August 26, 2005

Car rental rates to rise due to higher vehicle costs

Kitchener, Ontario – Canadian car rental rates are poised to jump as rental companies face steep increases in costs from automotive manufacturers, according to Associated Canadian Car Rental Operators (ACCRO). The association is predicting double-digit rate hikes this fall as 2006 model year vehicles are introduced into rental fleets.

Competition in the Canadian market put rental rates on a downward curve, and fell even further following September 11, 2001, as business and pleasure travel declined in the wake of terrorist attacks in the U.S. Some rate appreciation has taken place in the U.S., particularly this summer, but Canadian companies have not followed suit. The association says this is about to change.

“No car rental company can absorb the kind of vehicle cost increases we’re seeing for the 2006 model year,” says Bill McNeice, ACCRO President. “The only place to recover even part of the additional cost is through increased revenue. That will come from higher rates and higher vehicle utilization.”

Fleet costs represent 45 to 55 per cent of rental company expenses. With residual values for domestic vehicles slipping over recent years, automotive manufacturers have been forced to increase depreciation charged to the major daily rental customers. As well, manufacturers are reducing the volume of factory guaranteed buybacks to the daily rental industry, making fleet supply another concern.

Manufacturers generally take back rental cars after 7-12 months of service and sell them at dealer and public auctions across North America. But with powerful incentives for consumers to purchase new vehicles, used car demand is low and manufacturers are tightening supply of vehicles to rental companies.

Cendant Corporation, parent of Avis and Budget, has announced published rate increases in the U.S. of US$5 per day and US$20 per week, effective September 10. It will also raise corporate rates by seven to eight per cent this fall. Dollar Thrifty Automotive Group has also raised its rates by five to ten per cent.

“It’s a difficult thing to explain rate hikes to consumers when they perceive vehicle costs to be dropping, because of highly publicized ‘Employee Pricing’ and other manufacturer incentives designed to reduce inventory,” says McNeice. “While Canadians have enjoyed car rental bargains for several years, it won’t make it any easier to accept higher rates, especially with gas prices at record levels.”

Connect with