Rental car prices are soaring – will they ever come down?
Shocked by the steep price of hiring a car lately? You're not the only one. How long will rental car prices stay this way?
In 2021, we booked a family-sized SUV for a Christmas holiday in the South Island.
We landed at Christchurch Airport, picked up a late-model Mitsubishi Outlander, and used it to visit family and friends for the next 10 days.
It cost us $1,341 (excluding petrol).
Two years later and we're planning a similar holiday this festive season.
Yet the cost is far higher.
Booking the same car for the same trip from the same rental company for the same length of time will now cost us $2,135.
That's a 59% increase in just 2 years.
It’s a nationwide problem
A quick survey of Christchurch car rental companies shows $2,135 is on the cheap side, with one company wanting to charge us $3,782.99.
That's a 182% increase on our 2021 booking.
And it’s happening around the rest of the country too.
In Auckland, booking the same car over the same period from the same company would cost $2,563. In Wellington, it would be $1,969 and in Dunedin, $2,112.
Why car rental prices have skyrocketed
According to Kevin Walker, chief executive of Ezi Car Rentals, one of the country's biggest car rental companies, it’s a supply issue.
Everyone’s been struggling to get their hands on new cars since supply chain issues became a factor during Covid, he says.
"Supply through the Covid period has been a challenge.
"Our business is still subject to significant limitations on product supply of vehicles [that are] suited to our industry and customer demand."
In short, there aren’t enough suitable new cars coming into the country. There’s a queue for new cars, and rental companies are in it, just like everyone else.
Across New Zealand, rental car companies typically purchase about 20,000 new vehicles per year.
That number has shrunk to around 15,000, says Walker. Which means there aren’t enough cars to go around.
That's not all. The cost of buying new vehicles has gone up by an average of $10,000 per vehicle, driven by supply constraint, a low New Zealand dollar and new engine options (BEV, PHEV and hybrid).
Finding parts for damaged vehicles is also a problem.
"The costs of running the business have exponentially gone up," he says.
But these aren’t the only issues affecting the cost of hiring a car for my Christchurch holiday.
Do we want to use cleaner rental cars?
A cleaner, greener vehicle fleet is being posited as New Zealand’s future in a bid to curb greenhouse emissions.
At home, many are choosing to upgrade their own cars to hybrid or electric vehicles to do their bit.
A clean car discount offering rebates of up to $7015 has helped increase demand.
Yet, when it comes to rental cars, customers have concerns about renting an EV for their holiday, says Rental Vehicle Association Chief Executive Ben McFadgen.
Customers have reservations about the range of EVs, and the time and effort required to find chargers for them.
Rental car companies are doing their bit, McFadgen says, but customers don’t always want to hire an EV, so they still need to offer petrol-powered and hybrid vehicles.
Because of their emissions, those cars now cost more to buy.
“If you've got a car that's over a certain number of emissions, you [have] to pay a fee,” he says.
And long wait times are exacerbating the problem.
“It's currently six months to a year, possibly even a year and a half for some models,” he says.
More people are wanting to use them
The final piece of the puzzle? Demand for rental cars is through the roof.
“We didn't have the borders open a couple of years ago,” says McFadgen.
“Now we've got 85% of the number of tourists pre-Covid coming in this year.
“We anticipate it should be up to nearly 100% next year.”
Consumer NZ asked Walker and McFadgen if prices were higher to recoup money lost by hire car companies during Covid.
They denied this, and pointed to other factors influencing prices, including the lower number of rental car companies since Covid, and the struggle to source parts for damaged vehicles.
“People don't realise the componentry that are in things like a side mirror,” says McFadgen.
“Those things are not easy to find in a situation where you've got a supply chain challenge.”
How long will this last?
Consumers should expect rental prices to lower as supply chain issues ease.
“I would hope that we can look forward to a progressive easing of price,” says Walker.
“The cost pressures will ease, I believe, over the next 2-year period.”
How to get cheaper rental car prices
Until that happens, there are a few things consumers can do to bring down the cost of hiring a car.
For a start, consider hiring a smaller car for your trip.
Compare the cost of renting an EV with its combustible engine equivalent. Often, EVs are in less demand, so will be cheaper.
The final thing to do is plan ahead. The further away from your holiday you are, the cheaper your rental will be.
“Book your trip now,” says McFadgen. “If you leave it too late, you're stuffed.”
As for us, we’ve decided $2,135 is out of our budget for a rental car.
We’re borrowing a friend’s car instead.