JUANA SUMMERS, HOST:
The cost to rent a car last month outpaced inflation for other types of travel expenses, like airfare and hotels. Wailin Wong and Julia Ritchey of NPR's The Indicator explain why car rentals have stayed so pricy.
WAILIN WONG, BYLINE: One of our guides to the rental car industry is a man named Sharky Laguana.
SHARKY LAGUANA: People always say, that can't be your name. It is my name.
WONG: Sharky is the founder and CEO of a company called Bandago.
JULIA RITCHEY, BYLINE: He's also the president of the American Car Rental Association, which counts Enterprise, Avis, Hertz and Sixt among its members.
LAGUANA: Our members operate roughly 98% of all cars that are rented in America.
RITCHEY: Being the face of the industry means being familiar with all the pet peeves people write about online, from hidden fees to the reservation system that does not always guarantee you a car.
LAGUANA: We're all familiar, of course, with the "Seinfeld" joke.
(SOUNDBITE OF TV SHOW, "SEINFELD")
JERRY SEINFELD: (As himself) That's why you have the reservation.
JANET ZARISH: (As Rental Car Agent) I know why we have reservations.
SEINFELD: (As himself) I don't think you do.
LAGUANA: I think we're all super-sympathetic to that. Right? You know, you can't just say, oh, we don't have enough cars. I'll just go pick some up from the dealer. We're in an era now where we're encountering some of the realities of the business model and some of the limitations of the business model.
RITCHEY: But here's the thing. The car rental business model may not be what you imagine. The rental car business, Sharky says, is more like three types of businesses in one. So there's the renting out of the cars for one. But then there's the more critical part - fleet management. In other words, rental car companies borrow money to buy large fleets of cars, rent them for a while and then figure out a good time to sell them on the used car market.
CHRIS BROWN: Car rental companies live and die by depreciation.
RITCHEY: Chris Brown is an associate publisher of Auto Rental News, an industry trade publication.
BROWN: Car rental companies were, you know, making more money in their ability to buy cars cheaply and to sell cars for a pretty good price. And then the rental income was incremental to their profits.
RITCHEY: So before the pandemic, over-fleeting was more common for rental companies buying lots of cars so they could eventually make lots of money on the used car market.
WONG: And there's our vocab term - over-fleeting. That's having more cars than you actually need to rent out to customers.
RITCHEY: But then the pandemic happens, of course.
WONG: Labor costs rose. Supply chain disruptions meant automakers could not get the semiconductor chips they needed to fulfill orders, including orders for large rental car fleets. Chris says the supply chain issues in the car rental industry were about as severe as any out there.
RITCHEY: He says the supply chain issues have mostly resolved for retail inventory, but companies are still dealing with higher interest rates.
WONG: Another thing that's added to today's higher costs is that the fleet makeup has changed. Chris says automakers once saw rental companies as like a dumping ground for entry-level cars. Now they're pushing higher-end models and SUVs.
RITCHEY: Chris thinks these smaller, higher-end fleets are here to stay as rental car companies recalibrate the way they operate in this new era of higher interest rates.
BROWN: Now I think that the car rental companies have more discipline in the way that they buy cars, and they really understand that over-fleeting is not a recipe for higher profits.
WONG: Wailin Wong.
RITCHEY: Julia Ritchey, NPR News.
(SOUNDBITE OF GARY NUMAN SONG, "CARS") Transcript provided by NPR, Copyright NPR.
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