Fleets are being warned that they are likely to see a significant rise in car rental costs over the next 12 months.
According to Avis, a combination issues will force all rental suppliers to pass on their increased costs to customers.
“Car costs to rental companies have risen considerably over the past 12 months and look set to rise further in 2008,” said Paul Hainsworth, Avis fleet director.
“In addition to the credit crunch restricting demand for new cars, the weakening of the pound sterling against the euro - the currency of choice for many manufacturers - is significantly reducing margins for carmakers.
"They are already increasing their prices and may look to further restrict supply to the rental market, which some car makers are already doing.”
The changes to the Vehicle Excise Duty (VED) bands for new cars will also see another cost that rental companies will pass onto their customers during 2008 and 2009.
While Avis is the first to confirm that it is planning price increases for its fleet customers, it is expected that others will follow suit.
“There is not doubt that car prices have gone up a lot in the past 12 months, used car values are being hit hard and the pound to euro exchange rate is weak,” confirmed Michael McInerney, fleet operations director of Europcar UK.
“…there's no argument that the cost of car rental is ridiculously cheap and this is compounded by competition in the marketplace.
"The survivors will be those that innovate and respond to the changing needs of their customers and the marketplace as a whole.”
The British Vehicle Leasing and Rental Association (BVRLA), which represents all the major rental companies, confirmed that its members were facing particularly challenging times.
“There are a number of market forces that could lead to an increase in rental prices over the next two years.
"Initially there is a short-term pressure from manufacturers increasing their prices and reducing the supply of new vehicles into the rental market,” said John Lewis, BVRLA director general.
“This will then be coupled with the inevitable reduction in residual values as a knock-on from of the increased cost of consumer credit.”
However, while fleets appear certain to be hit wit higher rental costs, Mr Lewis said rental companies will also be making significant changes to their fleets and their operations.
“I think that in this new environment we will see rental companies operating a higher proportion of low emission cars in their fleets,” he said.
“We may also see the operating period of the average rental car extended to eight or nine months as our members look to soften the impact of falling residual values.”