Business Article - Car Hire Business - A Buying Guide
There are two important considerations to be made when considering buying a car hire business. First, a potential buyer must consider the local market for this type of service. Next, a buyer should carefully discern whether to buy an established independent business or to buy into a franchise.
In either case, the future for car hire businesses seems promising. Buying and maintaining a car is a significant expense that many people are foregoing, especially in metropolitan areas where there is public transportation that meets their daily needs. These are the people who seek out care hire businesses for those occasions when they wish to take day trips or travel further than public transportation provides for. In addition, travel to tourist destinations is as strong as ever, and tourists often require hired cars either to drive to their destinations, or to drive from airports after flying to their destinations. There are also the businesses which require frequent hired cars for special occasions, or for visiting executives who require the degree of autonomy provided by a car.
The result of this recent mainstreaming of the car hire business is that it is more viable than ever. Franchises are prospering, but not only franchises. Independent car rental businesses are also doing well, especially when they have entered into arrangements with local businesses for services, or when they have repeat business from satisfied individuals and families. Either method of operating a car hire business can succeed, and most are in fact succeeding in both Europe and North America.
The biggest single expense in a car hire business, aside from the acquisition of property for the business’ base, is the building of a fleet of cars. For a family, a car is the biggest expense we undertake after our house, and for a car hire business, the expenses fall the same way, except that they have to own several cars. They must be late model cars in excellent condition, which ensures that they will be expensive both to buy and to maintain. This is one aspect of a car hire business in which it benefits the owner to be part of a franchise; since parent companies can buy in bulk, the costs are generally lower. Independent businesses can lower their costs by buying a smaller fleet of carefully selected cars, keeping in mind that availability and selection are paramount for a car hire business.
In addition to property expenses, a car hire business owner must consider staffing needs. It will be necessary to have a certified mechanic available at all times. The mechanic, of course, must see to the maintenance of the cars, especially after the cars have been returned by the renters. Even more importantly, the mechanic must make sure that the cars are safe at all times. The owner will also have to have customer service staff to take reservations and to distribute and receive the cars as they go in and out, as well as to handle credit cards and cash. If the owner acts as site manager, there is no need to hire another manager, but sometimes the owner does not possess managerial skills. In that case, a manger will have to be hired.
Between buying and making payments on a fleet of good cars, maintaining an office and rental site, paying staff salaries, and advertising, it would seem to be difficult to make the car hire business pay. Yet there are several ways in which car hire businesses take in income, and these several income streams usually add up to profitability. The most important stream of income, of course, is through the rental fees that the business charges its customers. These will vary from business to business and from car to car. Cars with more miles are rented for less money, and newer cars with more extra features are rented for less. These rental fees also cover the depreciating value of the cars, so that when the business resells them, they are reimbursed for the decreased value of the car. Another income stream for a car hire business is through insurance. The business can sell temporary insurance policies to the renter for any accidents or damage that may occur while the car is in their possession. This service not only protects the renter from having to pay extraordinary expenses, it also protects the car hire business from being financially hurt by damage to its most important assets, its cars. One further area, which is a bit more controversial, where care hire businesses make money is through refueling fees charged to customers. Customers agree to return a car with a full tank, but if they do not, and the business has to supply the gasoline, businesses often charge as much as $5.99 per gallon. This may sound exorbitant, but covers the cost of both labor and gasoline for the business, and is easily avoided by the customer. They can simply refuel the car themselves for the much lower cost.
One benefit for the buyer who decides to buy into a franchise lies with the built-in marketing network already made available. The brand recognition of Budget, Avis, or Hertz can be its own advertisement for the business that puts up their familiar signs. In addition, there are also national reservations systems in which customer call one easily accessible toll-free number, or log onto one website, and the parent company then directs the customer to the franchise location that best suits their needs. The marketing support and the customer referral systems can be invaluable to a business owner, especially if they are just starting out and have not yet had time to establish a customer base or repeat business. Another compelling statistic is the fact tat even though half of all small businesses fail within the first five years, less than five percent of franchises fail.
On the other hand, a franchise can place stringent requirements on its operators, and give the owner the feeling that he is not in charge of his own business. A business owner trades the power of the collective for a measure of his own autonomy and independence. A local business owner, however, makes the opposite trade. He goes without the nationally known name brand and the marketing power that goes with it, and relies on his own marketing efforts to become recognized within his own community. Though this small business owner will seldom become a national franchise, he can expect to build a broad and loyal customer base that will ensure that not only does his care hire business prosper, but he himself does as well. If a buyer is considering purchasing an established independent business, he should take the time to look into that business’ reputation in the community. If the business has always operated a quality service, especially where integrity, safety, and customer satisfaction are concerned, the buyer will not have to reinvent the wheel in terms of building up a client base. That work will already have been done for him.
Another aspect of the car hire business that a potential buyer has to consider is what will happen to the cars he invested so much time and money in once they are “defleeted;” that is, taken out of circulation for rental purposes. Many care hire business proprietors open a second business side-by-side with their rental business; namely, selling used cars. The cars that served well as rentals can then be offered to the public for purchase. Some car hire businesses, in fact, find that they make more money selling used rentals than renting them, and run each business with an eye to the other one. They do not buy cars for their rental fleet that they are not confident that they can turn around and sell as used cars in a few years.
To sell cars that were previously rented, however, does take another set of plans and investments. An owner must have a plan for rotating cars out of his rental fleet, then a physical plan of displaying them for sale. In addition, while they are sitting on the lot, they will not be paying for themselves, and so a floorplan—a loan to cover car payments until the cars are sold—is often required. A business owner should be very cautious is dealing with floorplanners, however, as that industry is notorious for its pervasive corruption. The selling of defleeted cars can also be done under the auspices of a franchise; several national rental franchises also franchise used car dealerships for just this kind of partnership.
There are different ways to establish and expand a car hire business, but the future for each one is bright. Whether a buyer is seeking to establish an independent business or to work within the network of a franchise, whether he plans to simply rent cars, or to sell them as well, car hire businesses are a growing and profitable segment of the market, and usually repay their investors several times over.