At some point, you may find yourself wanting to rent a car for an excursion.
Car rental prices have surged since 2019.
The average price to rent a car per day is $109.
That’s an increase of 90% compared to the average prices in 2019.
In some places, the rental amount is even higher.
Here are 10 reasons car rentals are expensive.
Why Are Car Rentals So Expensive? (Top 10 Reasons)
1. Car Sell-Off
One of the reasons that car rentals are so expensive is that car rental agencies sold off most of their cars during the COVID-19 pandemic.
Before the pandemic, rental agencies had a good number of cars available.
They knew their average demand and had enough cars available for practically everyone to use.
When the pandemic struck, however, car rental agencies became one of the businesses that felt the crunch the earliest.
All demand for their services halted because people were unable to leave their homes.
Everyone was working at home.
No one was taking vacations or trips.
Car rental agencies knew they needed to do something to keep themselves alive while the pandemic waged.
Their solution was to sell off the excess number of cars that they had.
They quickly ran the numbers to determine how many people were still using their services during the pandemic.
Then they sold off cars that they didn’t need.
The intention was to buy more later when the pandemic started to subside.
During the pandemic, this solution worked well.
They were able to keep their doors open.
However, the pandemic ended, or at least the lockdowns lifted, a lot faster than they had thought.
Thanks to hardworking scientists, researchers, and doctors, vaccines emerged quickly into the general public.
People were able to receive protection from the virus and go about their usual lives—for the most part.
Lockdowns lifted and people returned to work in the office.
They also started taking trips again.
As such, the demand for rental cars returned faster than the agencies had prepared for.
They found themselves without enough stock to supply the demand for rental cars.
As such, they raised prices on the cars that they did have.
Car rentals are expensive because the agencies chose to sell off their cars to survive the pandemic financially.
2. Computer Chip Shortages
To make car shortages even worse, car rental agencies couldn’t simply buy new cars.
Their original plan to buy more cars once the pandemic waned didn’t work out because there was a new global shortage of semiconductor chips.
China is the main producer of computer chips.
Like the rest of the world, they also underwent lockdowns to help stem the pandemic.
That meant that factories closed down and people weren’t working.
It also means that no one was producing new chips.
Cars rely on those chips as a part of their internal computers.
Without them, the car has no way of thinking and telling the various parts to perform certain functions.
Since car manufacturers were unable to receive chips from China, they were unable to finish cars.
The chip shortage is even worse because cars aren’t the only products waiting for the chips.
Everything from airplanes to smartphones to computers requires chips to function.
Since so many different industries need chips, the supply is unable to meet demand.
The stalled car production meant that car rental agencies were only able to buy a few cars at a time.
Even then, they had to buy them at increased prices because the cars were more expensive.
The cars were more expensive because they had to pay more for the limited supply of computer chips.
This leaves car rental agencies with only a few cars to offer renters.
Since they only have a small number available, they have to mitigate demand by increasing the price to rent a car.
Car rentals are expensive because of the global chip crisis which is impacting the speed at which producers can make cars.
3. Location
Another factor that can make car rental prices soar is the location of the rental agency.
If you tend to be in more of a rural setting, then you can likely expect your car rental prices to be lower than those who live in the city.
That’s because few people rent cars in rural areas.
Because everything is further out in a rural area, people usually have their own cars to get around.
In a city, however, everything is compact.
A lot of people choose not to own a car because they don’t drive that much.
They don’t have much of a need to since everything is nearby.
Others choose not to drive a car for environmental reasons.
Regardless of the reason, metro areas tend to have higher rental prices because there’s more demand for rental cars.
City dwellers may need to rent a car by the week to get to work.
Others may be looking to take a trip outside of the city and need to rent a car to get there.
The sheer increased number of people living in a city compared to a rural area means that there are more people who are more likely to rent a car.
Since demand for rental cars is higher in the city, and with a limited number of cars available to them, rental agencies charge high fees for city dwellers.
Other locations might notice an increased amount in their rental fees.
Certain locations that saw their numbers hit the hardest during the pandemic likely sold off more cars than those that were stable.
Even in rural locations, if the agency sold off a good number of their cars, then they might not have enough to go around for travelers during certain times of the year.
As a result, since they have a low supply of cars, then their rental cars are going to be more expensive.
Renting cars is expensive based on your location.
4. Tourist Areas
If you’re renting a car in a place of tourism or a vacation spot, then you can also expect a high rental cost.
Tourist areas have a lot of demand for certain services.
Renting cars is among them.
Most tourists tend to fly to an area if they’re coming from a long distance.
They’re dependent on services to get around.
Some use taxis or Uber to get to their destinations.
Others decide to rent a car and not have to worry about finding a taxi or Uber driver.
Since a lot of people are looking to rent cars, the available number of cars dwindles.
With most agencies already facing car shortages, in places where tourists are eating up the rest of their supply, they have very few cars to spare, if any at all, to non-tourists.
As a result, the prices for all their cars are high.
They know that tourists are going want to drive cars around to better enjoy their vacations.
They also know that they have a limited number of cars available.
To help decrease demand, they increase their rental prices.
This forces some tourists who aren’t looking to spend a lot of money on transport to find other means of travel.
This then allows the agency to have a few more cars available to those who are willing to pay a higher price.
Renting cars in tourist locations or at vacation spots is higher because there’s a lot more demand for their cars in those areas.
5. Shipping Problems
If the chip shortage wasn’t enough, then there’s also the problem with shipping that is causing supply chain issues.
During the pandemic, most people at home ended up buying their goods through online retailers.
This meant that there was an increase in exports and imports for certain countries.
The number of transport ships increased and the demand for shipping containers also increased.
This also impacted the supply of cars.
Like any other product that comes from abroad, transport ships carry cars across the ocean to the United States.
In normal circ*mstances, they dock at a port where they then go through customs.
After passing customs, trucks then pick up the cars and deliver them to their destinations.
Because of the pandemic, this process became more difficult.
For one, since there was more online shopping, it meant that more orders needed to go through processing.
It also means more trucks had to arrive to clear the port of products and deliver them.
With not enough dock workers and truckers active in the workforce, it created a slow processing situation.
Not enough shipments were passing through.
This left ships in the harbor waiting to dock at the port.
Some of those ships carried cars.
The delay meant that dealers had to wait even longer to get their hands on new stock that they could sell to rental agencies.
It made supply even more limited amid rising demand.
It also meant that dealers had to choose between selling to private car owners or rental agencies.
To encourage them to sell to their agency, rental businesses had to spend more on the cars than they normally would.
This all leads to an increased price on the rental car to cover that cost.
Renting a car is expensive because of shipping problems further complicating supply and demand.
6. Car Type
Another reason you may face a higher rental cost is that you choose a specific car type or class.
Most rental agencies have a few different car types available.
Some have standard cars while others also offer SUVs or even limos.
If you’re looking to rent a rarer type or class of car, like a limo, then you may face a higher rental fee.
That’s because the rental agency only has a limited number of these cars available.
They usually only have a few available from the start.
However, after the pandemic and after selling many of their cars, many agencies have an even smaller number of different types of cars available.
If you want to rent a sports car, for example, then you can be sure that you’re going to need to pay more.
You’d usually have to pay more, anyway, but thanks to the limited supply of cars, you’re going to face even higher rental charges.
Since rental agencies are desperate to get their hands on any car that they can provide to their clients, they’re not always fussy when it comes to the type of car either.
This means that it may take longer for them to restock certain types of cars.
That also means that the limited number is going to continue for some time.
Rental cars are expensive if you want to rent something beyond a standard car.
7. Electric Cars
There’s no question that cars contribute to air pollution, which damages the earth.
Because of that, a lot of people are trying to move away from gas-powered cars to electric cars.
Rental agencies want to support those who are making this change by providing electric cars for rent, too.
There are usually several regulations and stipulations involved with renting an electric car, but it’s possible to rent one.
The problem with renting an electric car is that it’s extremely expensive.
While you do save money by not having to pay for gas, the rental fee may be high enough to discourage you from renting one.
The reason electric cars are expensive to rent is that they’re rare.
They’re not produced as commonly as gas-fueled cars yet.
Because of that, they’re hard to get in a market where car shortages are already common.
Like their other cars, rental agencies also sold their excess electric cars.
Buying them back is proving difficult.
As a result, it leaves those looking to rent an electric car with a small number of options.
Those choices were already small to begin with.
As more people become interested in renting electric cars, the demand for them increases.
However, the supply has remained around the same because of the difficulty in buying more electric cars to fill the agency’s parking spot.
To meter out demand, rental agencies have to put a higher rental fee on their electric cars.
Car rentals are expensive if you’re looking to rent an electric car because of its low supply and high demand.
8. Insurance And Protection Costs
Besides the rental car itself, there are other costs associated with renting a car that can drive up the total price.
One of those is insurance and other protection services.
In most cases, you’ll have an option to add an insurance policy or protection coverage to your car rental contract.
This ensures that if you find yourself in an accident or something on the car breaks, then you’re covered financially.
This is ideal for people who plan on driving the car over a long distance or in an area that has a lot of traffic.
The problem is that it can be expensive if you want to get the maximum coverage.
Rental agencies charge these high amounts because they have to pay for several insurance policies for their own protection.
Since they’re loaning cars out to people, they take on some risk.
They don’t know how competent they are as drivers.
They don’t know exactly where they’re going to use the car or how they’re going to use the car.
Because of this, they pay for expensive policies that help them save money in the long run.
However, that adds to the total cost of running the business.
Since it costs more to run the business, the rental agency has to make up for the costs to generate a profit.
They add the cost into the overall price of renting a car and in certain add-on services like insurance and protection coverage, which the renters pay voluntarily.
Car rental is expensive because of the add-on services like insurance and roadside protection coverage which add to the total rental price.
9. Maintenance Costs
There are a lot of costs built into the rental price of a car.
One of those is the cost of maintenance.
Since the cars see a lot of use, they have a lot of miles on them.
While rental agencies end up selling their cars over time, they try to keep them in working condition for as long as possible.
That means they invest a certain amount of money into the maintenance of their cars.
That might include services like tire rotations, belt replacements, fluid checks, battery exchanges, and tire replacements.
All these services can cost a lot of money over time, especially when they’re paying for several cars.
To limit these costs, some rental agencies will have their own mechanics.
Even still, they need to pay the mechanics and any parts they need to do their job.
The pandemic also makes it difficult for rental agencies to sell cars like they used to.
Before the pandemic, rental agencies would sell their used cars, then buy new ones to replace them.
Since they’re unable to buy new cars to replace older ones, they’ve found themselves needing to keep maintaining their current fleet.
That means they’re spending more money on keeping their cars safe, fresh, and reliable.
Car rentals are expensive because of the cost of maintaining them.
10. Fuel Prices
A final factor that influences the rental price of a car is the price of gas.
Most reputable rental agencies will give you a tank filled with gas.
It’s common courtesy as a token of appreciation for choosing their services.
However, because rental agencies handle cars coming in and leaving every day, they have to frequently fuel them up for the next round of renters.
If the price of gas is expensive, then it becomes a costly venture to fuel up all their cars.
As gas prices increase, you can also expect rental fees to increase.
The agency has to make their money back by increasing the fee to rent a car.
Renting a car is expensive when fuel prices are high.
Conclusion
The COVID-19 pandemic led car rental agencies to sell off their excess cars to remain afloat.
However, because demand for rental cars jumped back faster than they had anticipated, many agencies found themselves with limited stock to meet demand.
Global chip shortages and supply issues have further made the problem worse.
Due to a lack of cars, the price to rent one is extremely high.
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