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Demand Outpaces Supply for Rental Cars

Rental car prices have skyrocketed, surprising some travelers who are also finding vehicles hard to come by.

In some high demand locations, rental car costs exceed $300 per day.  Some of the worst regions of the country, such as southern California or Florida, saw March rates exceed $500 per day.

Even if customers are willing to pay these rates, they may find it impossible to get a vehicle, due to pandemic-related shortages.

Video Spotlight: 

This post is based on the Autoweek article, Here’s Why the Rental Car Shortage Isn’t Going Away Anytime Soon, by Jay Ramey, April 6, 2021; the KOAT article,  Need a rental car? They might not be so easy to find, by Shellye Leggett, May 26, 2021; and the YouTube video in the Spotlight. Image source: Blue Jean Images/Alamy Stock Photo

Discussion Questions:

1. What key factors account for the lack of rental car capacity?

Guidance: Early in the pandemic when the nationwide lockdown was in place and traveling ground to a virtual halt, most rental car companies sold off at least a third of their fleets in order to reduce overhead and capacity.  Further sell-offs continued through March 2021, as travel restrictions and wary travelers curtailed rental car demand.

At the same time, most rental car companies cancelled their orders for new fleet vehicles.  In Hawaii specifically, thousands of rental cars were sent off its islands, and companies there cannot easily move cars around from one area to another to help cover demand as is done in other parts of the country.

2.  What other capacity issues are at play in this situation?

Guidance: Capacity is not only a function of how many cars a rental company has.  Staffing is an issue as well.  Many rental car workers were laid off as business slowed, and they have yet to be hired back to their full ranks even as demand for vehicles is increasing.  This is resulting in longer lines and wait times for customers who are trying to pick up or return vehicles.

Some rental car companies are wary of rehiring workers and purchasing new cars too quickly in case further setbacks or slowdowns occur, fearing overcapacity and the accompanying crippling costs.

In addition, since many rental companies cancelled orders for new cars from automakers through the end of 2020, car manufacturers changed their own production plans in response.  In the second half of 2020, when auto production came back online after shutdowns, some car makers changed their production schedules to make cars for the retail market instead.

3.  How long are the shortages forecast to continue?

Guidance: Due to the shortage of new fleet vehicles, rental car shortages and high prices will likely continue at least through the summer of 2021.  The shortages will be exacerbated by forecasts for a sharp uptick in summer travel as pandemic-related restrictions loosen and pent-up travel demand hits many popular destinations.

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