Thanksgiving Travel
David Goldman/AP

The price of renting a car -- often the American traveler's transportation of choice -- has risen substantially in recent times.

Ponying Up in Portland

An August survey by CheapCarRental.net found that the average daily rate for the cheapest available rental car in many cities was much higher on a year-over-year basis. For example, the most expensive city was Portland, Oregon, with a $111 rate, while in the car manufacturing capital of the country, Detroit, it stood at $90, and in Denver it was $88. Rewinding one year, CheapCarRental's survey had a rate of $86 for Portland, $55 for Detroit and $65 for Denver.

The blame can be laid at the feet of the major rental companies. Avis Budget Group (CAR), for example, in its most recently reported quarter, lifted its U.S. rates by around 4 percent, excluding its budget brand Payless and short-term rental subsidiary Zipcar. Such raises seem to be a habit for the company these days -- in the previous quarter, it advanced its U.S. pricing by 2 percent.

Given that, it's no surprise that the company's revenue advanced 10 percent on a year-over-year basis to $2.2 billion in that most recent quarter, while net profit grew a robust 28 percent to $74 million.

The other big publicly traded auto lender, Hertz Global Holdings (HTZ), saw a nearly 20 percent pop in revenue in its fiscal 2013, with top line rising to $10.8 billion.

This, despite a heavy slate of recalls from the industry's big suppliers. So far in August alone, General Motors (GM) has recalled in excess of 380,000 vehicles. Meanwhile, in the same month, Ford (F) began the recall of 83,250 of its cars across several models.

Fewer Cars in the Parking Lot

Behind the higher bills and fatter profits is consolidation. With fewer competitors, of course, there's less pressure to offer attractive prices.

Avis Budget Group gets half its name from the Budget chain, acquired in 2002. Also under its spreading wing are more recent acquisitions Zipcar and another (relatively) low-cost renter, Payless.

Anyone who thinks that competition should be strong and lively thanks to the presence of midmarket names like Enterprise Rent-a-Car, National and Alamo had better guess again. All three stalwarts are part of the same company, privately held Enterprise Holdings.

According to Auto Rental News, in 2013, Avis Budget Group, Hertz Global Holdings and Enterprise Holdings combined had roughly 1.8 million rental cars in service in the U.S. -- 93 percent of the total. The three heavyweights commanded "just" 87 percent of the domestic fleet in 2012. Not coincidentally, back then Dollar Thrifty Automotive Group (acquired that year by Hertz for $2.3 billion), Zipcar and Payless were nearing the end of their tenures as separate, competing firms.

Three Kings

This basically makes the domestic car rental market an oligopoly, a fact which is not lost on federal regulators.

In the wake of Hertz's Dollar Thrifty deal, the Federal Trade Commission attempted to dilute that consolidation a bit. The commission ordered that Hertz divest Advantage Rent a Car, a smallish brand it bought in 2009. The company dutifully complied, but Advantage soon filed for bankruptcy.

Outside of that, there hasn't been too much action on the regulatory front, so it looks like the three kings will continue to rule. This dominant position has been noted by the market, with investors bidding up Avis stock by a powerful 70 percent so far this year. Hertz has seen only a modest rise, but this may be due less to fundamentals than deep-seated accounting issues delaying the release of quarterly results.

Accelerating Forward

That's the situation on the road now, but what about the future? There are some cautiously optimistic indications that price hikes might soon level off, at least in the near term.

In their latest Global Travel Price Outlook, the Global Business Travel Association and Carlson Wagonlit Travel estimate that in 2015 U.S. car rental prices will remain at the same level as this year.

But that might be only a brief stop at a red light. At the moment, the business is dominated by only a handful of monster companies whose price lifting has revved up their results and (in the case of Avis) stock prices. That light will very possibly change soon, after which renters might start paying even more.

Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford and Hertz Global Holdings. The Internal Revenue Service is encouraging investors to support America's growing energy renaissance with a tax loophole that's explained in a new special report, "The IRS Is Daring You to Make This Investment Now!" Try any Foolish newsletter services free for 30 days.


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12 Comments

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simon645

Let me add an anecdote. Flew into Boston headed to Braintree. For me to pick up the car and return it to Logan for 5 days was $760.00. So I took the "T" to Braintree for $6.00. The next morning Enterprise picked me up at my motel and I got my rental. I returned it to Logan like I had originally planned. The price $348.00. Thats not just a few dollars difference. So for whatever reason when you pick up a rented car at an airport the price is more than double. I would advise anyone to seek an alternative when possible. The Boston example is remarkable.

August 28 2014 at 12:06 PM Report abuse +2 rate up rate down Reply
simon645

Kind of pricey, no doubt. However when I rented a car in March I noticed how many employees it took to put me behind the wheel. First of all, the inventory. Each car rental agency has to have a fleet. Then they have to maintain them. The need a location with a substantial lot, offices, counter space, car washing facilities, licenses, pay the taxes and fees. A staff of people to assist the renters etc.And of course the payroll itself. Add in all the other amenities like telephones, office furniture, advertising and many things I can't think of.
I thought to myself how are they actually making money. But the bottom line is of course, paying $100 per day to rent a car is a dent in the wallet. Just sayin'.

August 28 2014 at 11:58 AM Report abuse rate up rate down Reply
gidsle

The rent-a-car co's have learned from the theme parks. If you're dumb enough to pay $100.+per person/day admission, you'll probably pay about the same for a car - and buy for the gas, too! (If you stay at a hotel on-site, they'll usually pick-up/deliver you to the airport.) HTZ is trying to get its stock up to "investment grade" so they can pay dividends to the insiders who own/have options for millions of shares, but shakey accounting (3yrs. earnings had to be re-stated) procedures slowed that down.

August 28 2014 at 11:09 AM Report abuse +1 rate up rate down Reply
amosbyrd

If breaking them up does not work, then the only other alternative for the Government to maintain a key US market is: REGULATION. Price setting for all 3 of these companies. Unfortunately, it's the only way to keep markets fair and open. That's what happens when the Government doesn't enforce the anti-trust laws in the first place. We get price fixing markets, or Government intervention and Regulation. Neither one of which is a free market. Massive enforcement of the Anti-trust laws is the only way to really protect the free enterprise system in America.

August 28 2014 at 10:03 AM Report abuse -1 rate up rate down Reply
rweiner45

I just rented a car at West Palm Beach airport for 16/day , 23 including taxes and fees.Granted we are talking late August in S Florida. I am sure that the same car would be at least triple that in February.

When one considers that it can cost 200 or more to rent a 500 tuxedo for an evening paying even 100 a day to rent a 20-25k auto doesn't look so bad.

August 27 2014 at 8:45 PM Report abuse rate up rate down Reply
Milagros

I can get cars at Hertz (JFK airport) for $20 or less/day during the Fall and Winter (and maybe early Spring). It just goes way up in the summer

August 27 2014 at 7:06 PM Report abuse rate up rate down Reply
PALMDC8

Dont ever rent a car at Pittsburgh airport. The taxes are the same as the rental. Democrats.

August 27 2014 at 7:01 PM Report abuse rate up rate down Reply
scoefield

Uber and Lyft have plans to take their car sharing model commercial. When this happens and chances are it will, all of these sad rental car stories will just go away.

August 27 2014 at 6:27 PM Report abuse +1 rate up rate down Reply
napajack

Thr rental car companies generally charge a fair price. It's all the bullshit taxes and fees that make car rentals so expensive. When you add up all the airport fees, local, state and other taxes, stadium / sports fees, etc., it's often more than what the rental car company charges.

August 27 2014 at 5:08 PM Report abuse rate up rate down Reply
1 reply to napajack's comment
tom.wilson31

Yep, check the cost to rent when renting at the airport……. Rent cars have become a catch-all tax.

August 27 2014 at 6:16 PM Report abuse +1 rate up rate down Reply
The Porter Clan

When renting a car recently in Denver, the rate went up an additional 60% because of local fees. So I don't hold the rental car company for that. Their rate was reasonable up until the government took their share.

August 27 2014 at 5:05 PM Report abuse -1 rate up rate down Reply