CORPORATE car hire rates have to rise by £5 per day if daily rental firms are to move out of the red-black border zone on their balance sheets. This is the only solution if hire firms are to offset the serious pressures on the residual values of nearly-new, ex-rental cars, according to Doug Sawers, managing director of Budget UK.

'Rates will have to go up because the cost of operating a car (depreciation, interest payments, tax and insurance) has more than doubled over the past five years, while rates have been static,' he said. Depreciation has been the biggest shock to rental companies, with industry estimates suggesting that the UK's six major hire firms lost £1,000 per car on the 70,000 cars they bought on risk during 1998.

This will lead to an even greater proportion of hire cars being sourced through buy-back arrangements, according to Sawers, who nonetheless acknowledged the 'reasonably good job' that manufacturers have done in stabilising the recently volatile nearly new car market.