How to start Car Rental Business

A guide to starting a car rental business.

In every city, car rental will always be in high demand. Hundred and thousands of people are either searching for “cheap car rentals” or “car rentals near me”. However, because of this high demand, car rental business  or call it car hire business is becoming more competitive. Nevertheless, if you know what it takes to operate a successful car rental business, you will be glad you venture into the business.  My first exposure to vehicle rental business was an eye opener. I worked in a marketing company. The company had multi-national companies in its clientele. When it comes to marketing, multi-national companies usually have a huge budget for that. As part of their marketing efforts, we usually hired cars or vehicles between ten and fifteen in number at a time. We could hire these cars for a period of thirty days at a stretch. By the time we finished the marketing programme, you would discover that what we were paying for vehicle rentals was almost equal to the purchase price of each of the vehicles. If you are interested in car hire business, this article will provide a guide. Therefore, in the article below, I will be sharing with you how to open a car rental business.

Choose the type of car rental business you want to start

Firstly, you need to understand car rental business model. Whether you want to start your car rental business in India or elsewhere, there are basically two car rental business models namely daily hire or contract hire. In a daily hire, the customers will hire your car for a specified number of hours. In this type of car rental business, your target customers will be travellers, business executives and those who have vehicular breakdown. In the second category, the customers will hire your car or vehicle for a specified number of days.  In this case, your target customers may include companies, people celebrating weddings, anniversaries and other important functions. Your business models and your target customers will determine the types of cars or vehicles you buy.

Read Also: Creative and Unique Business Ideas for 2016

Register your car rental business

If you want to start a car rental business, you need to register the business. The procedure for company registration may be different in various countries. For instance, if you want to start a car rental business in India, the procedure you will go through will not be the same when compared to someone that want to start a car rental business in Singapore. Whatever the process may entail, the ultimate thing is to ensure that you register your vehicle rental business. There are three major options you can choose from when you want to register your car rental business. You can register the business as a sole proprietorship. This option for the registration of the car rental business is very simple and cheap. You can even handle it by yourself if you have the time to follow through the process. That means you may not need to engage an attorney or an accountant to register the business. The major disadvantages about this type of business legal structure are; it may be difficult to seek funds from other investors and the business liability is unlimited. What this means is that is your car rental business should run into financial problems, you can be held liable for the liability of the business. If all the assets of the car rental business is not enough to pay off its debts, you may need to sell your personal assets in order to pay off the debts.

Another legal structure that is close to proprietorship is partnership. Even though the liability of the car rental business is still unlimited, at least, other people can join you to contribute to the funding of the car rental business. This means you should be willing to share your profits with others. If you want to register your car rental business as a partnership, it is advisable that you prepare a partnership deed. Partnership deed will spell out the rights, duties and responsibilities of each members. It will also provide a guide on how to settle disputes.

The third legal structure I will discuss here is a limited liability company. Just as the name implies, if you register your car rental business as a limited liability company, your liability will be limited to the amount of capital contributed to the car rental business. Also, you will have more access to capital.

It is important that you check the availability of domain name for your preferred business name. If the domain name has been taken, it is possible to buy the domain name from the existing owner especially if it is listed for sale. An example of such domain names is www.carrentalvilla. com

Develop a business plan

Having your car rental business plan prepared is very important. It will not only help you in planning, it can help you in raising funds. If you don’t know how to prepare one, you can search for car rental business plan on the internet. You will see free car rental business plan template you can adopt. This will help you in the preparation of your own car rental business plan. Your car rental business plan should cover all the key aspects of your car rental business. You need to provide executive summary of the business. Indicate the niche for your car rental business. It could be the form of enterprise car rental, budget car rental or national car rental service. If it is a new business, it is important you make it know in the business plan. If it is an existing car rental business possibly seeking for funds in order to expand the business, you need to give a financial highlight of the business. You also need to let people know how you want to apply the funds. In your car rental business plan, you will need to supply information about the key management personnel of the business, operations, sales and marketing and the financial projections of the car rental business.

Buy your fleet of cars

You should not allow the word “fleet” to intimidate you. If you don’t have funds to buy fleet of cars for now, you can start with one or two cars. It is possible to start small as a budget car rental company and grow up to become enterprise car rental or national car rental company. Also, if you have your car rental business plan in place, you can approach banks for loans. Banks can easily grant loans to people who want to start a car rental business. The reason is that the cars will also serve as security. Meanwhile, they may dictate the insurance company to use to you.

Insure your cars

Running a vehicle rental business without proper and adequate insurance is very risky. The liability you will incur in case of any accident will not only sink the business, it can force you to sell off your other properties. Insurance may seem like additional costs, but it is always advisable you take full comprehensive insurance for all the cars. Apart from your own car rental insurance premium which you will need to pay to your insurance broker, you can also choose to sell insurance to your customers too. That is, you can decide to offer cars rental service inclusive or exclusive of insurance. Major popular car rental insurance includes collision damage waiver/loss damage waiver, supplementary liability insurance, personal accident insurance and personal effects coverage.

Read Also: Types of Home Business Insurance

Marketing

If you want to run a successful car rental business, you need to market the business. Marketing needs not to be expensive.  Word of mouth can actually do the magic. Also, you should know how to network. If you can make friends with top marketing executives in different companies and also visit some marketing companies, you may never have any down moment throughout the year. If you want to make your company to appear more professional, you can create a website. With this, corporate clients seeking for car rental services can easily locate you on the internet. Also, you should not underplay the role of advertisement. Car rental companies are all over the internet with their various advertisements. You must have come across some adverts like “cheap car rentals”, “cheap rental cars” or “cheap car rentals near me”. These are what people are looking for. No matter how SEO friendly your website may be, these advertisements will always come up first in any search engine results.

Read Also: How to Create a Website Using WordPress

Service your cars regularly

The need to maintain your cars cannot be over-emphasized. You can’t afford to disappoint your customers. It is better not to take a job than to disappoint your customers. This can damage the reputation of your vehicle rental business. A word is enough for the wise.  Therefore, before you rush into starting a car rental business, ensure you have what it takes to maintain your fleets.

SWOT Analysis of Car Rental Business

Strengths

  • High quality cars
  • Reliable and competent drivers
  • Good financial resources
  • Repeat customers
  • Detailed knowledge of road networks
  • Good customer care
Weaknesses

  • Cars getting old
  • Huge overheads
  • Lack of dedicated staff
  • Drop off customers

 

Opportunities

  • Cars too expensive for individuals
  • Trends for car rental
  • Establishment of new airport
Threats

  • New entrants
  • Competition
  • Substitutes
  • High insurance rates
  • High traffic
  • Bad roads


Strengths

High quality cars: A car rental company having fleet of new cars does not have to worry about disappointments which might be caused by reason of vehicular breakdown on the roads. Also, when cars are still new, you don’t have to spend much money on repairs. You only focus on fuelling and maintenance of the cars. It will be easy for such car rental company to budget its expenses thereby making cash flow projection an easy task. If you want your car rental business to always have good quality cars, you can make it a policy to replace your cars after two years of purchase. If your drivers maintain the cars very well, you will discover that you will still make profits from the sales of cars. At the same time, this arrangement will save you costs on repairs.

Reliable and competent drivers: If your car rental business has dedicated and trustworthy team of drivers, you need to bless your star. Drivers are like engine room to any car rental company. If your drivers are bad, they can get your business into troubles. On the other hand, a car rental company with good team of reliable and competent drivers will likely succeed. However, if you want to enjoy the loyalty of your drivers, you must take good care of them.

Good financial resources: If you want to start a car rental business, you need to have good financial resources. New cars can be expensive. Used cars are not totally reliable. If you don’t want to keep spending money on repairs, it is advisable to go for new cars. If you have sufficient capital, you will be able to do this easily. If you have to rely on bank loans to buy cars, the interest on the loans may make the car rental business become unprofitable.

Repeat customers: A car rental company with repeat customers will hardly suffer slack period. Your repeat customers may be schools or churches that want to transport their members. It can also be corporate organizations that offer free or subsidized transportation to its staff members.

Detailed knowledge of your area and the road networks: Having a detailed knowledge about your area of coverage will help your car rental business a great deal. There are certain places where you can easily come across people that will need your car rental service. In the same vein, every city has specific events that usually draft traffic of people. Having knowledge of such events will help you position your car rental business to make most of the business opportunity. Understanding of the flow of traffic is also very crucial. In the morning hours, people tend to move from residential areas to business areas and vice versa in the evening. Having the knowledge of all these basic facts will help any car rental company to maximize its revenue generating potential.

Good customer care: Before a car rental company can enjoy repeat customers, there must be good customer care in place. Good customer care may entail that you respond to customers’ calls on time so that they can get to their destination on time. This is very crucial for airport drop-off customers.

Read Also: SWOT Analysis and How To Use it

Weaknesses

Cars getting old: The cost of operating old cars could be enormous. Old cars tend to breakdown more often. You spend more on fuel, oil and repairs. Above all, it can disappoint especially when you need it most. Imagine you taking a customer to the airport or for a crucial meeting. All of a sudden, the car breaks down on the road. This is better imagined! That will likely be the end of the customer’s relationship with your car rental company. The best thing to do is to replace a car any time you notice that it’s getting old.

Huge overheads: If you spend too much money on repairs and possibly on debt servicing, the business will no longer be profitable. You need to embark on cost control measures in order to reduce your overheads.

Lack of dedicated staff: If your drivers are not well motivated, you may not enjoy dedication of service from them. To worsen it, if you don’t have good financial control system, your drivers can easily syphon your money.

Drop off customers: In a situation where most of your customers are drop off customers with no guaranty of carrying another passenger while coming back, your efforts become more of mere activities.

Opportunities

Opportunities are external factors that can help your car rental company to succeed. After reading this article, I have an assignment about this for you.

Cars too expensive for individuals: Unlike before when a graduate could easily buy a car few months after securing a job. Now, car is getting out of reach of average people because of the high cost of purchase and the costs of maintenance of the car. With this, people find it cheaper to rent a car than to buy a car which they may not use at all times.

Trends for car rental: The new trends are gearing towards car rental rather than outright purchase of a car they may not use at all times. Many organizations are outsourcing their transportation to car leasing companies so that they can concentrate on their core business.

Establishment of new airport: If there is an opening of a new airport within your area of coverage, car rental business will soon experience explosive growth. People will need cars to drop them off at the airport. People coming from other places too will also require the services of car rental companies to take them to hotel or their destination.

Threats

The following can be considered as threats to car rental business:

New entrants: I mentioned that the establishment of new airport will bring more revenue to car rental companies. On the other hands, it will also attract new entrants into the business. Car rental business does not have any major restrictions placed on new entrants.

Competition: In every competitive market, it is the customers that enjoy the most. You will not be able to increase your charges even when you notice that your margin is dwindling. If you increase your price, people may not patronize you again.

Substitutes: Apart from competition, there are other public transports such as taxis, shuttle buses and government owned buses which serve as good alternatives to passengers. For example, government owned buses are cheaper and faster as they have their own separate lanes.

High traffic: In cities, we usually have many vehicles on the road at the same time. This will definitely lead to traffic jam. With traffic jam, the number of trips or the number of Kilometres a car can cover within an hour will reduce. The impact of this on car rental business is the reduction of revenue generating potential.

Bad roads: With bad roads, your car rental business may be spending too much money on vehicle repairs. It will also cause your car fleet to wear out too quickly. To worsen the case, the resale value of the cars will become next to nothing.

Read Also: Understand The Use of Porter’s Five Forces Model in Business

Assignment:

Besides the opportunities discussed above, I want you to list one or two more opportunities you can think about as comments:

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