Simon Calder: No Iberian cheap Seats on the road this summer

The road north-east to Cap de Formentor appears to snake up from Port de Pollença in northern Mallorca like an especially tricky tract of the digestive system.

The reality of the PM-221 is more rewarding than the map: you discover one of Europe's most spectacular coastal drives. The narrow strip of asphalt teeters a raw edge of the world, where towering mountains crumble into the sparkling Mediterranean hundreds of metres below. An alluring prospect. But you could find it hard to make this great drive: this summer a holiday certainty has, like an afternoon shower on a sun-roasted road, evaporated.

There have long been three "givens" about the school holidays: prices for overseas trips will go up; the rain will come down in Britain; and you will always be able to rent a car cheaply in Spain or Portugal – the Iberian peninsula has routinely been one of the most competitive places on the planet for vehicle hire.

Not this year. While the first two inevitabilities have proved more reliable than usual, thousands of people accustomed to paying perhaps £100 for the pleasure of meandering around Iberia for a week are discovering that the supply of small hatchbacks, whether Seats, Fiats or Fords, has dwindled alarmingly.

Spain and Portugal have seen a sharp fall in visitors from the UK this summer compared with last. Even so, millions of us continue to holiday south of the Pyrenees, because both nations offer outstanding quality and value even after the pound lost a quarter of its value against the euro. In Lisbon, you can recharge for another bout of exploration with a strong and bittersweet coffee for 60c, while Spain offers the chance to stay in a magnificent historic property for less than a rey's ransom – as last week's Complete Guide to Paradors (online at tiny.cc/ylwrx) shows. The trouble is: many of us rely on rental cars to get around from costa to campo to ciudad. And this month, from coast to countryside to city there is barely a vehicle for hire.

Carl Whitaker booked a "pay-on- arrival" car with DoYouSpain.com. This is a common arrangement, with a couple of key benefits: you need not supply credit-card details until you actually pick up the car; and you can cancel any time without penalty. Unfortunately, so can the agency. Two days before Mr Whitaker was due to arrive at Palma airport for a fortnight's holiday with his family, he was told, after all, no vehicle was available. He tracked down an alternative: a Renault Clio was available – but "the cost had risen from the £197 I had been quoted to £ 843".

Mr Whitaker's experience is all too common this summer. Because there are not enough cars to go around, prospective hirers are paying hundreds of pounds over the normal rates, or being turned away.

I checked at some of the most popular holiday airports for a week's rental, starting today, of the most basic car available. At Alicante, Avis was offering a Volkswagen Golf for £751: more than £100 a day, and then only "subject to availability". At least this offered more hope than the same company's office at Mahó*airport in Menorca: "Sorry, no vehicles are available". Europcar at Ibiza airport and Hertz at Faro airport in the Algarve gave the same response. Hertz had a car on offer on around the same latitude – but 200 miles away at Málaga airport, where £472 would get you a Polo. Rental companies are making a mint from the hole in the hire-car market.

HOW DID Europe's most aggressive car-rental competition go into reverse? Stuart Nassos, managing director of the rental broker, Holiday Autos, blames the recession.

"Car manufacturers have cut the number of cars being built, therefore fewer are available", he says. "Also there is a lack of credit. The two combine to create 'a perfect storm'." His says prospective customers should book well ahead.

For this summer, that advice is too late, of course, so he suggests other strategies. "Don't always go for an airport pick up – these can get more booked up. Consider a city centre or resort location."

Mr Nassos stresses that different companies and brokers have different levels of availability, particularly in Spain where the market is very fragmented. And searching in cities off the usual summer map is also worthwhile: "Bilbao and Barcelona are less affected".

Through Spain without a hitch

Happily, both Spain and Portugal have excellent public transport. In Mallorca, the gorgeous train from Palma to Sóller is an essential component of the island's infrastructure, as well as a historic highlight. And bus 353 will get you from Port de Pollença to Cap de Formentor in 20 entrancing minutes, four times a day (not Sundays).

On the mainland, Málaga airport has its own railway station with links to resorts along the coast; and a rail line connects Alicante with Benidorm and beyond.

In Portugal, an excellent and often scenic railway line runs along the Algarve.

Without a car you can save money and relax. Even for journeys off the beaten track, taxis are still pretty good value, despite the slump in sterling; €70 buys a cab from Marbella to Málaga airport, the pretty way across the mountains.

If all else fails: hitch-hike. The easiest lift I ever got was in the city of Almería, trudging through a suburb towards the autopista with a scruffy sign reading "Murcia" tucked under my arm.

A man walked out of a house carrying his car keys. He saw the sign, and said "I'm going there; hop in".