Hertz car
Photograph ©2019 by Brian Cohen.

Why the Rental Car Shortage May Substantially Worsen Worldwide Before It Gets Better

Semiconductors and rubber are not the only shortages.

The current 2019 Novel Coronavirus pandemic — as well as a shortage of semiconductors and rubber — created an unprecedented imbalance in the automobile industry with which demand substantially outpaced supply, which led to significantly higher rates when renting vehicles because of a severe shortage of cars…

Why the Rental Car Shortage May Substantially Worsen Worldwide Before It Gets Better

…but a leading producer of high-quality homogenized 6XXX series aluminum logs and cut billets for the aluminum extrusion and forging manufacturing industries has reportedly announced that a shortage of magnesium will potentially impact its production.

“In the last several weeks, magnesium availability has dried up, and we have not been able to purchase our required magnesium units for all of 2022,” Tom Horter — who is the current president of Matalco, which is based in Canada — said, according to this article written by Nick Lazzaro for S&P Global Platts. “The purpose of this note is to provide this advanced warning that, if the scarcity continues, and especially if it becomes worse, Matalco may need to curtail production in 2022, resulting in allocations to our customers.”

Magnesium is critical to the production of aluminum, which is necessary to build cars and other vehicles — and between 85 percent and 90 percent of the production of magnesium is from China, which is currently experiencing an energy crisis.

“It is a perfect storm, literally”, according to this article written by Ariel Cohen for Forbes. “Flooding across China’s key coal producing provinces, resurgent demand for Chinese goods in the wake of pandemic easing, conflicting CCP energy policies, and extreme market distortions, including power rationing and price controls, have all contributed to the energy shortage. Globally, intense weather events, production slowdowns, overreliance on green power production, and Russian opportunism have all exacerbated a tightening energy markets.”

Among the industries which the government in China has ordered to cut back on energy usage is factories which produce magnesium. “About a month ago, the local government ordered roughly 35 of its 50 magnesium smelters to close until the end of the year and told the rest to cut production by 50 per cent in order to hit energy consumption targets”, according to this article written by Neil Hume for Financial Times, as “a large chunk of it from one town in Shaanxi province, Yulin.”

This coming December of 2021 is forecast to be the beginning of an even darker period for vehicle manufacturers — and, eventually and subsequently, for rental car companies.

“You may not have thought about magnesium since high-school science classes, but it plays a critical role in the automotive industry. Magnesium is used in many aluminum alloys, mainly (at least in auto applications) the 5xxx, 6xxx, and 7xxx-series alloys”, according to this article written by Steve DaSilva for Jalopnik. “Essentially, you can’t make cars without aluminum. You can’t work with aluminum without using magnesium. And as of December, you may not be able to work with magnesium much — if at all.”

Final Boarding Call

One possible silver lining is that the United States is also one of the leading manufacturers of magnesium in the world, according to this article from the International Magnesium Association: “The largest producers of magnesium are China, USA, Israel, Brazil, Russia, Kazakhstan and Turkey. New plants have been built in Malaysia, South Korea and Iran, and pilot plants for future operations have been constructed in Australia and Canada.” Perhaps the supply of magnesium from the United States and other countries can help prevent the shortage of vehicles from worsening if implemented in a smart manner.

Hopefully, the looming exacerbation of the shortage of vehicles worldwide will be minimized as much as possible — or, perhaps, averted altogether — but as I wrote in this article here at The Gate on Friday, July 16, 2021, “I do not believe that the rates of rental cars will subside as long as shortages of such components as semiconductors and rubber are prevalent in the supply chain.”

Unfortunately, add magnesium — as well as other materials needed to manufacture vehicles — to that statement…

…but here is one certainty on which you can bet: rental car rates will not abate anytime in the foreseeable future

Photograph ©2019 by Brian Cohen.

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