This is an excerpt from Dollar Scholar, the Money newsletter where senior writer Julia Glum teaches you the modern money lessons you NEED to know. Don't miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.
Roadtripping is an amazing experience, especially if you’re on vacation or headed toward a destination you’re particularly excited about (like a Jonas Brothers concert, to give a hypothetical example).
But it’s not worth $1,200.
That was how much Hotwire told me it would cost to rent a car for a three-day weekend when I searched last month. I’m not exaggerating — fully $1,200. That’s like a month of rent! That’s like four roundtrip flights to Florida! That’s like 600 Slurpees!
I’ve been vaguely aware of the national rental car drama for a few weeks now. The Washington Post published a particularly scary story about it, reporting on how travelers are coping with long lines, canceled reservations and skyrocketing prices during the “car rental apocalypse.” But, to be honest, I wasn’t particularly interested in the details because I wasn’t affected… until now.
Rental car shortage: What's going on?
I called Jonathan Weinberg, the founder and CEO of AutoSlash, to get the scoop. He told me that rental car companies have been dealing with a perfect storm of factors.
The issues date back to last year, when pandemic lockdowns started. People stopped traveling, and rental car companies saw a huge drop in demand.
“They were kind of in shock, and they immediately assessed their business and they realized they had to hunker down and go into survival mode,” Weinberg says. “Their largest asset is the vehicles they own or lease … So they said, ‘OK, what we need to do is sell off as many vehicles as we possibly can.’”
That’s what they did. According to one estimate from Jefferies Group, companies got rid of over 770,000 of their cars. Weinberg said they right-sized for the demand they had at the time.
And then the situation changed again.
Vaccines became widely available significantly faster than they’d predicted, and as a result “travel demand started coming back in a big way,” he adds. AutoSlash first noticed it over Presidents Day weekend. Initially, Weinberg said his team thought the high prices were an anomaly, “but it kept happening over and over again.”
“It was quickly apparent this was not an isolated issue,” he adds. “But we thought at the time, ‘OK, the rental companies don’t have enough vehicles, they'll just buy more and the problem will eventually go away.’”
Enter the semiconductor shortage. A variety of supply chain issues have led to a global chip shortage, which is making it hard for manufacturers to produce car parts and get new vehicles out the door.
Where car rental prices are spiking — and how to find deals
Long, complicated story short: Due to the limited supply, rental car companies can’t purchase more vehicles, so the prices for the cars they do have are super high. As of early August, Kayak rental car searches were up 69% compared to 2019. Prices were up 70% compared to 2019.
It was worse in certain areas. Anchorage, Alaska, was the worst offender, with the average price coming in at $195 per day. In Lihue, Hawaii, rental car prices hovered around $179 per day — a 277% jump from 2019.
“A lot of where we’re seeing the biggest increases are related to outdoorsy-type spots,” says Matt Clarke, Kayak’s vice president of North America marketing.
Travelers are getting creative in response, renting U-Hauls and taking expensive Lyfts, but those methods aren’t always convenient or advisable. The Hawaii Tourism Authority, in particular, is discouraging workarounds, writing on its website that it “does not condone visitors renting moving trucks and vans for leisure purposes.” (The message is in bold. And underlined.)
So, when is this going to end? Clarke couldn’t say. (“I wish I had a lot of answers to ‘when is this going to end’ for all things COVID-related,” he adds.) Weinberg predicted the overall problem won't ease until “sometime mid-next-year.”
In the meantime, Clarke advised me to book my rental car as far out as possible — “upwards of two months is advisable,” he says. Instead of booking my flight, then hotel, then car, I should flip the order and take care of the car first. It’ll work best if I have flexibility in where and when I travel.
“If you’re open to [changing] where you’re going, you may find better deals,” Clarke says.
The bottom line
Rental car prices have been surging because demand is high and supply is low, both due to the coronavirus crisis and the chip shortage. To mitigate it, I should book as soon as I’m even *thinking* about traveling somewhere. I should also avoid certain locations (especially those near nature destinations).
One silver lining, according to Weinberg, is that most rental car brands offer free cancellations on reservations.
“Having a pay-later reservation frees you up to continue to re-shop the rate,” he adds. “If a better rate comes along, you can cancel and rebook.”