Summer Car Rental Savings: Avoid Sticker Shock

July 9, 2010— -- Have you attempted to reserve a rental car recently? If so, chances are you were surprised by the projected cost. Due to a variety of market factors, the past year showed major increases in rental car prices, which have remained unchanged into this summer.

Don't fret, however: with some patience and planning, you should be able to find an affordable deal.

Market Forces at Work: What's Behind the High Prices?

"Last year, car manufacturers lowered or, in some cases, stopped production of vehicles," says Clem Bason, president, Hotwire Group. "New vehicles became scarce for both the manufacturer's dealer network and rental agencies, which often had to wait unusually long for the delivery of new vehicle orders. This caused prices to increase substantially. "

This year, demand is returning. Car manufacturers are producing more. And car rental companies are purchasing cars as well — growing their fleets. But it's important to note that everyone involved is being cautious. They are not producing or buying cars ahead of consumer demand, which can stall car prices from falling." Another major factor driving up the cost of rental cars is the shift in fleets from program vehicles to risk vehicles.

"Program cars are individually negotiated bulk car purchases made by a rental agency with a guaranteed repurchase price in place from the manufacturer," says Bason. "Once returned, the manufacturer then handles resale of the used vehicles. Program cars shift the risk off of a rental agency and allow them to maximize the revenue associated with each vehicle while they have it, without regard to the resale value. So often, they would cut prices significantly to keep vehicles rented and on the road.

"Risk cars are not returned to the manufacturer. The rental agency purchases them and then they are responsible for resale. So agencies are very much aware of the mileage of the vehicle and how the mileage impacts resale value. In these cases, there is no incentive to cut prices deeply in order to rent the vehicle. Rather than discounting too much, the agency may choose to keep the car on the lot and mileage low, increasing the overall resale value."