Finding the Right Car to Match Your Rental Rate

You have the proper fleet size to match the annual rental demand curve. You have the proper fleet mix to match the rental demand by car class. Your fleet operating expenses for maintenance, repair, insurance and other factors are all in line.

Additionally, your non-fleet related expenses for personnel, occupancy, advertising and administration are in order.

Will you be profitable? Maybe yes or maybe no.

For proper fleet planning in the car and truck rental industry, the right fleet size and fleet mix serve as the benchmarks. But there is a third component that’s also important in today’s rate-competitive marketplace: paying the right price for your fleet vehicles.

The right price is achieved by acquiring vehicles whose holding costs conform to the rate constraints of each car class. Defined as the cost of having a car in the fleet that’s available to rent, “holding cost” includes the gain or loss on disposal plus vehicle depreciation, interest and lease expense.

I run profit group meetings (similar to auto dealer “20 groups”) for corporate- and individually-owned rental operations with as few as 50 cars to several thousand cars. The holding costs of the most profitable members of the group average 40% of revenue or below.

With these tips, you, too, could work toward a holding cost that is 40% of revenue.

Conforming Holding Costs to Rate

The first step is to establish the prevailing rental rates by car class and rate category for each competitor in your market. As an example, let’s look at Richmond, Va. On May 26, I surveyed nine car rental companies in Richmond for daily, weekly and weekend rates for an intermediate size car.

In the first step, I established the average daily rate for an intermediate car when looking at a weekly, daily and weekend rental. This is just a simple average of each rate category and competitor. The rates and the time periods are listed in Figure A.

CONTINUED:  Finding the Right Car to Match Your Rental Rate
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