For Want of a Horseshoe Nail

For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the message was lost.
For want of a message the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.

Jeffrey Tucker’s post at RealClearMarkets begins with the state of the rental car business:

In Bozeman, Montana, a rental car will zap you $350 a day plus gas, or $650 for something fancier than a compact. In Manchester, New Hampshire, $250 a day plus gas. In Dallas, Texas, and Denver, Colorado, it’s better at $80 but the wait times are very long. Many people find themselves without and instead take Uber. In Salt Lake City, Utah, and Savannah, Georgia, you will throw down $150 per day plus.

The only real deals out there – by which I mean not $14 per day like it was six months ago but $70 – require that you grant the agency choice over what car they give you: the answer is whatever they happen to have on the floor. Also watch for a change in terms of service. Some companies have dropped “unlimited mileage:: a woman in Denver found herself with a $28,000 bill from driving 200 miles.

and concludes with a lament about the lockdowns:

This is a tremendous illustration of the interconnected and delicate systems that make up the market economy. When it is allowed to work, it is reliable, plentiful, efficient, responsive, and wealth creating. It’s so much part of our lives that we take it for granted. The digital economy has made trade, exchange, and production easier than ever before even as the reason it works so well is less understood than ever – and ever more under attack.

When you break it by force – I’m still astounded that this actually happened – you create conditions for disaster both immediately and down the line. We are finding out now just how bad this can get.

You may or may not be aware of it but most rental car establishment are franchise operations. Franchise businesses are different from other retailers—more parties participate in the business model. There’s the franchisor, e.g. McDonalds, the franchisee, e.g. the individual or company who has a relationship with McDonalds to operate a restaurant with the McDonalds name and menu, and the customers. In addition to a substantial fee at the outset, franchisors charge the franchisees ongoing royalty fees. I haven’t been able to locate records of any franchisor suspending royalty payments during the lockdowns. Although there are force majeur clauses (“it was out of my control!”) in their franchising contracts, I don’t believe those clauses will be enough.

It will be years before the dust has settled from the COVID-19 pandemic but I suspect that once it has we will find that

• the relief put into place by federal and state governments did more to help franchisors than franchisees
• the relief put into place by federal and state governments did more to help those in the top 20% of income earners than of those in the bottom 20%
• that thousands of franchises from car rental to clothing stores to hot dog joints will end up closing permanently and they won’t come back for the foreseeable future
• that all of those businesses closing down will have run-on effects that are hard to predict including effects on banks, malls, and state and local governments