Monday, June 13, 2011

Should You Buy A Used Rental Car?

Hertz asked me to do a blog posting about buying a used rental car. 
 Be careful of what you ask for, Hertz!

Hertz asked me to do a blog posting about buying a used rental car - they should be careful what they wish for!

I bought a used '88 Camry back in 1989 from Avis, and while it was not a bad deal, it was no screaming bargain, either.  As I recall, the price ($11,000) was not far under book value.   It looked and drove like new.  My neighbors at the time thought I had bought a "new car" - but new Camrys back then were like $15,000 or more.

At the same time, a fellow in Maryland had a 1988 5-speed Camry wagon, with sunroof and all wheel drive, for sale, for $13,000.  THAT was a better deal, but it was quickly sold, unfortunately!

That being said, it was a good car and I drove it for many years and then sold it for $6000, so I did not do too badly.  My gut impression was that it was an OK deal, but not a stellar one.

A few years back, I looked at buying a used Hertz convertible for my Condo in Florida.  I ended up buying a BMW for less money.  They wanted like $17,000 for a used 2003 Chrysler Sebring, and I bought a 1997 328iC for $16,500.  Which was a better car?  I know which one had a higher resale value after 8 years...

The prices that the local Hertz lots wanted were rather high - no real bargains compared to a clean, off-lease car at a dealer. And an off-lease car at least has one driver.  And some used-rental car agencies sold just regular used cars (bought at auto auction) which I think diffuses the concept.

I can see the conundrum for car rental companies - they don't want to dump the cars too cheaply, as they are (or were) affiliated with the car companies making the cars.  This would depress used car prices.

And from what I understand, given the volume fleet discounts they get, most rental car companies sell the cars used for about what they paid for them new - meaning the rental income is pretty much pure gravy.

I cannot understand why Hertz and others have such high prices for used cars - after all, the only alternative is wholesale auction sales, and the prices at auction are never very good.

One complaint I have with used rental cars, too, is that often the cars are "stripped" by the salesmen or prep agencies.  They remove extra keys or remote key fobs (not doubt to sell on eBay) and take out things like floor mats, and other accessories.  A friend of mine has a son working for one such agency.  They rent Dodge trucks, and the truck comes with a nice collapsible storage crate.  He and the other fellows who work there steal these and give them to friends.  I know this because I have one in my garage.  If I bought that truck, I'd be pissed.

I would rather buy a late model used car from an INDIVIDUAL who kept it in a garage, washed and waxed it, changed the oil, and babied it - and didn't take the extra key fobs and floor mats when he sells it.

My Avis car did come with a service record (this is important, not all car companies do this) but it revealed that the oil was changed only every 7500 miles or so.  They do minimal service on the cars, not "I'll keep this car forever!" service.

So, I am not sure I would have much positive to say about Hertz car sales.   I did investigate the site a while back, but I saw no screaming bargains, in my opinion.  By the way, their website is an annoying website:   Too much animation!

There is one myth about used rental cars - that they are worn out or treated badly.  This usually is not true.   Most are sold with very low miles (mine had 22,000 miles, some on the lot had as few as 8,000) and most car renters are adults (over 25) and don't beat on the cars too badly.  Too badly.

People say stupid things like "Well, kids will rent them and put them in reverse at 80 mph!" - but car rental companies generally don't rent to kids (usually you have to be 25 or older) and putting your car in reverse at 80 is a sure recipe for a major accident - if not being stranded by the side of the road.

And in that regard, probably smaller, cheaper cars get beat on more than larger cars - which are rented by wealthier and older people.   Probably a larger car can endure the trials of the rental fleet better, too.  So maybe a Yaris is not a good bet for a used rental car.

As P.J. O'Rourke said, "nothing handles better than a rented car!" and people do tend to horse them around a bit.  But it is not like people drive them over logs or something - after all, you break it, you may be liable for it.  I did not find my Camry to be particularly worn or abused, and I put 60,000 miles on it before selling it - the next owner put on close to 100,000 as far as I know.

And of course, most modern cars are warranted for four or five years or 50,000 miles.  With 43,000 on the clock on some of these Camrys, that is an issue, though.  And extended warranty's, as I have noted, are no bargain.  For that kind of money, just buy a lower mileage used one from a friend or even buy brand new.

But with the advent of Carfax, it is not hard to spot a used rental car these days - which could negatively affect resale value.  Some used car dealers try to sell these as "executive driven" or "program cars" which are euphemisms meaning nothing.

So... let's look at the Hertz site and see if they have any screaming deals or just boring offers:

2010 Nissan Xterra S    29K Miles3

  • Exterior: Red
  • Engine: 4.0L V6
  • EPA City/Hwy: 15/20

Promotion: $20,249
KBB SRV:  $23,160
Jacksonville, FL 

30,000 miles for year-old car is a lot of miles!
This is a little disingenuous, of course, as the private party sale is closer to $20,000, depending on options.   Kelly Blue Book (KBB) is the highest of the three pricing guides, so if you want to make your prices look good, quote KBB "Suggested Retail Price" on anything. 
Edmunds has a more pedestrian value on the car:

  • 4.0L V6 engine 
  • Automatic transmission 
  • Up to 16 cty/20 hwy mpg 
  • 4-wheel drive 
  • Side/Curtain Airbags 
  • Stability Control 
  • Traction Control 
Used TMV from $19,217 - and that is not taking into account the mileage!

Of course, most rental cars, while not being "Sallie Strippers" (no stove, no organ, as they used to say, meaning no heater, no radio, which back in the day, you could order) are pretty basic models with fairly basic options - power windows and locks, cruise, A/C, basic CD player, etc.   Things like leather interiors, navigation, sport packages, sunroofs, alloy wheel upgrades and the like, are generally not present in rental cars.
Not that this is a bad thing - if you are looking for basic transportation without a lot of bells and whistles.

But it does mean that your choice of cars is, well, BORING!  Lots of silver cars, all of them automatics, no sunroofs, no leather, no sport packages, no big engine options.  Frankly, looking over their selection of cars nearly put me to sleep!  Of course, if you are willing to travel, larger metropolitan centers have a better selection of cars - places like Washington, DC or Miami, Florida, for example - the latter having more esoteric cars like Corvettes, Cadillacs, Mercedes C-class, Minivans, and even full-sized vans.

Perhaps a better car to compare is the ubiquitous Toyota Camry.  Unintended acceleration claims aside, these are very reliable cars and return good mileage and last a long time.  Most in the fleet are basic 4-cylinder models, but that is not necessarily a bad thing, considering they are more than powerful enough to get you to work and sip gas:

2010 Toyota Camry SE    43K Miles3

  • Exterior: White
  • Interior: Charcoal,Dark
  • Engine: 2.5L 4-CYLINDER
  • EPA City/Hwy: 22/32

Promotion: $15,449
KBB SRV:  $20,345
Jacksonville, FL

Note:  Most were offered in the 30-44K miles range, from about $15,500 to $16,500.  Some are base, some SE models. 
The problem here, is 43,000 miles is a LOT for a year-old car!
Edmunds has a more pedestrian view of the car:

Customized True Market Value® Prices

Trade-In Private Party Dealer Retail
National Base Price $15,935 $17,823 $19,248
Optional Equipment $0 $0 $0
Color Adjustment - White $-13 $-14 $-15
Regional Adjustment - for Zip Code 31419 $22 $24 $26
Mileage Adjustment - 43,000 miles $-1,363 $-1,363 $-1,363
Condition Adjustment - Clean $0 $0 $0
Total $14,581 $16,470 $17,896

Note how they deduct $1363 for the excess mileage.  But Frankly, I don't think this deducts enough.   Given the high mileage and the carfax indicating previously owned by a rental fleet, I am not sure that the price is any screaming bargain.  A slight discount?  Yes.  A large discount from KBB retail?  Yes.  But KBB retail is on Crack and anyone who pays KBB retail, even at a dealer, is a fool.

Bear in mind that a brand-new 2011 Camry SE starts at $22,965 list and Edmunds shows it selling for $21,459, you can see that the touted KBB "SRV" of $20,345 is a bad joke.  We are lead to believe that the car depreciates $1000 after nearly two years and 43,000 miles of use?

Again, not a horribly bad overpricing, but not enough of a screaming bargain to make me want to drive down to Jacksonville and buy one.

A BETTER BET would be to find a one-owner late model car with fewer miles on it (or an older car with equivalent miles for a LOT LESS MONEY).  A car that was washed, waxed, loved, and has all the service records - that car is a better bargain, and yes, they are out there all day long, because most idiots prefer to deal with a "dealer" instead of an individual.

Many folks have told me that they prefer to buy from a dealer as it is "safer" than buying from an individual.  Many folks are idiots.  They fear the possibility of getting "ripped off" from an individual over the certainty of paying 10-20% more at a dealer.

One new gag that they use, is that you can "rent" the car first and see if you like it:

At Hertz, we believe that a 15-minute test drive is not the best way to evaluate a car. That’s why we created Hertz Rent2Buy® , the first car buying experience that literally lets you live with your purchase before you actually make it. Since you’re renting the car (for a low rental rate over 3 days, which gets waived if you purchase the car), you can do more than drive around the block and picture your life in the car – you can fully experience it.

This does give you a chance to see if it pulls to the right, the windshield wipers work, and to take it to your local mechanic to get it inspected for any possible problems.  And hey, if you are planning on renting a car anyway (for example, yours has crapped out) this is one way to rent a car for three days at a fairly low price ($49 a day).  From a marketing standpoint, this is a smart move, and I have to commend them for this.  But they are also smart enough to rent it for only three days - longer than that, and you'll lose that new car lust mojo and have buyer's remorse before you even buy!

Would I buy another used rental car again?  I can't say I would rule it out 100%, but at the prices quoted, I don't see any compelling reason to.  There is no real super bargains here to make the hassle of owning a higher mileage car with a the scarlet word "RENTAL" on its Carfax, worth the hassle.  I would want to see at least another grand knocked off, and I doubt they would do that.

There are a lot of cars in the world - used rental cars, off-lease cars, and just cars owned by people who want to sell them.  When you are shopping for a car, it seems that you can never find the one you want at the price you want.   When you are selling your car, it seems like no one wants it.  The key is to be patient and not jump on the first thing that comes along.  But for many people, the hassle of waiting is just not something they can tolerate.

Oh, well......

UPDATE:  THIS LINK allows you to search the Hertz inventory regardless of State or local location.  However, the inventory is very thin, particularly for non-Ford cars.  And even in the Fords, you don't see many SUVs or the like.  You want a Camry, though, they got 'em - in spades!

THIS link has the inventory of the AVIS site.   It sucks!  They only list cars for Florida, California, and Colorado.  I live 39 miles from the Florida border. Apparently the Avis cars do not have wheels on them and thus cannot leave their home States.  Stupid HTML coding at Avis!  I may sell the remainder of my AVIS stock shortly.

Frankly, this is not a good time to buy a used car!  Prices are up and rental car companies are running the cars for more miles as a result.  GM is raising prices across the board and awarding themselves bonuses.

It is only some Japanese makes, such as Nissan, that are still offering rebates on cars, such as on the Frontier....

UPDATE:  December, 2012:  I check the Hertz site occasionally, and sometimes they do seem to have some good pricing bargains - if you are looking for a vehicle that is discontinued or no longer popular.

If you want to buy a Ford passenger van, for example, they have them fairly cheap - below even Edmunds "Private Party" prices.

And if you want a low mileage (25K) 2011 Crown Victoria, the prices are startlingly low - good news to all you cab drivers out there!

More popular cars seem to command higher prices.  There may be some bargains to be had.  But run a CARFAX first.  If it says "rental car fleet" on the CarFax, bear in mind that when you go to sell the car, you'd have some 'splaining to do!