U-Haul Truck Rental Rates Reflect Relative Demand
U-Haul rates for a one-way 26 foot truck rental:
Detroit, MI to Houston, TX: $2,215
Houston, TX to Detroit, MI: $617
On this previous post, there seems to be some disagreement about whether U-Haul's one-way rental rates reflect relative demand for truck rentals. Although there certainly could be other factors (tax differences, etc.), I would argue that one-way U-Haul truck rental rates reflect primarily differences in relative demand.
The rates above illustrate the significant differences in demand for trucks going from Detroit to Houston (high demand) compared to the low demand for trucks going from Houston to Detroit. From U-Haul's standpoint, it will have shortages of trucks in Detroit due to the high demand for one-way rentals, and surpluses of trucks in Houston due to the low demand for trucks in the opposite direction. Therefore, U-Haul uses dynamic pricing to reflect relative differences in supply and demand for one-way rentals between Detroit and Houston. In an ideal world for U-Haul, it would like to have equal demand for truck rental in both directions for each pair of cities, to equalize the distribution of trucks around the country. Since that never happens, it prices one-way truck rentals based on relative demand: high prices for high demand one-way rentals and low prices for low demand one-way rentals.
In the previous example of Los Angeles and Las Vegas the price differentials weren't nearly as great, but perhaps this more striking example of Detroit-Houston will help illustrate how market forces determine pricing. Based on the differences in one-way truck rental rates, there is almost 4x as much demand for 26 foot trucks going from Detroit-Houston as for trucks going from Houston-Detroit.
32 Comments:
U-haul has trucks for sale on their website. For $3,995 you can buy a 26', high mileage truck. Their Goesbeck Hwy, Warren, MI location has three of them. They have a 14' truck for $2,995.
A Detroit location has a 17' truck for $1,995.
And 30 days maintenance and repair are included.
If you're willing to take the chance on a beater making it one way to Texas, you could sell it there and recover a good bit of the cost. Insurance can't be that much for just a few days and you can save the cost of a storage unit on the Texas end.
I would agree that the rates reflect demand as people are moving from Detroit down south and for the most part returning empty back to Detroit.
Dr. Perry:
I do not necessarily disagree with you conclusion with respect to Los Angeles and Las Vegas. I merely suggested that price alone cannot explain variations. Price is somewhat anecdotal as evidence for high demand. There's a difference between a plausible and a convincing explanation.
Given your explanation about U-Haul's "dynamic pricing" and the huge disparity between Houston and Detroit, I'm nudged more in your direction. Obviously with enough data points we could derive the inverse demand function. The pudding is thickening!
There's a similar table from 2006 at:
Www.housingbust.com/uhaulindex/california.html
Thanks for the update. This is very interesting.
My guess is this is how wars are started. A simple conclusion resulting in contentious debate. We have beaten this dead horse to multiple deaths.
U-Haul, the airlines and anyone in continuous business rely on competitive pricing to stay in business. I agree supply and demand are important factors in U-Haul's pricing algorithm along with their costs plus their "secret sauce" factors.
I would want to leave both LA or Detroit for just about any place else as quickly as possible.
I am not a Keynesian. I am a pawn shop dealer buying U-Haul truck tires. This helps the local economy in the LA area. The people who leave are just happy to get out of town.
Chuck, there's no reason to back away from your sensible skepticism just because lame-wits attacked you with appeals to conventional wisdom and anecdotal evidence.
Had mankind continued to cling to well-established orthodoxy based on casual observations, we'd still believe the earth was the center of the universe. Don't drink the hemlock or recant just because people are threatened by your challenges to their unreasoned notions.
Dr. Perry's second example is compelling. But one or two data points is still a small sample conclusion. I can understand why he would let it rest at that rather than conduct a simultaneous equations regression with panel data to find the true supply and demand parameters. I don't think there are many people qualified and armed with sufficient data to do so. It's doubtful the layman would understand the results.
Rather than assert the conclusion as fact, it would be fitting to say the evidence is suggestive of the hypothesis. Of course, if pressed to wager I'd lay my money on the good doctor's intuition. :)
The sad part is that those leaving will continue to vote for the same policies that they left. I think the Antiplanner pointed out that Texas just pasted a state-wide smart growth bill. I heard a similar phenomenon ruined Orygun with transplanted Kulifornians. Then I see the have-too-muches and the never-will-haves voting for policies that destroy the trying-to-haves and wonder if it is related.
I think you're right Ian. A lot of the California transplants in Denver vote for all the types of policies and politicians they fled.
It's even more discouraging to see latino immigrants, most of whom are illegal or temporary migrants, espouse policies which made their former home inhospitable to survival for them.
Just to note that this is not the first time this has happened to the Detroit area, the same sort of differentials existed in the early 1980's when Detroit was in the will the last one out turn out the lights mode.
A question what do the rates look like between Detroit and Fargo, ND in the state with the best economy of the entire country?
The more I think about it, the more of a convert I become.
The facts that U-Haul is a near monopoly and monopolies operate on the inelastic portion of the demand curve mean that price will be more sensitive to changes in demand than in a perfectly competitive market.
The table I provided from 2006 shows a similar phenomenon with many additional data points.
The data points demonstrating this supply-demand correlation on U-hauls are numerous and easy to find. I've written about them in my own blog a couple of times. And note that I POSTED such a data point (concerning San Diego - Boise, Idaho) on the last blog item on this website. Here's that post again:
Actually, the differential of moving from CA to other states sometimes is even a larger percentage than from LA to Las Vegas.
For instance, to take a 24' Budget truck from San Diego to Boise, Idaho costs $1,064.70. To take the same truck at the same time from Boise to San Diego costs $641.70.
http://www.budgettruck.com/
[NOTE: This URL allows you to put in ANY two cities served by Budget truck rental -- you can develop your own data points!]
Thus it costs 66% more to move from SD to Idaho than the other direction. That ain't just taxes and fees. That's primarily supply and demand.
In 2007 we lost net 260,000+ California residents to other states. During that timeframe it cost double or triple [or even more] to rent trucks heading out of CA to just about anywhere.
These latest figures are the result of us losing "only" 140,000 net CA residents in 2008. If the real estate market even partially recovers from its 50% drop in CA, expect the departures to grow rapidly, and the rate differential percentage to zoom upward.
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Check the pairs of San Francisco to Las Vegas or San Jose, CA to Las Vegas for cases where it costs more to go from Las Vegas than the other way around. There's no way San Francisco is advantaged cost-wise relative to Los Angeles. 0.25% lower sales tax rate, but higher overall costs.
For the 26' on 9/30/09
SF to LV $520
LV to SF $547
SJ to LV $497
LV to SJ $522
To/from Reno, Nevada, these cities flip back to cheaper out of Nevada.
Distance is also highly relevant, since the alternative is to hire people to drive them to another "shortage" place, if not back to detroit. This may reflect why it is that LA-LV was less significant, since it would not cost as much to drive them back to LA as it would Hou-Det.
> I can understand why he would let it rest at that rather than conduct a simultaneous equations regression with panel data to find the true supply and demand parameters. I don't think there are many people qualified and armed with sufficient data to do so. It's doubtful the layman would understand the results.
Sorry, that looks like a lot more than six ounces of bovine feces... more like a U-Haul truckload.
As to why he doesn't do such an analysis, I'd suspect personal time might be relevant, as well as availability of the data (though I suspect if one could take the time to find it, it's there)
Perhaps, since you seem to think time is so cheap, you might see fit to undertake such an analysis...? Or at least find the necessary data to perform it, since I suspect that's the... time-consuming part...
As far as the layman understanding the results, on something that basic, if it can't be related to simple terms, the technique being used is nothing more than a sack of bovine feces -- either it's a clear driving force behind the price or it's not.
Sure, there may be nuance elements to what is found which may be outside the layman's experience, but the key, central question you seem to be disputing is simple enough -- either the price is driven by the supply and demand, or it's not.
> Hi: Two things
Uh, did you notice perhaps that there is an e-mail address through which you can directly ask mark such things, rather than spamming a thread? Or was that your real goal, to make it look like you wanted such while spamming your own site?
Somehow, I bet it's the latter, in which case I dub you "dickhead".
It is clear we need a public option in order to equalize the prices everywhere. I'm thinking the USPS could run the program. They probably have a few extra trucks to spare.
As I previously mentioned, I've written before in my "Rider Rants" on this net CA outmigration. I stirred in my stuff and found this factoid from about three years ago (the exact time is not clear):
**The native-born outmigration flows have become so systematic that the cost to rent a U-Haul to move from Los Angeles to Boise, Idaho is $2090 -- or some six times more that the cost of moving in the opposite direction.**
SOURCE: " 'California Leavin',
Rich States; Poor States, 2007" by Arthur B. Laffer and Stephen Moore (could not find Internet link to study).
Since the study was done in 2007 and based on recent years' data, this factoid is probably from 2005-2006.
But note the difference in CA outmigration during this 2005-6 period vs. today -- and the difference in pricing. When a quarter million net were departing annually during the 2005-6 timeframe, outgoing U-Hauls to Idaho was six times more expensive than coming to CA from Idaho. But when our state's annual net outmigration drops to only 140,000 (probably less today), the current difference in price is "only" 67%.
[A reminder -- with a disproportionately high percentage of properties underwater in CA, it is quite likely that this mortgage circumstance is delaying the departure of even more Californians to better economic climes.]
Yes, correlation does not prove causation. For instance, CA truck rental taxes/fees could have been many times higher in 2005-6 than today. (Six Ounces would probably present that preposterous possibility!)
The point is, it is highly likely that the greater the disparity in truck traffic between two points, the greater the disparity in price -- and by a LOT.
Actually, Las Vegas currently is hardly an attractive place for WORKERS to migrate to. The place is highly dependent on discretionary spending/gambling, and that's not going well in this recession. This is a stunning change in the local Vegas economics of a previously booming mecca of garishness.
The Nevada unemployment rate currently is 12.5% -- even higher than CA's 11.9%. Nevada's unemployment is 3rd worst in the nation -- trailing only Michigan and Rhode Island. CA is the 4th worst.
www.bls.gov/news.release/laus.nr0.htm
The Las Vegas real estate market essentially has collapsed (well, not as badly as DETROIT's!).
For Californians, there are two groups that would find baking-hot Nevada still attractive:
1. Wealthy individuals avoiding the onerous CA income tax. I've had two wealthy friends leave the state this past year to "live" on the Nevada side of Lake Tahoe. They still spend a lot of time in CA, but no longer are CA residents (doing all the things necessary to satisfy the CA tax collectors).
2. Businesses. With no corporate (or personal) income tax, a large unemployed labor pool, drastically lower workers' comp costs, and a business friendly mentality, Nevada beckons to our business owners.
Bottom line: U-Hauls measure mostly INDIVIDUAL moves of middle class people -- the wealthy don't use U-Hauls. Yet still Las Vegas has more folk moving there from LA than back to LA (if we accept the disparity in rates largely reflects this disparity in movement).
No kidding Richard? Prices are determined by supply and demand? Thanks for telling us that.
The problem with all your nonsense is that you are not controlling for supply factors nor even the other components of demand. I added that because they have considerable market power they are not price takers.
Dr. Perry elaborated more on U-haul's particular method of pricing which involves supply factors. I'll buy that they're experts in managing their truck supply.
I'm convinced there's something to the data. I'm unconvinced by your prattle. You provided a third data point. When you get to 30 or 50, then we'll have a large enough sample to start getting meaningful results.
I should have included a third group of Californians that would find Nevada still a relatively attractive place to migrate to -- retirees.
Especially retirees with meaningful retirement income. Such as government retirees with fat pensions.
Six Ounces, you assert that U-Haul has near monopoly control of it's pricing. Really? REALLY?
My goodness.
Google "one way truck rentals" to see the competitors in any major city. It is NOT a near monopoly for U-Haul -- especially between major cities. Not even close.
Oh, BTW, where is YOUR proof of your sweeping assertion claiming U-Haul price control? Where's the definitive and comprehensive evidence you so caustically demand that WE provide on this blog??
Previously I questioned your anonymity. With your poor "scientific" and economic analysis, I think it is now clear why you wish to remain in the shadows. A wise decision on your part!
Here's another interesting data point. U-Haul's rate for a 26' truck from my San Diego to Houston is $2,017. This same size truck at the same time from Houston to SD is only $533.
While not quite as dramatic a price differential as Dr. Perry's Detroit-Houston example, it is close.
Gee, I sure wouldn't want to draw any conclusions from this factoid. Just thought it might be an item of curiosity for readers of this thread.
The problem with all your nonsense is that you are not controlling for supply factors nor even the other components of demand. I added that because they have considerable market power they are not price takers.
Perhaps. Do you know what that would mean? They would still set the price based on obtaining the highest price that they could, and it's still a result of supply and demand. Even if U-Haul is for some reason able to restrict the supply of trucks in both directions to gain monopoly profit, they're still able to raise the price much more in Detroit. The demand for trucks to Houston in Detroit is much higher than the demand for trucks to Detroit from Houston. Is there any other plausible explanation? One possible explanation, that people in Detroit are much wealthier and able to afford trucks more easily than people in Houston, can be dismissed. The price of buying a truck is nearly the same anywhere in the country, and U-Haul would only face a fixed cost in the first place buying a truck and driving it to an initial location. Nothing in the supply function can explain a 4x price difference.
You've confused the point of the scientific method. If there's no plausible alternative hypothesis, we can accept the given one.
No, John Thacker I have NOT confused the scientific method: you have.
The null hypothesis is that the price differential is NOT different because of net migration. The alternative hypothesis (which Dr Perry is trying to support) is that the price differential IS because of net migration.
THAT is how a hypothesis test is done! You give the benefit of the doubt to the hypothesis that you do not believe. You continue to believe it until there is SUFFICIENT evidence to the contrary. This provides the strongest framework of analysis. You do not simply accept a thesis because no one can convince you otherwise.
You people purport to be economists or students of it? LOL! What half-wits!
Oh Bloody Hell, I state that a proper analysis can't be done for lack of data. You call BS. Then you say there's a lack of data AND a lack of time. You, sir, are an idiot. Since you don't have the data or time to prove otherwise, we shall accept that hypothesis as a fact.
OF COURSE price is determined by supply and demand. That's my point. The offered thesis is that the price is determined MAINLY by net outmigration. I'm merely saying that there are many other factors determining price such as incomes, substitutes, taxes, etc. California income taxes affect the supply curve of the proprietors of U-hauls. Nevada has no state income tax. Do you think that's not relevant to price? Do you think industrial CRE rental costs are the same in Las Vegas in LA?
In the mean time, why don't you give us your layman's understanding of estimating supply and demand parameters from panel data. You're suggesting that if an idea can't be boiled down and fathomed by an 11th grader, it's not worthwhile. Consider physics, chemistry, biology, etc. I think you'll see that's wrong on its face. Science is HARD. It's hard to do and hard to understand. As I've said before, I BELIEVE Dr Perry's intuition, but if you accept everything he says at face value, you're just a mindless lemming.
OA is the only person other than me who is even trying to challenge the premises or find counterexamples. The rest of you are eating corn out of other people's feces.
Richard, no one cares to read your blog no matter how many times you link to it. Dr Perry should charge you for advertising space for serial posting your links. I'm honoring Dr Perry by giving him critical and reasoned feedback to which he responds well. You are pimping you wares on his site.
Six Ounces, what is it you think I'm selling?
Your ad hominem attacks are increasing, and your vulgarity is coming to the fore. No longer do you deal with material matters -- perhaps understandable since you have been ripped for your ersatz "scientific" approach.
You make sweeping assertions without evidence or data. Yet you attack me and others for our lack of thesis-level documentation.
To say you have a double standard is to presuppose you have any standard at all. Aside from your bloviating self-congratulation for your claimed intellect, I see no evidence at all of you adhering to any standards of either evidence or discourse.
Six Ounces, you state that
**Dr Perry should charge you for advertising space for serial posting your links.**
What exactly are you blubbering about? My link in my header is to the standard bio on blogger.com (actually a Google service) -- not to my website or my blog. In all my posts, I doubt I posted my blog link more than twice total.
If you had the moral courage to post using your (surely world famous) name, you should do the same. It's just a common courtesy for anyone who wants to know who exactly authored a comment -- that's why blogger offers this option.
Richard, you have no idea what your selling? Look back at the last several posts and count how many times IN A ROW your smug, smirking visage adorns the comments. Then count all the links to posts on your blog. Then count all the times you talked about things you posted on your blog.
You're a malignant narcissist. People like you are precisely why I remain anonymous, but the most important reason is that I work for the fedeal government and I have to be careful about the appearance of partisan comments.
Besides, my identity doesn't have anything to do with the merits of my arguments. You obviously don't know what an ad hominem is. Insulting your lack of intelligent thought processes is NOT an ad hominem. An ad hominem is dismissing an argument by virtue of its source instead of its content. If you had an education in logic, you'd know that. If you'd had a good education in economics, you'd understand who has the burden to prove a thesis and what the many components of supply and demand are.
You didn't even bother to address the BODY SLAM I gave you with income taxes affecting the supply curve for rental trucks in California but not Nevada. Some tax expert you are!
I don't see you begging for the identity of 1, OA, Oh Bloody Hell, Chuck, Bill, Ian Random, Steve or any of the other completely anonymous commenters on these two posts. Why do you have such a woody to know who I am but none of them? Go $#%! yourself.
The most ironic thing is that you and I are allies. We're likely in total agreement about politics, taxes, and economics. You're suck an arrogant ass, you can't differentiate between a legitimate academic criticism and petty partisan bickering.
Going out of town for a few days, so quick response will have to do.
Six Ounces, the reason your ID is of interest is that your primary argument is that you're smarter and more scientific than the rest of us. You rely on your own self-proclaimed importance to provide gravitas to your points. The others don't.
Now as to you BODY SLAM (your caps, not mine) point about taxes. It's time for YOU do do a little homework while I'm gone. How much of a rental dollar goes for sales tax? No, wait -- how much of a sales tax goes for STATE income taxes? After all, the delta is the state income tax when comparing domestic interstate rentals.
I know the rough figure -- I'll let you get off your ass and do the legwork. Look forward to your contrite reply admitting how trivial your BODY SLAM point is.
Don't get me wrong -- that tax is quite important to the bottom line of the corporation. But it's trivial as a percentage of the rental dollar paid by customers.
Correction to my last early morning comment. My mention of "sales tax" should be INCOME tax.
Enjoy tour time off Richard.
No, my academic credentials are of no consequence to the merits of my arguments. You criticize ad hominem, yet you still cling by your fingernails to Appeal to Authority. If that were appropriate, you with your BA in economics would have to bow and scrape before everything said by Paul Krugman, Larry Summers, George Stiglitz, etc.
The first person to challenge the professor's conclusion was Chuck, who BTW was also anonymous. I doubt he has an advanced degree in economics but his question regarding taxes, fees, etc was insightful. You can address his concerns with evidence to support the thesis, but you cannot dismiss it because he is Chuck, a non-economist. THAT is an ad hominem.
U-haul centers are independently owned proprietorships or small LLCs. Their business is TAXED. From Economics 101, those taxes are a marginal production cost and thus included in the supply curve. This decreases supply and raises price. Note well that the income/business tax will raise price relative to an identical firm without an income tax. This increase is NOT explained by net migration.
Are wages higher for U-Hauls in LA? That enters the supply curve too.
U-Hauls must pay rent for industrial space. Industrial space in Las Vegas and LA are probably not equally priced. That is ANOTHER component of supply which must be considered. Indeed, ALL of the variation between the opposite way rates could be explained by some factors of supply or demand which are NOT the effect of current outmigration.
I have no idea (at the moment) how income tax, wages, rent, etc differ between these two cities. But if you don't control for these, the conclusion the difference is the result of net migration is nonsense. It might actually be true, but it remains unproven.
Now there is my best explanation of the science of this question. It proves I understand economics enough to have taught you in your BA classes. I've taught economics (and statistics) at two PhD granting institutions. I don't need to fax you my Ph.D. You just need to be acute enough to recognize I know what I'm talking about. As a "tax activist" you are a professional rabble rouser, shouter, and debater (and I don't mean that in a bad way). But the ability to move people with rhetoric is not science any more than being a community organizer confers knowledge of economics, leadership, military science, or medicine.
I return from vacation to see that 6 Ounces chose not to weigh in with a meaningful response to my homework assignment. Apparently he hasn't a clue how to figure out how the California corporate income tax affects the price of truck rentals (or doing business in general).
Or more likely, 5 Ounces now realizes he bungled big-time, claiming that his tax BODY SLAM carried any weight.
Why am I not surprised he failed to produce his homework? The dog ate it, apparently.
Big hat, no cattle -- as my father-in-law used to say about such ersatz cattle ranchers.
If taxes and the cost of doing business are the main component of the one-way truck renting business then I guess that explains the 4-fold differential in truck rentals from Detroit and San Diego to Houston vs. the other direction. Uh huh.
My homework for 6 Ounces was a bit of a trick assignment. During recent years, the U-Haul corporation has not done well, with losses peppering its income statements. Hence no corporate income tax was paid most of the time.
Therefore our current price comparisons on truck rentals seldom include ANY paid corporate income tax -- with the differences in prices being affected by other factors.
But let's look at an admittedly simplified illustration of a hypothetical profitable California corporation (an endangered species, to be sure). On a sales dollar, a corporation is doing fabulously well if it grosses 10% after expenses. Let's use that very high hypothetical pre-tax profit number.
That 10% gross profit is subject in CA to an 8.84% corporate income tax, which comes to 0.884 CENTS per dollar of sales. Just to be clear, that's less than 1% of the revenue dollar.
Actually, the effect is even less, as the state tax is deductible against the federal corporate income tax. But really that is just quibbling.
This corporate tax is generally a pass through cost for domestic companies, as all profitable corporations doing business in CA must pay it. So while it drives up the price of doing business here, it does not materially affect the price of the good/service sold.
Bottom line: 6 Ounces BODY SLAM was delivered with all the force of a feather.
This is amazing! How ANYONE could find so much to argue about regarding the price of a U-Haul Rental. Do you realize how assinine all of you sound? No wonder this country is becoming such a mess when people use stupid stuff like this to ramrod each other.
For whatever it is worth, U-Haul has good reasons why they charge, what they charge and customers get pissed off thinking they are getting screwed over but in reality, they have not historically raised much of anything for over 10 years. Prices change like the ebb and flow of people do all over this country and their changing the price reflects that, you idiots. Unfortunately, I worked there for 5years putting up with idiots like you who seem to think it is some kind of conspiracy. They do it because they can and their competitors drive up the prices.
U-Haul does not make a lot of money, believe me, I know.
Amazing people don't yell like that when the pharmacist charges Ten bucks a pill.
Plain and simple. Don't move at the busiest time of year, book ahead, just like the airlines do and save a few bucks by returning the truck at a lesser impacted destination, which you can check online anytime.
By the way, it takes them a year and a half to get a truck from one end of the country to the other end if it ever comes back to the same place of origin.
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