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Why rental car rates are driving up

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As rental agencies struggle to balance budgets, finding a deal – or even a vehicle – can be a challenge

‘Airlines used to be the most expensive part of my trips,” says Roman Bodnarchuk, the chief executive officer of realty marketing company N5R. “Now, the car rental is costing me more than the airfare.”

On the road about 200 days a year, Bodnarchuk – whose business is based in St. Augustine, Fla., and Muskoka in Ontario – keeps a steady eye on travel expenses. He notices that though airfares and hotel rates have been going down, rising car-rental fees are cancelling out the savings. Prices for the full-size cars he usually rents – luxury sedans, the sort aimed at business travellers – have risen as much as 100 per cent over the past two years. The inventories are changing too. Bodnarchuk says he will regularly show up at major airports such as LAX to find no cars, or only older cars, on the lot.

He is seeing the symptoms of a sector in crisis. Though it’s not discussed as much as the situation in the air, the car-rental business is struggling during this recession – agencies are squeezed so tightly they can no longer maintain enough supply to meet demand. So rates have risen, and business travellers have been paying the price.

This summer was particularly bad. “A lot of markets in Canada would have sold out; you couldn’t get a car,” says Bill McNeice, president of the Associated Canadian Car Rental Operators. “That’s a new phenomenon.”

And it’s not the only one. “It wouldn’t be uncommon to see a rental car with 30-, 40-, 50,000 kilometres on it today. You wouldn’t have seen that two years ago.”

The problem, McNeice explains, began about four years ago, when North American auto makers started feeling the crunch.

Rental agencies used to be their biggest customers, buying 100,000 to 120,000 cars a year in Canada and keeping them for six to eight months before selling them at depreciated rates back to the manufacturer, which would then resell them. As demand declined, the Big Three- forced to compensate -started demanding steeper depreciation rates from rental companies. New cars just ended up being too expensive.

It took a while for this to shake out, but for the past 18 months the rental-car industry has been almost wholly dependent on what it calls “risk cars” -cars rental agencies have purchased outright and have to sell when they’re done with them. This means they’re buying fewer cars and keeping them longer in an attempt to stay in the black. “Everyone has … done what they can on their expense side, running with fewer personnel than ever, and even closing a lot of locations,” McNeice says.

Frequent renters have come up with various short-term solutions to sidestep the problem. Adriaan de Vries, an information technology manager with Bruce Power near Kincardine, Ont., has taken to using Hotwire to find the best price going and then having his usual agency match it. Others, like Alain Daoust, a product manager for Tri-Tex in St-Eustache, Que., have abandoned brand loyalty. Now, Daoust just checks prices online and goes with the cheapest.

For his part, Bodnarchuk has found that as more and more people want to rent smaller vehicles, prices for SUVs have dropped. “This weekend, I got an eight-seat Expedition for the same price as a full-size car,” he says. “I don’t know if that’s the best thing for fuel economy, but I’m more likely now to rent an SUV.”

It’s definitely cheaper than his usual full-size luxury car, he adds, “even with the extra gas.”

But what about the long term for the rental-car industry? McNeice says the change is permanent, and there’s only one way to make sure you get the car you need: “Book early and pay more.”

Special to The Globe and Mail

Do you have feedback or business travel questions? E-mail roadwork@globeandmail.com.

Follow Road Work on Twitter @BertArcher.

CTVglobemedia Publishing, Inc

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