Since we arrived in Spain, almost two weeks ago, we’ve spent considerable time booking holiday homes, flights, and rental cars for the upcoming eight months until our last cruise ends in Seattle in May. We’ve been shocked by the cost of rental cars in New Zealand and Tasmania, which averages around US $1,200 per month. I suppose we were spoiled in South Africa, where our typical rentals averaged from US$ 500 to US$ 600 per month.

When we consider the cost of travel, we often think of flights, cruises, or hotels. However, in the past few years, another essential piece of the puzzle, rental cars, has skyrocketed in price, leaving many travelers bewildered. For decades, renting a car was a relatively affordable way to move about freely in a new destination. Now, in some cities, the cost of a modest vehicle for just a few days can rival a week’s hotel stay. Why has this happened, and will prices ever return to what they once were?

The answer isn’t a simple one. It’s a combination of supply chain disruptions, global economic shifts, evolving traveler demand, and the business realities of rental car companies themselves. Each factor has contributed to driving costs upward, and together they’ve created the perfect storm that has reshaped the industry.

The pandemic’s long shadow

When COVID-19 hit in early 2020, the travel industry collapsed almost overnight. Flights were canceled, hotels sat empty, and rental car companies suddenly faced fleets of unused vehicles generating no revenue. To survive, most major rental companies sold off large portions of their fleets. At the time, this seemed like a sensible decision—why keep tens of thousands of cars sitting idle when travel demand was near zero?

But the recovery came faster than expected. By 2021, travelers began returning in large numbers, desperate to make up for lost time. Airlines struggled, hotels filled, and rental cars became one of the scarcest resources in the travel sector. Companies that had shed their fleets suddenly found themselves with too few cars to meet exploding demand. That imbalance pushed prices sky-high, and travelers had no choice but to pay.

Supply chain troubles

In a normal world, rental car companies could have replenished their fleets quickly. But the timing was disastrous. The auto industry was grappling with its own crisis: a global shortage of semiconductor chips, critical components for modern vehicles. Without enough chips, car manufacturers slowed production, resulting in fewer new cars being rolled off assembly lines.

This bottleneck meant that even if Hertz, Avis, or Enterprise wanted to buy tens of thousands of new vehicles, they often couldn’t. Prices for new cars surged, and used car values hit record highs. For the first time in memory, rental companies were competing directly with everyday consumers for the same pool of cars—and losing. Simply put, the pipeline of affordable vehicles dried up, making it nearly impossible for rental agencies to scale up their fleets at pre-pandemic prices.

Inflation and rising costs

The past few years have also brought broad inflationary pressures. Fuel costs, maintenance expenses, insurance premiums, and labor wages have all risen. Rental car companies are not immune to these realities. Just as hotels raised room rates to cover higher operational costs, rental agencies increased their daily rates. For travelers, this translated into sticker shock, especially when combined with already scarce inventory.

Additionally, new cars are packed with more technology than ever before, touch screens, safety sensors, electric or hybrid powertrains, all of which cost more to repair and insure. That added expense inevitably trickles down to the consumer.

Changing travel patterns

Another subtle factor has been the way people now travel. Remote work has allowed longer, more flexible trips, with travelers staying weeks instead of days. For rental companies, that means cars are tied up for longer stretches, reducing availability for other customers. Similarly, leisure travelers have shifted toward domestic road trips and away from short international flights, placing greater demand on rental cars in popular destinations.

In places like Hawaii, Florida, or the American West, demand has often outstripped supply so dramatically that prices for even compact cars hit shocking levels. Stories of tourists renting U-Haul trucks in Hawaii because no cars were available became symbolic of the crunch.

Industry consolidation

The rental car industry is dominated by a few major players. Hertz, Avis Budget Group, and Enterprise control the majority of the market. With limited competition, especially in smaller cities and airports, these companies have more pricing power than ever. Unlike airlines, which are constantly battling low-cost competitors, rental agencies don’t face the same level of disruption. As a result, prices are less flexible and can remain elevated for a longer period.

Will prices come down?

This is the big question on every traveler’s mind. There are some reasons to hope for relief. The global chip shortage has eased, and automakers are gradually catching up with production. As rental companies slowly rebuild their fleets, availability is expected to improve.

However, it’s unlikely that we’ll ever return to the rock-bottom rates many of us remember from years past. Cars themselves are more expensive, labor costs continue to climb, and rental agencies are cautious about over-expanding their fleets again. The lessons of the pandemic have made them leaner and more profit-focused, meaning they may prefer to keep fleets smaller and prices higher, rather than chase volume.

What can travelers do?

For now, travelers must adapt. Booking early, especially during peak seasons, is critical. Exploring alternative options such as car-sharing platforms (Turo, Getaround), or even considering public transportation and ride-hailing services in certain cities, can help reduce costs. Some travelers are discovering that bundling car rentals with flights or hotels through booking platforms can result in better deals. Flexibility—whether it’s changing pickup locations or adjusting dates—remains a traveler’s best friend.

Ultimately, the high cost of rental cars is a testament to the interconnectedness of the global economy. A health crisis, a chip shortage, inflation, and changing travel behaviors all collided to transform a once-predictable industry. While the shock of $150-a-day compact cars may eventually fade, the era of ultra-cheap rentals is likely behind us. As with so many aspects of post-pandemic travel, the landscape has shifted, and both companies and consumers are learning to navigate the new normal together.

Photo from ten years ago today, September 28, 2015: