However, there’s a simple equation that says if supply goes up faster than demand, then prices fall – and if demand increases faster than supply, then prices increase.
It really is that simple and it applies to all markets, everywhere, no matter what that market is dealing in.
It’s the same in the supply of rental vehicles.
Manufacturers have traditionally supplied pretty well as many vehicles as rental companies have needed and prices have been competitive.
Now, we’re suddenly seeing that supply shorten. It’s difficult to say by how much but some industry analysts are saying there’s likely to be around 15% fewer vehicles coming into rental companies this year.
If that is the case, demand will be running well ahead of supply and that means the cost of the rental industry’s raw material – cars – will increase.
It all seems a touch perverse. Last year new car sales in the UK fell by 5% and you might have thought that manufacturers would be anxious to sell as many vehicles as possible. But that would be to miss the impact of the nearly-new used car market on new car sales.
Ex-rental company cars are good value – well maintained and looked after with relatively few miles, so much so that when they appear on the dealer’s forecourt they will probably usurp a new car sale.
Given the higher margins on used cars than on new, you can understand why dealers are so keen on them while manufacturers are not. This is especially true given the fall in retail, as opposed to fleet sales, last year.
Fleet actually gained sales by about 8.5% (to a new record high) while retail fell by a somewhat alarming 10.43%.
It is, of course, retail sales that will be most affected by the nearly-new cars on dealer forecourts and it is perhaps understandable, in immediate commercial terms at least, why manufacturers have taken this panic action.
But this short-sighted attitude somewhat negates the fact that every rental is in fact a paid-for demonstration of the car through a nationwide shop window, a point that many manufacturers seem to be missing.
But, if this is the case, what are the likely effects? Aside from the obvious corollary to cost increases in its raw product, what action will rental companies take to counter the shorter supply situation?
For a start they’ll have to run the vehicles longer and that means more maintenance, more depreciation, more rectification – in other words, more cost. Not a situation wanted or needed by rental companies which already operate in a highly competitive and cost-conscious market.
In the past, rental companies have been able to hold down their costs by investing in high levels of efficiency but there comes a time, almost no matter what the investment, when further savings simply are not there to be made.
Ultimately, it is a commercial decision for individual rental companies, but I believe we have now reached this time and that increased costs will, of necessity, have to be passed on.