Nikko will be packed, packed, PACKED! like all tourist sites during Obon.Please DONT get a car - The Tokyo to Nikko route is like one big bottle neck, thet gets more and more jammed as it nears Nikko, and esp around the lake.
Sadly you will just have to be prepared for lots of people. I would go with the train option. You might have to stand, but at least you will not be stuck in traffic. You probably wont be able to get a hire car now anyway - sold out for Obon (probably)