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Thread: Economic Naturalist Question #4. Why do new cars costing $25,000 rent for $50 a day, while tuxedos costing only $500 rent for around $100? 
In an earlier thread, I explored why introductory economics courses appear to leave little lasting imprint on the millions of students who take them each year:
Students learn more effectively when they pose interesting questions based on personal experience, and then use basic economic principles to help answer them. This exercise became what I call my “economic naturalist” writing assignment.
When my former student John Gotte asked why rental fees are higher for tuxedos than cars, he began by noting that national rental car chains buy new cars in high volumes and thus are able to negotiate deep discounts from manufacturers.
They typically own a car for two years and then sell it for about 75 percent of what they paid for it. So their opportunity cost of owning each car is much lower than a private consumer’s would be.
In contrast, most tuxedo rental shops are locally owned and operated. Many have a rental inventory of less than several hundred suits, and annual replacement purchases are typically too small to command deep discounts.
Because there is little resale market for used suits, they are often donated or sold for pennies on the dollar to school drama departments and orchestras.
So whereas the fees charged by car rental companies must cover only about a quarter of the purchase price of each car over a two-year period, tuxedo shops must charge fees that are sufficient to cover the full purchase price of each suit.
More important, the inventory held by rental car companies tends to be more fully utilized than the inventory held by tuxedo shops. That’s because most tuxedo rentals are for events that fall on Saturdays.
A shop with a thousand-suit inventory might rent one hundred of its suits on any given Saturday, but on other days be lucky to rent even five. In contrast, a substantial proportion of a rental car company’s fleet goes out every day.
Another factor is that rental car companies often collect significantly more than their advertised rates by charging premium prices for add-ons.
Insurance surcharges, for example, far exceed the cost of providing insurance, and customers who neglect to fill their gas tanks are charged much more per gallon than normal street prices.
Finally, tuxedo shops often alter suits to fit their customers, incurring tailoring costs almost as high as rental fees themselves. And each suit must be dry cleaned upon return, which can add as much as $10 of additional expense.
In contrast, a car rental company need only hose down a returned car before it is ready to go out again.
So even though the retail purchase price of a car may be more than fifty times as high as the retail purchase price of a tuxedo, it is not so surprising that the daily rental charge for a car is often less than half the fee for a suit.
