Why You Are Paying More to Rent a Car

Ford Motor and General Motors are downsizing and closing plants that have manufactured mostly plain rental cars. With fewer old models to buy, rental companies will have to start thinking of buying better and more desirable cars. And that would mean higher fees for the weary traveler.

Much higher it turns out. Herts and Avis Rent a Car are raising the prices and fees as Ford and GM race to match factory production to retail sales. This year, the rental companies have increased their prices for a midsize car like the Taurus by more than seven dollars to 59$ a days, says Neil Abrams, president of Abrams Consulting Group in Purchase, N.Y., which closely follows the rental car business. That follows a jump of just $2 a day during all of last year.

"PASS IT ON."

Buying more Asian models won’t ease the cost pressure for rental companies. Koreans sell more fleets but it can’t offset the price increase and the Japanese limit their rental sales. The daily rate for renting a Taurus including airport fees, taxes and insurance can cost $90. "Costs to the rental car companies have gone up dramatically in the past 24 months and are up 20% just this year," says Abrams. "You bet they are going to pass it on."

Consumers and rental firms have benefited from the outproducing demand of Detroit for years. Detroit’s Big Three offered huge rebates and 0% financing or sold discounted models to rental fleets. Workers were also made to sign their contract that states they are forbidden from being fired. This was to ensure they keep the plant going.

In few cases, carmakers gave cars away. Example, the carmaker would give a rental company a $1000 rebate to buy a car for its rental fleet. Then they would agree to buy back the car after four months at the sale price minus a depreciation fee of $250. Upon computing all of it, the rental company actually gets the car for free, says Abrams.

No Relief In Sight

Maryann Keller, an auto analyst who is also in the board of Dollar Thrifty Automotive Group says the prices now are rising and rebates are falling. Detroit is also buying back fewer used rental cars, leaving the rental companies to carry the risk of making money on the reselling of the used rental cars. Rental firms are paying for options like leather seats or better stereos. GM, for example, has cut sales to rental fleets by 7% this year. But more than 80,000 of the 700,000 rental cars GM will sell this year are equipped with sun roofs; none had them three years ago. "All of us were the beneficiaries of excess production," says Keller.

By the end of this month, Ford will close its Atlanta plant, which made about 150,000 Tauruses this year, or about 8% of U.S. rental buys. Next year GM will close a plant in Ontario that makes the oft-rented Pontiac Grand Prix sedan. Last year GM closed a Lansing plant that built the old Pontiac Grand Am and Chevy Malibu Classic. This would cost more problems for the rental firms.