Rental Car Prices May Spike Again Because There Aren’t Enough Cars
Post-pandemic rental car prices could soar due to new car shortages.
Now that most post-pandemic travel restrictions have been lifted, rental car prices could skyrocket yet again, causing a new wave of frustration among travelers. Not only might travelers be charged sky-high prices but they might not even get a newer vehicle for their money. According to The Washington Post, companies including Avis and Hertz are able to once again charge more for rentals due to the lack of new cars available from automakers.
During the pandemic, travel restrictions meant very few people were using rental car services, causing prices to plummet. However, after restrictions began to lighten up in 2021, travel increased but rental services lacked the cars to fulfill customers' needs so they raised prices. Fast forward to today, and the supply of new cars for rental services is still down but we might be facing another summer of frightening rental prices.
Manufacturers are still facing chip shortages and manufacturing delays, and in some cases aren't even able to get cars to paying customers, so they aren't as interested in low-profit rental fleet sales. Pre-pandemic, rental fleets accounted for 7-12 percent of some manufacturers' total sales. Now, it's more like 4-7 percent, according to Europcar, the French rental company. That lack of sales is causing rental fleets to either hold onto their existing cars longer or even buy used cars to supplement their lack of new cars. The average age of a rental car used to be less than 18 months old but now rental fleets are using cars that could be more two years old. This means customers will pay higher prices for the same old cars that once were cheap.
Rental companies don't mind this, though. Not only do they maintain higher profit margins with older cars but, because of the crazy used-car market, they're able to sell those same used cars for higher than their depreciated values. And because new cars are more expensive than before, rental companies aren't over-ordering, keeping fleets smaller and more profitable.
“We don’t view inflation as necessarily a bad thing for us as this creates more discipline across the industry in terms of pricing and asset allocation,” Hertz Chief Financial Officer Kenny Cheung said during an investor meeting in April.
Thankfully, customers likely won't play ball for much longer. Once customers decided to rely more on public transportation and ride-hailing services such as Uber and Lyft, rental services will have no choice but to competitively lower their prices, which could bring the rental market closer to reality. However, if customers don't try alternatives to car rentals, prices may not rebound to sane levels for a long time.