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Mark Bower

Mark founded MoneyMaxim in 2008, with the aim of delivering an impartial and independent service. Mark is a regular money saving expert in the press and writes regular news and articles for the MoneyMaxim news pages sharing his views on banking, personal insurance and the utilities (gas, electricity, mobile and home phones, broadband and pay TV) market with customers.

Mark Bower is one of our Team of Experts

Why have car rental rates shot up in the past year? How Chips from the Far East are impacting the car hire market.

Understand why car hire prices have increased over the past year. There is a logical reason and it's not just the car hire firms being greedy.

High Car Hire Prices result from Chip Shortage

Car hire prices this year have rocketed - right around the world. In July 2021 they were over 40% up on the year before in the US, and not far behind across Europe and prices for Summer 2022 are heading to even higher levels. But why is this? Whilst it's easy to think that it's blatant profiteering by car rental companies after a torrid year this is not actually the case - we explain more.

Until the COVID-19 crisis, car manufacturers used to court car hire firms - the vast numbers of vehicles needed by the industry made them ideal for manufacturer's who wanted to have a steady number of cars coming off the production line straight into the fleets of an industry that wanted the latest models. It also provided free test drives, with some hirers deciding that they loved their rental car so much they would buy one as their next vehicle.

As a result the manufacturers would offer the car hire firms massive discounts - so much so that the rental companies could make a profit on the cars as they would be sold on at the end of the summer season at or close to the price they had paid for them.

This meant that the price you would pay to rent a car only needed to cover the costs of operating the business, paying the staff and office costs.

When COVID came along car hire firms saw a collapse in demand due to lockdowns and travel bans. They also needed cash fast. This led to them slashing fleet sizes, selling on cars they owned to generate cash. The fall in demand for new cars led to the manufacturers of computer chips stopping producing them for cars and switch to making more for products that were in high demand such as PCs needed by those working from home.

How to protect yourself from the highest car hire prices in 2022

  1. Book early through a company offering free cancellation - that way you know the most you will pay, but can always come back later and rebook if prices fall.

  2. If you have yet to book consider destination airports and car hire together - as car hire prices can vary significantly between airports. At the time of writing the cheapest compact car for 2 weeks in August at Almeria is 44% (or £330) cheaper in Spain than it is at Murcia.

  3. With car hire prices so high try to book a deal that only requires you to pay a small deposit now. It means you have greater flexibility if you want to rebook later.

Our sister company Clarify Car Hire delivers on all the above and promise to refund any customers for bookings cancelled or rebooked (prior to 48 hours of pickup) within one business day! Visit Clarify Car Hire here - you can get that car reserved today so really have nothing to lose!

Then the world started opening up - new social distancing norms meant car hire became more popular than ever among the few travellers that were about - and car hire firms sought to rapidly increase fleet levels.

But the world has changed - and now the manufacturers can not meet demand for all the cars rental firms required - and would for obvious reasons prefer to sell what cars they have through their own dealerships at close to full price.

Car hire firms have ended up having to pay much more for the cars they are buying, even having to go to local car dealerships to buy them, and carry the cost of the depreciation over the short period they would have the cars. As the chip shortage has intensified the problem has too. So the price to rent a car has ballooned.

Additionally, after the last 18 months, the financial constraints the rental firms have found themselves in mean that they are forced to run smaller fleets than they would ideally have liked. That means they have less hires to share the costs of running their business between, and that again drives higher prices.

So when will we return to normal?

This is not likely to be a short term phenomenon. It is expected that we might see some normalisation later in 2022, and a better picture into 2023. Its a problem that will only be fixed when raw material, chip shortages and car makers get get their businesses back in alignment and that is unlikely to happen overnight.

The situation has now been exacerbated further by the Russian attack on Ukraine as some of Europe's largest car manufacturers have plants in Ukraine which were making vital components and have, for obvious reasons, currently stopped production.

Our current advice though is to get your car reserved as early as you can - and then to check from time to time to see you can can find a better deal as you get closer to your trip. That way you will not be caught out, as many were last year, chasing prices ever higher as car supply got shorter and shorter

Voucher code terms - offers 50% off the initial deposit payable today up to a maximum of £50. Additional insurance is not included in this offer. Offer can be withdrawn at any time.

Image courtesy of: Chris Ried