Renting Realities

It is estimated that one of the largest insurance companies in the United States spends $41 million a day in rental car costs. Think about this: One fewer day in cycle time would save this company $41 million. Now think about all the other companies you work with as partners, and try to imagine the rental car costs when you involve all those other companies. It's a pretty unbelievable number.

Interesting, but how do rentals impact your shop?

There are generally two schools of thought when it comes to providing a rental car for one of your repair customers. You can either refer your customer to a local rental company, or you can buy your own fleet and become the rental car company. Both have advantages and disadvantages.

Partnering

Almost all reputable rental car companies will pick up and deliver vehicles to your customers. Make sure your potential partner will perform this service. Look for a partner close to your shop. Proximity is important so that your customer, your primary concern, does not have to wait more than a few minutes after notification to get service from the rental car firm.

If you have available space in your shop, explore the possibility of the rental car company becoming a tenant at your location. Nothing is as seamless as having a rental car available immediately after your customer signs the paperwork at your shop, and you walk into another office to handle the rental car. You may be able to realize some income from rent as well, not to mention the greater chance of making your customers happy.

Make certain that the vehicles being provided by the partner you choose are clean and reliable. Think of the reflection on you when you put a nicely dressed professional — or really any of your customers — in a dirty, dented, old rental vehicle. Or even worse, what would your customers think of you and your partner if the rental cars they were driving broke down? One suggestion I have is that you rent a car from your local firm without the rental car company knowing you are a shop owner/manager (basically, a "secret shopper" kind of scenario). This way you will discover first hand what kind of service a potential partner will provide your customers. The service you receive on this test is indicative of what your customers will receive.

You should understand what volume of potential business a partnership with your shop can mean to a rental car company through an alliance. It's possible to use this leverage to negotiate a reasonable shop pay rate for those occasional instances where your shop will be required to pay for a rental car. You can also demand a higher level of service for your customers if you provide a steady volume of rental customers to your partner. You may even want to consider a formal, exclusive contract with a rental provider that outlines all of your expectations, internal rental costs, number of available" free" rental days and service expectations. This practice is very common and protects both you and the rental car company.

Additionally, I would suggest you communicate on a regular basis with your rental partner's management. Schedule a regular meeting to discuss service issues on both sides, so that any potential problems can be addressed professionally before they get out of hand. Always insist on stellar customer service from your rental partner. Remember, they are you in the eyes of the customer.

Owning your own fleet

Owning and renting or giving your shop customers loaners is an immense and very costly endeavor. It does have it advantages, however. You can control the quality of the vehicle being rented by a rigorous maintenance routine. You can offer several different types of vehicles, from economy to hi-line, based on your customer. The rental process is virtually seamless, and you can directly make it a great experience for your customer. Your shop will not need to update two customers — the vehicle owner and the rental agency — during the repair process. You are in control of the reservations and can avoid having a repair appointment scheduled without a rental available. You also will be able to control the entire experience more effectively, thus helping to ensure a higher level of customer satisfaction.

Dollars and sense

Start up costs to create your own rental fleet can be imposing. They also can be economical and attractive depending on the scale of your rental fleet.

Remember, your core business is fixing cars, and I am assuming your mission is not to be the largest rental car company in the country. Use common sense and some simple calculations when deciding how big your fleet should be. I would suggest that over a period of 90 days, you track the rental car volume that you refer in your shop. During that time period, how many people that you repair cars for need a rental car?

Once you come up with this number, calculate your total years volume, using history and projected growth. With this information, you should be able to "roughly" project your rental car need and prospective income in the coming year. Again, this is a rough number but is directional and should help you determine if the reward is worth the cost.

As an example, let's say over a 90-day period, your shop referred 60 customers to your local rental agency. That is roughly 20 cars a month. In that same time span, your shop actually repaired 180 vehicles. Using these numbers, you can calculate that 39 percent of your customers rented a vehicle while having a vehicle repaired in your shop. Next, look at your cycle time for these repairs. How long are your customers in a rental on average?

If it's starting to sound like you need lots of information — that's because you do. If you have a management system, these numbers should be easy to produce. If not, you will have to compile them by hand (not fun, but necessary). You may be able to look to your insurance partners for information on your cycle time as well.

If you're considering building a rental fleet, you need to look at your history. If you have that information, try to get a more accurate percentage. If not, look at the very least at your last three quarters before making a commitment.

Let's assume that the percentages are accurate for this scenario. By doing so, we can approximate the gross revenue derived from "becoming" the rental car company. In that 90-day time span, as I mentioned, you potentially would have been able to rent 60 cars. At an average, you would normally be able to charge about $30 a day for a rental, not including optional insurance, etc. Your cycle time calculations approximate that each customer would be in a car for roughly four days. On average, each potential rental ticket, without add-ons, would total $120.

Let's assume, based on your calculations, you need and begin with a fleet of five rental cars. Each vehicle is relatively new, and costs roughly $800 a month in note payments and maintenance. That's $4,000 a month, not including insurance and major mechanical work. At $120 a ticket, multiplied by 20 cars a month, your gross income would be $2,400.

Not a very good scenario since this figure doesn't even include insurance or the cost of additional staffing necessary to run a rental fleet. We also haven't approached the liability of renting vehicles in addition to the other contracts necessary to keep your company out of harm's way.

There is a great deal more to renting a car than what meets the eye. The legalities of leasing, renting or loaning a vehicle are substantial. Do not even attempt to approach this endeavor without a serious consultation with your attorney and insurance company.

I also would suggest that if you are considering looking into building a fleet, research the process as much as possible. Scour the Internet. Talk with car rental company employees. Approach your dealer partners and inquire into purchase plans they may offer. You certainly can consider using older and less expensive vehicles for your fleet, but the maintenance costs on these types of cars probably will be higher, and you may suffer some in customer service by not offering a new vehicle for your collision customer. You may even be able to purchase late model wrecks or retired vehicles from a large rental company, rebuild them and use them for your rental fleet. This would save a considerable amount of money.

Making the best choice

I am not suggesting that you cannot operate a rental unit profitably. My opinion is if you are going to do it, your expectation should be to gain an edge in customer service and hopefully become aggressive enough to earn a profit. There are several larger repair groups that have ventured into the rental car arena and are doing quite well with it, but it takes commitment, additional staff and a sizable investment to become profitable.

I really think it is wiser to stick with your core business, and utilize the services of a reputable, professional partner for your rental needs.

Rental cars are a part of our industry and probably always will be. Your involvement as a collision repairer can be as minimal or as substantial as you feel comfortable with. Either scenario involves a commitment from you to maintain a high level of communication and organization as you strive towards superior customer service. Your market and your finances will point you in the direction you need to go.