Vacation travellers may face higher car rental prices

Industry Updates

Car rental rates before the pandemic were artificially low and had offered excellent value for many years. I cannot think of any other device that is worth so much that costs so little to rent. Power tools, boats, snowmobiles all cost much more than rental vehicles. Even a go-cart costs much more to rent than a real car over a 24-hour period. There were several reasons for this, including intense competition in the industry. Car rental companies purchased vehicles with discounts worth thousands of dollars that are not available to retail customers. The rental companies typically kept these vehicles 6-12 months and then unloaded them into the used car market at a profit or for similar money to what they paid ─ this kept daily rental rates low. With oversupply in car manufacturing, the automakers were happy to give large discounts to daily rental companies in exchange for their commitments to place large, predictable orders.

The pandemic was brutal to the rental companies. In the spring and summer of 2020, they were stuck with boatloads of cars that they could not afford to keep idle, and dumped them into the market at huge losses. Hertz went into bankruptcy reorganization in the US. Enterprise did better than the other major companies partly on the strength of its robust business supplying replacement vehicles during insurance-paid collision repairs. When demand began to return in 2021 (it’s nowhere near pre-COVID volumes), rental companies found themselves shut out of the market for new vehicles.

Today, the supply of new cars is tight and car rental companies aren’t getting the great deals they once did from the factories. The carmakers are favoring deliveries to their more profitable retail channels, delivering vehicles to car dealers for sale to individual consumers. Consequently, just at the time the rental companies need to rebuild their fleets, they can’t get new vehicles. They are keeping vehicles past 50,000 km and two years; those limits were almost unheard of two years ago. Some rental companies are also buying late model used cars, but those are not available with the discounts they used to receive on new vehicles. They’re buying at today’s high used car prices, and when they sell them, they will certainly take a loss.

Another concern is the pattern of car rentals. Pre-COVID business travel accounted for robust, repeat customer rentals at city and airport counters almost year-round. Business travel has not rebounded. Vacation travel is much more cyclical, with more peaks and troughs and is harder to manage. Vehicle shortages are certain at peak times.

Finally, consumers who might have used a cab or airport limo much preferred a daily rental because they were not sharing space with a driver and the surfaces touched by previous passengers. This increases peak demand spikes among users who would have used a cab or limo. (This concern is likely of declining importance today.)

Staffing is another challenge for rental companies: staff were mostly let go in 2020 and qualified for benefit programs. Rehiring began slowly, and when the companies finally ramped up, they had lost a lot of their old staff. Managers are doing the work of two people and having to train new staff. APA was told some customers do not understand the reality at rental counters and are surprised that service is not as smooth. Beginning staff are paid just a little more than minimum wage with the promise of small raises in the future, which probably isn’t as competitive in today’s job market, so you can expect more inexperienced people at their first “real” job. The rental companies likely had to increase compensation which necessarily will be reflected in their prices.

Here are some APA strategies for renting a vehicle:

  • If you are a regular renter, get on one of the rental frequent customer lists.
  • Use an aggregator like Hotwire, or Expedia to compare rates.
  • Reserve early.
  • Consider using public transportation to get from the airport to your hotel or other destination and check for lower rates at rental agencies in town near where you will be staying. You will have to pay for the trip into town but will avoid the airport surcharge applied by most companies. In many cases, a downtown rental will permit an airport drop-off at no charge or for a small premium.
  • Consider the sharing economy: you will have to plan ahead, but in a major market, Truro offers a lot of selection and sometimes surprisingly low prices.

Aside from peak periods like Xmas to New Year, and July rentals, the rates inside Canada still offer very good value considering the pressures the companies are facing ─ they’re just not the great deals you could score relatively easily before Covid-19.

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