No reason! Just, "Thanks anyway. We will be renting a car." Period. No response to further discussion, except maybe 'we are fine' or 'that's what we choose to do.' (And offer to pick up Sis to save them the trip, in this case.)
The more reasoning you do, the more the inlaws will try to talk you out of it.
Voice of experience. Start early with this and the sooner they will get over it.
Of course, it is important to be extra nice and appreciative when you do let them host.
However, in our OP's case, explaining the reasons meant that there was an alternative solution that made EVERYBODY happy. So I think the lesson is, giving the logical reason is a reasonable thing to do. Reasonable people will react properly (the DH's parents did).
When people get unreasonable, then you revert to "no reasons, this is just how I'm going to do it," and you give them time and space to get over it all on their own.
Probably you are right. That is why I included the bolded. I tend to get my hackles up and dig my heels in when I feel coerced into something I really don't want to do. I had to in Lucas's family.
(The edit was to bold what I had written earlier.)