How to Acquire an Auto Rental Company

Are you ready to expand? Buying out or merging with another rental company can be a quicker path to new revenue than opening up a brand new store—if you can avoid the pitfalls going in.

You can probably remember the days when there were eight separate, standalone national car rental companies. There are still eight separate brands visible to the public, but behind the back walls just four companies (as of this writing) own the eight brands. The companies have realized substantial savings through combined fleets, employees and support infrastructure, and have probably strengthened the industry by keeping the eight brands alive in the public's eyes.

Merging operations have worked for the large national companies. Can it also be a winning strategy for much smaller, local or regional companies? Can you strengthen your company and improve your bottom line by merging with or buying another car rental business?

Why take over someone else's business?

1. To get into a new geographic area. Opening a store from scratch in a new area can be very time consuming and costly. You need to find a suitable location that presents a good face to the public and has a place to clean and store your cars-not easy in some areas.

You will need to spend money on leasehold improvements, signs, furniture and equipment, computers, etc. You may have to deal with zoning and licensing issues. You will need to hire and train employees or take them from your existing locations.

The day you open, you will have zero business. You will face a long building process before the store is covering its overhead and putting money toward your bottom line.

Is there an existing business in the prospective new area? Would it be better for you to take it over instead of starting from scratch? In the early days of our company, we operated a small location near San Francisco International Airport (SFO), and we had dreams of opening in downtown San Francisco, an area with great tourist and local business potential. It was probably not as difficult an area as Manhattan, but close. It was too much for our limited resources, so it did not happen for the first three or four years we were in business.

One day we spotted a classified ad offering a small downtown car rental business for sale. We were able to buy it on good terms and instantly had a downtown location complete with parking, a wash bay and, most importantly, a steady stream of existing business.

2. To grow your business much faster than organic growth allows. The major companies realized significant savings by combining back room operations and fleet. Economies of scale exist in almost all businesses and a 20 to 30 percent or greater increase in your revenue might be much more valuable than the same revenue operated as a standalone business.

Buying another business in your present area could make a lot of sense. You can expect that the combined businesses will lose some existing revenue to the competition in a merger, but handled correctly the loss can be minimal. Additionally, under the right circumstances, you can capture new revenue from the merged company by offering a wider range of vehicles, newer vehicles or additional services, such as customer pickups from a wider area.

3. To get into a new market segment. Have you wanted to offer luxury vehicles or large passenger vans? Have you been looking for a way to get business from a large corporate account or government business in your area? Like a new geographic area, you can enter these segments on your own and suffer the missteps and startup labor and costs that go with it. But what if there is a business already in that segment? Would it make sense to buy this business? Those business owners have already done the work and made the mistakes that you might make.

When we bought the little downtown business, it not only had the steady stream of walk-in business because of its excellent location, the staff also had good contacts with hotels and local corporate accounts. We offered a wider range of newer and much nicer vehicles and were immediately able to increase this business.

Keep your eye on the local market and keep an open mind. Your competition is also a potential takeover target and there are many ways you can strengthen your operation by merging it with another.

CONTINUED:  How to Acquire an Auto Rental Company
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