Rental cars are incredibly difficult to get right now, and when you do get a rental car, it’s expensive, so much that you may not want or be able to go on your trip. No matter which company you try or which city, rental cars are expensive, and more so in tourist destinations.
On average, the cost of rental car prices goes up or down by 2-5% every year to adjust for inflation and other significant issues around the world, this has been consistent since at least 1997, but in 2021 the average cost for a rental car went up by 48%.
When put to dollar values, the price increases show a rental car that cost roughly $24 – $26 from 2013 – 2020 increased to $38 in 2021.
Why Are Rental Cars So Expensive Right Now?
When the pandemic hit, and everybody stayed home, rental car companies assessed how to stay in business with limited customers. They sold their biggest assets, which was their cars, and haven’t been able to replace them for the demands of 2022, so their limited supply has high demand, making them expensive.
The cost of rental cars hasn’t had significant fluctuations over the past ten years; new low-cost rental companies, rideshares, and other alternatives have kept prices only increasing with inflation. But now, you’re seeing an average of 70% more cost compared to any year, including 2019, just before the pandemic.
When you rent a car in tourist hotspots such as Hawaii, it worsens, and rental car prices jump by 277% from 2019 prices. This is expected with more people traveling again to these destinations, but no cars have been replaced yet after the sell-off at the start of the pandemic.
Why Else Are Rental Cars So Expensive Right Now?
Rental car companies can’t replace their cars because there is currently a worldwide shortage of vehicles, and the available cars are expensive and in high demand. This includes both new cars and used cars, so it’s just not possible for rental car companies to right size at the moment.
Overall, cars are in short supply due to computer chip shortages, which isn’t expected to be resolved until 2023. Similar to rental cars not being needed in the pandemic, car sales went down as well, which caused computer chip manufacturing to decrease, and it’s taking time for production to get back up to the required capacity.
With new cars being in short supply, it means the used car market is also heavily undersupplied at the moment, so it’s not possible for rental car companies even to purchase enough used cars to put a dent in the demand of newly free citizens wanting to travel again.
The massive influx of tourists going back to popular spots all at once is likely an issue as well. The number of people at any given populator location that require a car is potentially higher now than in normal times because people have been stuck for close to two years. Once the initial demand subsides, prices may ease a little.
When Will Rental Car Companies Replace Their Cars?
Rental car companies need several things to happen before they can replace their cars; they need computer chip supply to reach levels that will allow car manufacturers to produce more cars. So it’s difficult to predict exactly when all of these factors will be resolved.
Once it becomes possible for rental car companies to purchase more cars, it will just be a matter of time and money until rental car companies increase their supply. But they will be in line with everybody else, including their competitors who want to buy new cars.
Computer chip manufacturers promise adequate supply by 2023, then car manufacturers will need to start producing the cars, so it may not be until 2024 that car rental companies can get their hands on new cars, and there is no guarantee that prices will be at a level the rental car companies will be happy with.
Rental Car Price Increase Comparisons
When we compare three different rental car companies, we can see a few interesting things. First off, the prices for Alamo and Budget in Chicago are actually lower than they were in 2019, so either some rental car companies are starting to get more supply already, or there is low demand in Chicago for winter.
When you look at Orlando, which is somewhat of a tourist hotspot with Disney World and great beaches, the prices are close to double or more, and these are the cheapest option that are currently available. Once those cars are used up, you have to start picking from the more expensive rental options.
|1 Day Chicago 2019||1 Day Chicago 2021||1 Day Orlando 2019||1 Day Orlando 2021|
Will Rental Car Prices Drop?
Rental car prices will drop once the supply of computer chips increases and new cars are available for rental companies to purchase. The supply will increase, and the demand will ease, which will allow the price to correct. The only question is when all of this will happen, with some people predicting 2022, but 2023 or 2024 seems more likely.
One issue that may keep prices higher for longer is the uncertainty that the current pandemic has us all in; many cities are going back and forth with lockdowns and restrictions, so rental car companies may not want to buy cars the instant they’re available unless the pandemic is over, or there is certainty restrictions are eased for good.
Rental car companies may also keep supply a little limited, so they can reduce the cost of ownership on as many cars as before and offset that with continued higher prices, though not as high as right now. Of course, the hope is that they don’t do this, but it seems like a good option from a business perspective.
Benjamin is a certified financial advisor, with over 10 years of experience in the industry. He is knowledgeable about various business and financial topics, such as retirement planning and investment management. Ben has been recognized for his work in the financial planning industry. He has also been featured in various publications.