Well that was an idiotic thing for the rental car businesses to do. Instead of having inventory sitting on their lots simply being unused much of the time, they got rid of it. Now that travel demand is quickly climbing back up a year later, they (as well as their potential customers) are in a tough spot.
While I don't know all the ins and outs of the rental car business, having a fleet of cars sitting idle isn't quite the same as other industries having a supply of unsold products. There are costs to the rental company for every car, whether they're rented or not. Insurance, registration, inspection, perhaps excuse taxes. There's also the depreciation of the value of the car on the used car market.
I'm sure there were many 2-car families the past year having to decide whether they still could afford to keep two road-ready cars when one or both weren't being driven much. Now expand that to many thousands of cars sitting around idle, but still paying costs associated with them, and companies have to make the same decisions.