The Associated Canadian Car Rental Operators is predicting double-digit rate hikes with 2006 model-year fleets as Canadian rental companies confront rising fleet costs. In the past, competition in the Canadian market held back rates. After 9/11, rates fell further as business and tourism declined. Though the U.S. market saw appreciation, the Canadian market stayed behind. But not for long.

"No car rental company can absorb the kind of vehicle cost increases we're seeing for the 2006 model year," said Bill McNeice, ACCRO president. "The only place to recover even part of the additional cost is through increased revenue. That will come from higher rates and higher vehicle utilization."

Fleet costs account for 45% to 55% of rental company expenses. With slipping auto sales in recent years, rental companies have been charged more by manufacturers.

Rental companies typically hand in rental cars after 7-12 months of service. As summer sales incentives have drawn buyers to the market and trade-ins to the inventory, used car demand is low. Automakers have been forced to tighten the supply of vehicle to the rental companies.

"It's a difficult thing to explain rate hikes to consumers when they perceive vehicle costs to be dropping because of highly publicized 'Employee Pricing' and other manufacturer incentives designed to reduce inventory," says McNeice. "While Canadians have enjoyed car rental bargains for several years, it won't make it any easier to accept higher rates with gas prices at record levels."