While air fares recently plummeted for many summertime travelers, car-rental rates are taking off.
Hertz, Avis and National during the past few weeks have raised their daily rental rates by $3 to $5 in most major U.S. cities, and competitors such as Budget are expected to follow suit.
Hertz, for example, charges $38.99 daily to rent a midsize car at San Francisco airport on weekdays (based on availability), up from $34.99 previously.
The increases are not going unnoticed by travelers. In some cases, they complain that the cost of a weekly car rental is more than airplane tickets purchased during the recent 50-percent-off sale by major U.S. airlines.
These are the first widespread price increases in several years for the car-rental industry, a cutthroat business that has suffered seriously during the nation's economic slowdown.
Rental companies blame the new price increases largely on recent decisions by automakers such as General Motors and Ford to curb heavy discounts on fleet sales to the industry.
Still, the automakers may not gain a windfall by charging car-rental companies higher prices. That's because they hold major stakes in the rental business. Hertz, for example, is 49 percent owned by Ford, and General Motors owns a majority stake in National. Chrysler owns several car-rental companies, including Dollar and Thrifty.
Discounts on rental fleet sales -- typically $400 to $1,400 per car -- saved the rental-car industry $300 million a year in capital costs, industry analysts estimate.
"Ending these incentives will put a real strain on our industry," says a Hertz spokesman. Hertz, the nation's biggest car-rental company, buys about 250,000 cars a year and pays roughly $12,000 to $15,000 for each one, he estimates.
This summer, the industry can afford to pass on some of the higher costs to consumers because rental cars are in high demand.
Eighty percent of car-rental business comes from airline passengers, and the half-off air fare sale has led to record bookings for Hertz, Avis and National.
But rental companies could suffer at the end of the summer travel season when they discover it's tougher passing on their added costs to consumers, analysts say.
Despite the recent price increases, car rentals still are reasonable, industry executives contend.