. Watch out for bouncing cats in the rear view. Don’t forget to stop for hitching bums, he might be that ex-banker you’ve been waiting to throttle.

    • Anthony A.
      May 20, 2020 at 9:59 pm

      There was a nice one (’54 Merc Sun Valley) on Bring A Trailer a while back. Pretty rare Merc.

      • Erle
        May 21, 2020 at 7:09 am

        I wish that Hertz would sell me a clean ’53 Studebaker coupe on the cheap.

        • Ron in Ohio
          May 21, 2020 at 11:27 am

          53 Studebaker. Yep-Raymond Lowry Design, the same guy who designed the Coke bottle. They made some beautiful cars, too bad they are remembered for their Larks. I flew on a DC-3 to Haiti once on a missions trip. The plane had Studebaker engines. We did lose an engine coming back (DC-3 flies quite well on one engine) but that was not a Studebaker engine. My favorite Studebaker would be the 1937 Studebaker Coupe Express pickup.

        • VintageVNvet
          May 21, 2020 at 12:15 pm

          My fave Stude was the ’51 convertible my dad got in some kind of a ‘deal’..
          Drove like a charm, and even though the vision out was a challenge, the car was more like a tank…
          Backed out of a parking space one day, until I heard loud honking of horn,,, pulled forward and looked back, saw nothing, and went back again, until even more honking,,, got out and saw that the taillight of the Stude had caved in the quarter panel of another other car about a foot, and then pushed the other car sideways a yard or so,, and I never even felt the slightest impact, and the taillight was NOT even cracked!!
          What a car!

        • MC01
          May 22, 2020 at 6:04 am

          Ron: Studebaker made aircraft components for both Lockheed and Boeing during WWII, but the product they are most remembered for is the US6 truck. They built literally hundreds of thousands of them, with REO building even more under a sub-contract.
          While the US Army and Navy retained a few thousands, chiefly to use in the Persian and CBI (China-Burma-India) theaters, all the others went to the Soviet Union under Lend-Lease.
          The Red Army had a ravenous appetite for the US6 and it’s easy to understand why: it was designed from the ground up to be dead reliable, rugged and with excellent off-road capabilities. While the GMC CCKW was a better truck all around, the Studebaker (or Studer to Soviet soldiers) was seemingly custom-designed for the Eastern Front. To give an example the engine could run on 68RON gasoline (not a typo) thus freeing diesel fuel for T34 tanks and high-octane gasoline for the VVS (Red Air Force) and in 1943 the Red Army greenlighted increasing the payload from 2½ ton to 3½ ton, albeit it was often loaded well in excess of that.

  13. timbers
    May 20, 2020 at 10:14 pm

    My tenant has 2 cars, needs only one. He recently completed a divorce, and his wife couldn’t afford their 2nd car.

    I think he could get out of the lease if he tried. He mentioned it would hurt his credit score.

    On the other hand, he works two jobs and the courts are closed. Why, he’d have to take a third job just to work the system and fight the lease or declare bankruptcy. He could contact the company he leased from and play hardball. I sure would if I were him.

    Meanwhile, Jerome and Washington are handing out Pre-emptive debt jubilees to rich gigantic corporations and Wall Street.

    They don’t even have to ask for debt forgiveness because Jerome and Nancy and Mitch and The Donald give to them before the can even ask for it.

    Jerome should grant pre-emptive debt jubilees to The People jus the he has for Wall Street and The Rich.

    It’s only fair.

    And no one….NO ONE…can argue with that.

  14. SocalJim
    May 20, 2020 at 10:45 pm

    This is just temporary. Used car prices will jump. New car factories have not run in a long time, and it will be very difficult getting them restarted because of part supply issues. Furthermore, COVID will result in the factories running much slower once they get them restarted. There will be less new cars which will push up the used car prices. Inflation is in the near future.

    • VeryAmused
      May 21, 2020 at 12:05 am

      I would suggest less jobs to go to, sustained increase in telecommuting, sustained decrease in going out and a possible flood of used rental cars for sale are deflationary forces that trump you inflation scenario.

  15. David Hall
    May 21, 2020 at 12:57 am

    The rental car companies were supposed to keep cars 18-24 months.

    Auto mfg. plants have reopened. Some closed due to localized outbreaks of COVID-19.

    Warren Buffett used to keep a new car ten years to avoid frequent auto trading. This way he avoided excess depreciation, sales tax, etc.

    • Erle
      May 21, 2020 at 7:13 am

      Did Warren actually drive the turds that he owned? He and his kids are never going to actually have to drive a car again. Plus they pay no taxes to diminish their income.

      • BuySome
        May 21, 2020 at 2:09 pm

        Self-mobility is what drives those without to become those who have. More money…more cars. The ones born to the money have chauffers. Rocks stars party in passenger seats. Actors rehearse lines. Urban hoards pay rider fares. Rich guys love horses, cars, trucks, motocycles, boats, planes…you name it. Some even do their own mechanical work and restorations. Warren might be no different.

  16. BuySome
    May 21, 2020 at 1:30 am

    It might all work in favor of the real “dark plan”. Only people with cash can buy. But they have to shovel it back into the banks for electro-digits or checks. More opportunity for the Fed and Treasury to end this nasty remnant of the old economy. It’s always about the temptations that get you to trust them, just before the door slams shut and you’re trapped in their new world. Then they can bleed you dry with electron depletion ‘cus there’s no way out.

  17. Otishertz
    May 21, 2020 at 1:52 am

    About 11 years ago a lawyer from Hertz sent me a letter demanding that I stop calling myself otishertz. That was during the time period where I gave away a lot of pot to pain patients under the assumed name. They demanded that I relenquish all associated domain names as well.

    I registered more domain names with the suffix hertz and told them to pound sand after speaking with a trademark lawyer. How do I feel about their current troubles?

    Oh, this hurts!

    • Tim
      May 21, 2020 at 3:46 am

      Then stop laughing so hard :)

  18. Island Teal
    May 21, 2020 at 1:59 am

    Not just Hertz. Enterprise also is jammed up w card. The local small-town office inventory is spilling over into the street. But remember it’s just going to be a V shapped recovery…lol lol lol.

    • Paulo
      May 21, 2020 at 8:56 am

      Enterprise just did a 25-30% housecleaning of staff in the Bay Area. Being a private family owned company they aren’t so transparent about the condition their condition is in.

  19. CRV
    May 21, 2020 at 2:00 am

    Those used cars can be bought up by Government and crushed for scrap metal. 2 million cars times 20.000$ (being generous?) = 40 Billion $. That’s no problem. Just a tiny blip on the chart of new money. People who want a car will have to buy new ones. Car manufacturers happy. Problem solved.

    • Beardawg
      May 21, 2020 at 8:55 am

      Quote from article:

      “…J.D. Power expects that this surge in supply, in face of soft consumer demand, will push prices down by 8% to 11% in June compared to its pre-virus baseline…”

      Vehicles depreciate more than that in a year. The stats in this article are sobering, but there is no buying opportunity of any significance here. I guess we should be happy this is one industry which might have a realistic and predictable exit plan from COVID Market conditions.

  20. Michael Engel
    May 21, 2020 at 6:01 am

    1) Covid19 is the symptom, but full dealers parking lots are the cause of shutting down production.
    2) Your local dealer offer potential buyers online inventory from
    Philadelphia, Dallas and SF. When u click, your #SKU was sold few minutes ago. You are invited by your friendly dealer to visit his showroom, to look at his own inventory. Online inventory don’t cost a dime. Online is important when dealer capital is limited. When dealer parking lot is half empty, loaded with bad items, this dealer is in big financial troubles !!!
    3) Being locked down for four months was boring. America spent money because the checks kept coming. Electronic games for the the low end are the cheapest form of entertainment. 430I and Harley for people with a little more money.
    4) If more retailers & restaurants go BK, cars with more lives than
    cats & dogs will enter the market.
    5) If wall street will impose an embargo on furlough white collars, cities and gov workers will get a pink slip, dealers lot will overflow.
    6) Hertz and friends, BK or not, contaminated the used car market.
    7) Fooled by a dead cat bounces or two, dealers will try to sell at top retail
    prices, instead of being conservative and preemptive.
    8) When the first car mfg will chicken out the rest will follow. Panic will engulf the market.
    9) Buyers freeze will force further discounts.
    10) Poor selling models, car with bad colors, brand new but from
    the previous year, will be cheaper than a used cars from Hertz & friends.

    • Island teal
      May 21, 2020 at 10:05 am

      “city and govt workers get the pink slip”…..Now that would be a revelation. I’m still laughing 😂 every time I see them “working from home” attending a vedio meeting.

      • May 21, 2020 at 1:38 pm

        Island teal,

        Lots of “city and govt” workers have gotten laid off. 1 million in April alone, and that was a lagging number from mid-April.

  21. Just Some Random Guy
    May 21, 2020 at 8:56 am

    There were probably some deals in early April. As the economy opened up throughout May that is ancient history. Go to a used car dealer and ask for a 15% discount vs what a similar car went for last year and see how that goes. Hint: you’re not getting it for 15% off.

    • BuySome
      May 21, 2020 at 2:33 pm

      It takes two greedy bastards to make a good horse trade. With a commission agent in the middle, the guy in the plaid vest and checkered coat, you’re both carrying the deadweight. Wait until he gets laid off in declining sales. If not, walk away from anything you don’t absolutely need to increase your pot.

    • MC01
      May 22, 2020 at 3:38 am

      Toyota is offering 17-22%, according to trim level, off their Hi-Lux pickup truck here. Used Hi-Lux prices are down 15% across the board, with older models down around 25%.
      It has never happened before, not even in 2008-2009: this is the first time in my life Hi-Lux prices have actually gone because the thing has always been in white hot demand regardless of age and mileage.
      I can only imagine how much the less desirable models (Ford, Isuzu, Mitsubishi and Nissan) are and the boutique pickups (read: Mercedes, Volkswagen and direct US imports) will have to fall a looong way to find a buyer now. Chinese and Indian brands are toast.

      One last note: remember that episode of Futurama when Fry wants to buy an iPhone and the salesman says “I may still have a few left” while there’s a warehouse full of them right behind the shop? That’s the trick of realtors and used car salesmen: always simulate a scarcity to instill “fear of missing out” in the prospective buyer.
      It’s a good plan until it meets reality.

  22. nick kelly
    May 21, 2020 at 9:01 am

    If Hertz has a bunch of near- new cars it can’t rent and the lenders don’t want them back maybe there is a hybrid strategy where the cars are leased to the public by Hertz, at a cheaper rate than a new car. This wouldn’t require leaving the rental biz.
    A lot depends on how motivated the lenders are.

  23. May 21, 2020 at 5:18 pm

    This is all great stuff, but what I really want to know is: when are we going to start seeing actual good DEALS on stuff, anything? Stocks, real estate, used cars, or anything else?? It’s definitely two worlds out there, LABOR that has ~20%+ unemployment (14.7% reported through 4/18), and CAPITAL where the Fed keeps on printing and printing, and offering to buy up corporate debt and junk bonds to keep them afloat and make the speculators whole. I’ve never heard of something so DUMB as the need to make speculators whole. SPECULATORS! They’re called that for a reason, at least they used to be, now they’re “investors”… in junk bonds and cash-burning VC-backed companies that will never turn a profit. Seeing the markets these days makes me sick.

    • nick kelly
      May 21, 2020 at 8:24 pm

      Stay tuned. Lots of guys on (bullish) CNBC predicting big downturn. Orlando figures 10 % soon. He says they were sucked in by the rally and will kick themselves.
      I think when Wiley Coyote finally looks down we will exceed the one- day 3000 pt crash.
      These rallies are typical of a secular bear marker.

      The economy inhaled the first trillion of bailout money like a small appy and is no less hungry. But the Fed and Treasury are going to progressively become less enthusiastic.
      After all their boss says its time to normalize, so….

  24. May 21, 2020 at 11:53 pm

    Charts 2 and 3 appear incongruous.

    • May 22, 2020 at 8:59 am

      No. Chart 2 is monthly, with a mid-May update. Chart 3 is for every April YOY without mid-May update.

      Also they measure different prices. Chart 2 tracks prices of what goes through Manheim’s auctions; chart 3 tracks prices of a much broader universe, vehicles up to eight years in age, and is not based on Manheim auctions.

  25. RoundAbout
    May 22, 2020 at 1:06 pm

    Hmm, looked over Hertz yesterday and called em up. You have to goto the location of the car which limits choice. Nice to test drive 3 days then purchase. Seems defiantly like a better deal than Carmax with prices below blue book range. Would Carmax’s convenience be worth a few grand? Kelly blue book reminds me of a Wall Street rating agency.

    But the problem is the trade in value is going to decrease along with overall depressed prices. So, for most people its probably a nothing burger. I guess if your current car was already close to zero then it would be a better deal or if you wanted more car — The money pit called “car” is smaller.

    Still, I can see another 30-40% price drop. The fish looked at the bait but no bite. lol.

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