Car rental companies in the UAE have raised their rates by five to 10 per cent to reverse a decline in their earnings caused by rising costs of vehicles and maintenance.
Most major companies, which had recorded healthy profits until the inflation rate started soaring in the recent past, decided to increase the rental rate of their vehicles from January 1 by between Dh100 and Dh250 a month. Despite this, they believe the new rates remain one of the lowest in the world.
Thrifty and Avis, market leaders in the UAE, informed their clients last week that rates had been increased because of soaring inflation in the UAE. Smaller firms have also begun raising their prices and all others are about to follow suit.
“Yes, we have increased our rates by between five and 10 per cent because of increasing costs of products and services… cars now cost much more while we are paying more for spare parts, batteries, lubricants and parking space for our vehicles,” said Khaiser Pasha, general manager of Thrifty for Abu Dhabi and Al Ain.
“I believe most of our clients understand our decision as they also feel the pinch of rising costs in the country… it is only the second increase in nearly 10 years and although it appears high, the rates of car leases in the UAE are still among the cheapest and most competitive in the world,” he said.
Pasha added that Thrifty and other car rental companies took the decision in order to reverse a steady decline in their net profit over the past few years because of higher car prices, increasing costs of servicing vehicles, and pay hikes for employees.
He said the net profit of Thrifty, one of the largest car rental firms in the Middle East, has shrunk by an average 17 per cent annually over the past three years. In the same interval, he noted, the prices of some Japanese cars had soared by nearly 20 per cent because of the drop in the dollar against the yen.
“For example, a Honda Accord used to cost us about Dh59,000, but now its price is Dh71,000. It is a big increase but the rise in our rates remains much smaller than the increase in the costs of our services,” he said.
“We are not suffering losses but our profits have been eroding every year and if we do not act, then we could start making losses. Besides the higher car prices, we are paying more for spare parts, parking space, oil, lubes, batteries and other products.”
Pasha said car rental firms took the decision without consulting the relevant authorities on the grounds that the increase was reasonable. “It is a free and liberal market but we were also sensible in our decision.”
The move by the car rental companies was the latest in a series of price increases in the UAE, which, along with the other Gulf countries, has been reeling under the pressure of soaring inflation because of high economic growth and a fast depreciating dollar.