Eager holidaymakers looking to take advantage of easing travel rules are being stung at car hire desks, with prices three times higher than normal.
The huge spike in charges is largely down to the computer chip shortage that is strangling the supply of new cars and has sent values of used motors soaring in recent months.
Rental firms tend to replace their vehicles every one to two years and cut back on fleets in the height of the crisis last year, but now the supply of replacement models is dwindling – and this is pushing costs sky-high for Britons yearning for beaches this summer.
A pair of This is Money readers revealed the extent of the price hikes, with one quoted almost four times the price expected for car hire in Naples, Italy, and another almost three times as much as the same week last year for a small car at Faro, in Portugal.
Car hire prices surge: Rental firms who sold much of their fleets during the pandemic to keep their heads above water are now unable to restock with new models due to the semiconductor chip shortage that’s strangling vehicle production – and now customers are paying the price
Industry insiders claim the huge leap in charges is due to rental firms reducing their fleets during the pandemic and now struggling to increase vehicle availability in-line with growing demand from holidaymakers at short notice.
Global auto makers are currently being restricted by the shortage of semiconductor computer chips required for new models, which is causing a bottleneck of zero-mile vehicles entering the market.
This chip shortage is having a wider impact on tech firms and other industries, as well as car makers – some of which have had to pause production until next supplies arrive.
A shortage of semiconductor computer chips is causing widespread production issues for car makers and wider tech firms
Europcar’s chief executive said in an interview this week that the company ‘cannot serve everyone we want to because there are not enough cars’
It means that some new car buyers are facing prolonged waiting times for deliveries of their ordered vehicles – some of which are up to a year long, according to reports.
I paid £35 for return flights to Italy only to discover the cheapest car hire was £50-a-day
Geoff Hull, 71, from Lincolnshire, cancelled a trip to Italy due to sky-high car hire costs
Geoff Hull, 71, from Lincolnshire told This is Money that the sky-high cost of a rental car for a trip to Italy has resulted in him being forced to cancel plans to travel.
He and his Italian wife paid £35 each for return flights to Naples at the end of the month to visit family, having been unable to see them since 2019.
After purchasing the flight tickets he used a car hire comparison site to research prices for a 15-day stay.
The cheapest available for a small city car (a Fiat 500 or equivalent) was a staggering £753 – a whopping £50.20 per day, before any additional charges for full insurance protection.
The last time Geoff travelled to Italy in December 2019, a Fiat 500 or equivalent rental car from Naples airport for 10 days (including over the New Year celebrations, which usually means higher prices) cost just £141.20 – that works out at just £14.12 per day.
‘We have been eager to travel to Italy for some time as we wanted to visit relatives we haven’t seen for a year and a half,’ he told us.
‘We were pleasantly surprised at how cheap the flight were, but couldn’t believe the astronomical price to rent a vehicle after we’d booked the plane tickets.
‘On top of PCR tests of £85 each before travelling, and home testing kits delivered to our home costing £199 per person on return from Italy, the overall cost would have been almost £1,400 for the two of us. Just £70 of that is the flights themselves.
‘That’s simply far too much money to pay to travel to Italy, so we have cancelled the plans entirely.
‘We won’t be able to get our money back for the flights, but that’s a hit we unfortunately will have to take.’
Industry insiders have warned the shortage is likely to continue into 2022, extending headaches for manufacturers, car buyers and other businesses.
The issue is already dramatically hampering hire firms – and at the worst possible time.
Many rental companies over the last 16 months sold off their fleets, due to the collapse in demand and their finances since the Covid-19 outbreak hit and overseas travel all but came to a standstill.
Vehicle sales were key for many hire companies to keep their heads above water during the pandemic.
However, this has now come back to bite them – and consumers – as appetite for holidays returns and demand steps up, as the UK and other countries around the world look to lift travel restrictions over the summer.
Despite some popular destinations, such as the Balearic Islands being put back onto the amber list from next week, overall travel is getting easier for many Britons.
Under new rules proposed for Freedom Day on 19 July, holidaymakers fwho have received two jabs from the NHS will no longer be required to self-isolate for 10 days on their return to England and Scotland from amber-list destinations.
Previously, anybody arriving in the UK from a nation on the amber list had to quarantine for 10 days – though they could take a ‘test to release’ on day five – as well as taking PCR tests on days two and eight.
This has seen a flood in flight bookings, as Britons desperate for a change of scenery attempt to secure a trip overseas after months at home.
But this instant spike in bookings is creating difficulties for car hire providers.
Manufacturers are said to be more desperate to deliver retail sales over other channels at the moment, prioritising individual consumers over rental car providers, who tend to order vehicles in bulk at discounted prices.
Caroline Parot, chief executive at Europcar – the largest listed car hire company in Europe – told the Financial Times earlier this week that her business and other rental providers ‘cannot serve everyone we want to because there are not enough cars’ right now.
She added: ‘People are eager to travel. If you look at the US, there are enough hotels and enough flights, but the car capacity has changed.’
This is Money has heard from a holidaymaker who looked into car hire prices this week to travel to Portugal’s Algarve and found prices had rocketed compared to their bill last year..
For the last week of August in 2020, they paid just £108 for the hire of a Vauxhall Adam or equivalent from Dollar Rent A Car.
For the same week in summer this year, Dollar is now charging – for the same vehicle category and rental period of six days – a total of £301. That’s almost three times the price quoted 12 months ago. The cheapest option from a different hire firm based at the airport was £287.
Another reader, Geoff Hull, 71, told us he had paid £35 for return flights to Naples later this month, only to discover that the cheapest rental car available at the airport would cost more than£750 for two weeks.
2020: A This is Money reader sent us an example of the huge spike in vehicle hire costs in Portugal, with a six-day rental of a city car last summer costing less than £108
Booking the same vehicle type at the same airport from the same provider for the same six-day stay in summer 2021 is almost three times as expensive
Europcar’s Parot told the FT that part of the problem was the volatile and often instant fluctuations in demand, as a result of governments making knee-jerk changes to travel rules.
Car makers have paused outputs due to chip supply woes
Work has been stopped at Jaguar Land Rover’s factory in Slovakia, where it makes 150,000 of the Defenders a year
Jaguar Land Rover and Mini are among the UK manufacturers who have had to pause assembly lines at their respective Halewood and Oxford plants while they wait for the flow of semiconductors to return.
JLR confirmed last month that its Nitra plant in Slovakia had put on hold production of the new Defender 4X4 due to the parts supply shortage.
Reports suggest customers placing orders for the Defender today will be waiting for up to a year for their hulking off-roaders to arrive.
BMW, Daimler, Ford, General Motors and VW Group are among brands that have had to either reduce or hit hold on outputs while they wait for chips to arrive at vehicle plants, causing a knock-on effect for delivery disruptions.
Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, has described the computer chip issue as ‘massively challenging’ for the industry, especially in the wake of its worst year in decades for both registrations and production during the pandemic.
‘Each time a corridor is opened the reservations are exploding and we are full in 24 hours, but then if it is cancelled they are all gone,’ she said.
In the interview, she adds that rental companies are now reverting to moving available cars across borders at short notice to supply countries deemed fit for holidaymakers.
However, this is resulting in high operation costs, which are being passed onto customers.
Other firms are reportedly resorting to buying up stock from the used car market, purchasing as many nearly-new models as they can get their hands on to boost their fleets while the chip shortage stalls new model arrivals.
That said, companies – like consumers – are now being priced out of second-hand cars, with values exceeding record levels due to the surge in demand in recent months.
Online used car marketplace BuyaCar told This is Money earlier this month that second-hand motor prices have ‘shot up to an unprecedented level’ with drivers paying more on average than ever before to secure a replacement vehicle.
The average price of a used model sold on BuyaCar rose from £13,108 in January to an all-time high of £15,399 in May, it said.
It also claims that the average price of its top five best-selling cars broke the £17,000 barrier for the first time since the website launched in 2002.
Heycar painted a similar picture, based on the values of second-hand cars listed on its website.
Since dealers reopened in April, it says the price of used models have jumped significantly.
Data from the car marketplace shows that average prices Volkswagens rose by 8 per cent in May – leaping from £19,718 to £21,296.
Booking.com’s advice for car rental this summer
If you want to rent a car this summer, the advice is not to leave it until the last minute
Prices for car rental can and do fluctuate on a daily basis – the pricing (which is set by providers) is dependent on a number of variables including demand and booking lead times.
Further amplified by the current increased demand, it’s impossible for us to predict or provide car rental prices for travellers looking to book over the course of the summer.
If you are hoping to rent a car this summer, our advice is not to leave it until the last minute and book earlier on if you can – the vast majority of car rentals with Booking.com can be cancelled up to 24 hours of pick-up, providing travellers with the much needed flexibility and reassurance they currently need.
To help save on costs, it’s also worthwhile spending some time researching your options and making sure you have the right car for you and the trip you’re planning.
It’s also worth noting that pick-up and drop-off locations can have an impact on price, so you can potentially make some savings if you can be flexible on this front.
Also be mindful of fuel policies – the most cost effective car rental policy is ‘full to full’, whereby the traveller is expected to return the car with the same amount of fuel as when they picked it up.
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