Why is car hire so expensive right now?

If you’ve been trying to book a car rental for your next overseas trip, you may have noticed that prices have shot up in some countries. In the USA, rental rates have more than doubled. So, why is car hire so expensive right now?

When the pandemic first hit, car hire bookings fell off a cliff. This left rental firms with thousands of vehicles just gathering dust in garages. The vehicle rental business is capital-intensive, meaning the successful firms have to spend a lot of money on buying new cars for their fleets. On top of that, cars are a depreciating asset, which means they’re losing value, no matter if you drive them or not. The rental companies had to respond quickly to that threat, or they’d go bust. Once travel began reopening, price spikes occurred. What caused prices to increase so much and make car ? Was it greed, or were there other factors that drove the price up?

Demand-based pricing

Like many travel businesses, car rental companies use supply and demand to set the price. If a rental location sees high demand, prices will go up. As borders in many countries reopened to tourists, there was a surge in bookings for rental vehicles. Supply wasn’t able to keep up with the sudden change in demand, so prices were forced up.

Increased cancellations

New COVID variants mean travel itineraries continue to be disrupted. As travellers change their plans, car rental firms get hit with cancellations. While they can try to protect themselves with restrictive, non-cancellable rates, it doesn’t mean they’ll keep the money. Disgruntled customers usually take up the issue with their card issuer or travel insurer, who frequently apply pressure on rental firms to return all the money except reasonable costs. Faced with this, the rental companies have little choice but to push these losses back onto customers in the form of higher rental prices.

Used car price increases

During the pandemic, the price of used cars shot up. Some marques saw as much as a 25% uplift. Faced with a redundant fleet of cars, the rental companies offloaded as many vehicles as they could. Cash flow was incredibly important and no right-thinking CEO would simply watch their parked-up cars depreciating while revenue nose-dived. Fleet sizes reduced and rental locations were left with fewer vehicles to rent.

Be careful with unusually cheap deals

While we were searching on a comparison site, we encountered a deal from Hertz that appeared to be half the price of all other quotes. Digging deeper, we found the rate wasn’t directly from Hertz but instead from a reseller. Their Trustpilot reviews were enough to convince us that the rental was unlikely to be honoured at that price. We were relieved to spot this before we’d gone through the booking process. Having been lucky this time, we now read the small print very carefully when booking through aggregator and comparison sites.

Golden rule: Know exactly who the sales contract is with and who is taking your money. Be sure it’s not an intermediary. Shop around. If your rate is a lot cheaper than any competing quotes (for the same vehicle/location) then be suspicious and dig out the small print before you give your payment details.

While vehicle rental prices are currently sky-high, we don’t expect this situation to last for the longer term. Rental companies are in the business of renting cars and will naturally expand their fleets to meet the increasing demand. Doing so will bring more revenue and profit. That being said, they will probably want to limit their risk exposure while the pandemic continues. Expect them to grow their fleets cautiously over the next 12 months, with rental prices gradually falling over the same period. With car hire so expensive right now, we’re going to avoid peak travel periods where we can. These dates will see the greatest pressure on supply and drive the highest prices.