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Why is car rental expensive?

Why Are Rental Cars So Expensive in 2023?

Car rental prices have surged to more than double what they used to cost before the pandemic. People spend hours waiting for confirmations on car bookings and sometimes end up with a completely different model than what they ordered.

Well, the question is, what makes renting a car so expensive right now?

Car rentals are so expensive in 2023 mainly due to shortages caused by several factors. Car rental companies sold off most of their inventory during the pandemic. A surge in demand has not been adequately met, leading to high rates. Additionally, a global shortage of microchips has slowed the production of new cars.

Read on to find out if rental cars will get cheaper soon.

Rental Car Shortage 2023

There have been reports of people paying more for rental cars than for plane tickets, only to get a run-down model compared to what they booked. What’s causing rental car shortages in 2023?

There has been a global shortage of automotive chips. During the pandemic, car manufacturers prioritized luxury car models for wealthy clients instead of cheaper models generally found in rental car fleets. 

As a result, car rental companies are holding on to their fleets for longer. The companies normally seel the cars off at around 25,000 to 50,000 miles. Due to shortages, however, there aren’t as many new cars to support selling off the older cars.

This has led to complaints from customers since the vehicles are not only older and more worn but also more expensive.

Average Car Rental Prices 2023

The average cost of car rentals has continued to surge post-pandemic. January 2023, the national average rental car rate was $56.12 per day. Three months later, it peaked at $85.87 per day in March. 

Why Are Rental Cars So Expensive Right Now? 

Cars for rent USA

The surge in rental car prices can be traced back to the Covid-19 pandemic. Here are some of the significant contributors to the high rates;

1. Global Chip Shortages 

There is an ongoing global shortage of semiconductors, the computer chips used to manufacture electronic devices.

Most of the factories that produce computer chips are in China. They closed down during the pandemic as part of government health guidelines. 

Once governments around the world lifted Covid-19 restrictions, most industries bounced back. Airplanes, smartphones, and computers all require chips to function.

Additionally, cars were in demand worldwide, but the production of these chips has not been able to match up to the required numbers. 

Coincidentally, car rental companies have had to raise their prices as new car prices rise worldwide.

2. Increased Shipping and Logistics Costs

The Covid-19 pandemic is still affecting businesses worldwide, including shipping. Freight costs and port congestions are predicted to spill over to 2024.

As more people continue to choose online shopping due to previous travel restrictions and social distancing rules, shipping has become an expensive alternative for other businesses that need the services.

Car rental companies have been affected by supply chain disruptions. In addition to car shortages, shipping costs and delays in delivery all add up to the final rental car rates that have been soaring for months.

3. Reduced Fleets

Car rental companies sold off most of their cars during the pandemic. Travel restrictions, working from home, and health measures meant that these industries had little to no activity.

The plan was to beef up the fleet numbers once travel restrictions were lifted and business resumed. However, demand rose faster than the agencies could replace their fleets.

4. Location

Rental cars are in higher demand in popular vacation destinations, airports, and significant urban settings. With price surges, renting a car from these areas can be expensive. 

Additionally, due to the high maintenance cost, most car rental companies sold off their fleets in cities or states where lockdowns were more restrictive.

Once everything went back to normal, there was a severe shortage of cars available for rent. This shortage has affected prices because the demand has not been satisfied. 

Will Rental Car Prices Go Down? 

Car rental prices
Will we ever enjoy cheap car rental rates again?

The forecast is not encouraging for the immediate future of car hires. Rates are predicted to stay high, at least until later in the year or early 2024.

With so many global factors contributing to the high rates, it is hard to say when car prices will subside. 

Microchip prices are set to come down, which will have a ripple effect on the car rental industry. However, shipping prices are set to stay soaring high well into late 2023.

This will translate into a prolonged period of higher car hire rates for the remainder of the year.

Read Also: Why is Luggage So Expensive on Flights? (Tips to Avoid Baggage Fees)

How to Get Cheap Rental Cars 

There are several ways you can get cheaper rental cars. Here are a few tips;

1. Airport Car Rentals Are Expensive

Airport car rental
Airport car rentals are usually more expensive than regular dealers away from the airport

Surcharges at airports can add a significant amount to your rental rates. When traveling to a new city, try out car rental companies situated away from the airport and save yourself some bucks.

2. Skip the Insurance

Car rental companies can talk you into getting insurance, but this usually inflates the total cost of the rental car. If you have insurance on your car, it will also cover you on your rental car.

Call your agent up to confirm. Alternatively, there are cheaper options to stay insured. Credit cards that offer car rental insurance are a great option that doesn’t require extra paperwork. 

3. Don’t Accept Upgrades

Car rental companies have certain additional services they offer to car renters. These include GPS, satellite radio, and toll passes.

With smartphones, you can access most of these services for free. You can pay toll charges with cash if you actually need to pay at all.

4. Stick to Economy Cars

You might choose the most affordable options for your needs, but the rental car companies will always try to get you to upgrade to a bigger car or newer model. They are trying to upsell to get you to spend more.

Always stick to the economy cars or the most affordable option you chose first as long as it addresses your requirements. Additionally, with gas prices soaring, economy cars are more affordable.