Servicing the South East Coast of Queensland

Why are Car Rental Prices so much higher during COVID-19?

Car Rental Shortages increases prices

Firstly, car rental is an industry that is controlled by ‘supply and demand’. Oversupply results in cheap prices (a situation that has, to one degree or another, existed for most of the sixteen years we have been in this industry). A shortage of vehicles for hire results in higher prices. This phenomenon is obvious during public and school holiday periods, when prices tend to be higher, i.e not discounted, as is usual in quieter times, when discounting is used to keep sufficient cashflow coming into the business.

Secondly, these ‘supply and demand economic forces have become really apparent over the past, nearly two years, as the following Covid related issues have had a dramatic effect on our industry:

  • Overheads have continued to rise throughout the pandemic – wages, leases, cost of parts, etc
  • Car prices for both new and used vehicles have risen dramatically, often between 25% and 100%
  • Vehicle shortages. People are waiting six months to over a year after ordering their new vehicles, for them to arrive. Shortages of computer chips for cars and disrupted manufacturing and delivery throughout the world have had a major affect on the ability of anyone, including car rental companies to get new stock.
  • During the first lockdown in 2020, many, if not all car rental companies sold off much of their fleet, in order to survive the Pandemic. This resulted in shortage of as much as 40% or more rental cars when they opened again.
  • Companies had lost so much money whilst closed down, then found themselves unable to source new vehicles for their fleets as things opened up again. This is still an issue today.
  • The DELTA variant of Covid-19 had a further devastating effect on the car rental industry; even here in Southeast Queensland. Unlike the lockdowns of 2020, the latter part of 2021 has been marked by an almost total lack of interstate as well as international tourism. Although Queensland has remained relatively Covid free, the borders have been closed to tourists. Tourists are the life blood of car rental in Southeast Queensland. Consequently, most car rental companies here have had very little income since Covid ravaged New South Wales and Victoria again.
  • Because Queensland has remained virtually ‘lockdown free’ this year JobKeeper and other government support was not available on the same level as in 2020, even though the borders have been closed to tourists for much of this year.
  • A number of smaller car rental companies have been unable to survive under these extreme trading conditions and have closed down for good. This has compounded the shortage of rental cars available for customers. Shortages translates into price rises, just as it does with any other commodity.
  • At various times since Covid struck here in Australia, car rental companies have experienced massive reductions in income. They have had to pay for interest on the cars they purchased, or leased, without an adequate income to service that debt. Debt was put on hold, while interest continues to accrue. Consequently, business debt has increased significantly and still has to be paid back.

During the early part of 2021, when Qld borders were open for a while aaand customers could visit from southern states and even New Zealand, demand far outstripped supply. Consequently, prices rose considerably, while at the same time most car rental companies were unable to service the demand from customers keen to travel again.

We understand that those same conditions are about to repeat again when Queensland borders reopen to states that were or still are considered Hotspots, and once again there will be more travellers than cars available.

So, unfortunately, we are going to see higher car rental prices for the foreseeable future.

We are unlikely, we believe, to see a return to the cheap prices of the past for several years; if ever. Prices, howe

Firstly, car rental is an industry that is controlled by ‘supply and demand’. Oversupply results in cheap prices (a situation that has, to one degree or another, existed for most of the sixteen years we have been in this industry). A shortage of vehicles for hire results in higher prices. This phenomenon is obvious during public and school holiday periods, when prices tend to be higher, i.e not to be discounted as is usual in quieter times, when discounting is used to keep cashflow coming into the business.

Secondly, these ‘supply and demand economic forces have become really apparent over the past, nearly two years, as the following issues have had a dramatic effect on our industry:

  • Overheads have continued to rise throughout the pandemic – wages, leases, cost of parts, etc
  • Car prices for both new and used vehicles have risen dramatically, often between 25% and 100%
  • Vehicle shortages. People are waiting six months to over a year after ordering their new vehicles, for them to arrive. Shortages of computer chips for cars and disrupted manufacturing and delivery throughout the world have had a major affect on the ability of anyone, including car rental companies to get new stock.
  • During the first lockdown in 2020, many, if not all car rental companies sold off much of their fleet, in order to survive. This resulted in shortage of as much as 40% or more rental cars when they opened again.
  • Companies had lost so much money whilst closed down, then found themselves unable to source new vehicles for their fleets as things opened up again. This is still an issue today.
  • The DELTA variant of Covid-19 had a further devastating effect on the car rental industry, even here in Southeast Queensland. Unlike the lockdowns of 2020, the latter part of 2021 has been marked by an almost total lack of interstate as well as international tourism. Although Queensland has remained relatively Covid free, the borders have been closed to tourists. Tourists are the life blood of car rental in Southeast Queensland. Consequently, most car rental companies here have had very little income since Covid ravaged New South Wales and Victoria again.
  • Because Queensland has remained virtually ‘lockdown free’ this year JobKeeper and other government support was not available on the same level as in 2020, even though the borders have been closed to tourists for much of this year.
  • A number of smaller car rental companies have been unable to survive under these extreme trading conditions and have closed down for good. This has compounded the shortage of rental cars available for customers. Shortages translates into price rises, just as it does with any other commodity.
  • At various times since Covid struck here in Australia, car rental companies have experienced massive reductions in income. They have had to pay for interest on the cars they purchased, or leased, without an adequate income to service that debt. Debt was put on hold, while interest continues to accrue. Consequently, business debt has increased significantly and still has to be paid back.

During the early part of 2021, when borders were open for a while, demand far outstripped supply. Consequently, prices rose considerably, while at the same time most car rental companies were unable to service the demand from customers keen to travel again.

Those same conditions are about to repeat again when borders open and there are more travellers than cars available.

We are unlikely, we believe, to see a return to the cheap prices of the past for several years; if ever, because costs will always continue to rise in any business. Prices are, however, likely to return to a more ‘normal’ level when adequate volumes of new cars are available for companies to purchase, and they are able to get back to making some profits again. However, leveling out of prices will probably take a few years.

We trust this article explains why your car rental quotes are increased this year. If you are booking for travel over the next few months, we suggest you get a car booked as soon as you can. Shortages will increase as fleets book out again, and as in the early part of 2021, many people may be unable to hire a car for their holiday or trip, if they delay booking in the hope of getting the very cheap prices of the past.

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Posted By Admin on 16th November 2021

Updated : 4th December 2021 | Words : 1371 | Views : 30

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