High costs of renting a car might come back

Car rental rates have fallen after skyrocketing last spring. But will the upcoming winter tourism season again launch them to unaffordable levels?

Count on it, says Jonathan Weinberg, CEO of AutoSlash.com, a rental car price tracker.

Rates have dropped as travel demand softened after Labor Day, he said. “We’re kind of in a shoulder season with people going back to school and work after Labor Day, but prices are going to spike back up again … as Thanksgiving and Christmas approaches. By February and March next year, all bets are off.”

The dramatic price spike and rental car shortage that confounded travelers last spring was unprecedented, he said.

Vaccinations and a decline in infections unleashed a demand for travel that caught rental car companies by surprise. During Spring Break, many airport rental car lots were sold out. Advertised rates for the few vehicles that were available — even economy cars — were as high as $500 a day.

Analysts blamed the shortages and high prices on a microchip shortage that continues to disrupt production of new vehicles. During the spring 2020 quarantine, rental car companies decided to sell off large numbers of vehicles that were sitting in lots unused. But as restrictions eased and the economy came back to life, the microchip shortage prevented them from buying enough new vehicles to meet the renewed demand.

Average rates remained above $100 a day over the summer, particularly in Hawaii and in Northern cities close to traditional vacation hot spots. “We called it Carpocapalypse or Carmegeddon,” Weinberg said.

Nationally, the average daily rental rate peaked at $120 at the end of June, then drifted lower through the end of August — possibly reflecting the delta variant’s effect on air travel, sad Adit Damodaran, an economist with Hopper.com, a travel booking site. “When air travel demand or hotel demand decreases, demand for rental cars decreases as well,” he said.

If you wait too long before the holidays to rent a vehicle, you might find yourself out of luck or paying exorbitant prices, Weinberg said. He recommends booking long in advance, but not prepaying. That way, if prices happen to fall, you can cancel and rebook at the lower rate.

When and if prices start drifting back to pre-pandemic rates will depend on when automakers are able to resume normal production levels, Damodaran said. And that will depend on when microchip production normalizes, he said.