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6 Signs You're Ready to Rent

June 2010, F&I and Showroom - Feature

by Jon Dahlquist

If you’ve been in the industry for any length of time, I’m sure you’ve heard about the obstacles, risks and opportunities associated with an in-dealership rental operation. Not only can it create a profitable and convenient service for existing customers with little or no increase in fixed operating costs, but a rental operation also can provide a steady supply of quality cars for your used-car department.

The first step is not to order a fleet of cars. Establishing a rental operation involves multiple departments, the purchase of equipment, uniforms, supplies and, possibly, more staff. Above all, it requires planning. And by the time you’re done, you could be looking at an investment of $30,000 to $500,000, or possibly even more. So, before you start spending money, here’s a step-by-step guide to evaluating whether a dealership-based rental operation is right for your store:

Step 1: Gauge the Support of Your OEM or Regional Distributor

Most manufacturers give dealers preferential access to vehicles and special programs to help build their rental fleets. Some programs are comprehensive — offering uniforms, training, signs, forms, inventory financing, policies and procedures — while others offer a brand name, some cursory training and endorsements of software providers and insurance companies. Whatever your manufacturer offers, take advantage of it. There is no point in creating a program from scratch if you can adopt an existing and proven program.

It is, however, important that you meet with your manufacturer or distributor rep to go over his or her company’s program. Just make sure to ask for a copy of the program’s operating manual before you invite the rep to lunch. A careful review will give you dozens of questions to ask, and the answers will trigger even more questions. By the time you’re done, chances are that you will know more about the program than the rep.

Now, just because your manufacturer offers a rental program doesn’t mean it’s the right program for you. Some programs may be too limited, particularly for small-town dealers. Do you see 12- and 15-passenger vans as key components in your fleet? How about conventional 20-foot trucks or utility trailers? If your manufacturer only allows “own-brand” vehicles in the fleet, the program may be too restrictive for you.

You also have to figure out whether you intend to rent used vehicles. Some manufacturer programs only allow new vehicles in the fleet. There are other considerations you need to make. For instance, will there be a great deal of seasonality in your needs? Do you see yourself adding a good number of vehicles to meet a short-vacation rental market? Or do you see yourself keeping some vehicles in the fleet for extended periods, perhaps as long as three or four years?

Some programs have strict limits on minimum and maximum time in fleet. This may prevent you from adjusting your fleet size as quickly as you might like. Major national rental companies have the ability to move their fleet around to meet seasonal demand in different regions; you won’t have that flexibility. 

One thing you really need to discuss with the manufacturer’s rep is the issue of selling a collision damage waiver. Along with fuel sales, this revenue source is a major factor in the profitability of many rental operations. Some manufacturers are indifferent while others simply won’t allow such sales. Regardless of their stance, you need to understand the rules before you select a program.

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