Budget Rent A Car of Harrisburg, Pa., a Budget licensee, retails 25 to 30 vehicles a month from its lot next to the rental office. The company leaves its retail units plated, which allows them to be rented if needed. This works especially well as a no-pressure test drive, says Solomon Cramer, president.
The average car’s lifespan has reached a record high of 11.4 years. Imagining the average car’s depreciation over that time might look like a theme park water slide — there’s a steep drop in year one, followed by a much gentler angle for the rest of the ride.
Car rental operators generally take it as a business fact of life that they accept the steepest part of the slide. However, one way to avoid that hardest depreciation hit is by fleeting with used vehicles.
Compared to fleeting with new vehicles, the result is lower capitalized costs, lower monthly deprecation and lower monthly payments.
Nonetheless, running used vehicles won’t satisfy every rental situation. The practice should be considered in the right scenarios and with the proper fleet planning.
When does it make sense for a rental company to fleet with used vehicles? It could satisfy a number of needs, such as access to specialty units with limited availability, the ability to fleet immediately or to grow fleet quickly at reduced costs.
Used units can come in handy when utilization may be steady but not optimal, such as a company that needs to deliver materials once a week, schools, camps and churches that need shuttle vans for regular events or for short demand periods such as seasonal floral delivery, contractor jobs or visiting employees on assignments.
“That’s where used comes in, because you have lower costs,” says Joe Lyons of Marple Fleet Leasing, a provider of leasing, remarketing, sales and fleet consultations to the rental industry. “That used van is costing you $350 a month instead of $500 a month for new.”
Local market rentals are good for used because those renters don’t rack up mileage like business travelers or summer vacationers do. Keeping miles low helps the rental company remarket those used units while they’re still under factory warranty.
Used units work particularly well for replacement rentals, especially when the transaction is handled through an insurance claim. “Because the customer is getting a car ‘for free,’ he’s going to be less discerning if the car has 35,000 miles,” Lyons says.
But this is in contrast to the airport business traveler. “When the mileage parameters changed (during the Recession), there was a huge pushback with business travelers,” Lyons says. “The ‘gold’ customers are more concerned with the three business calls they’ve got to make that day and whether the car is going to break down on them.”
Who Sells Used?
Used vehicles for rental fleets come from a variety of sources. While auctions are an obvious choice, many major rental companies (and some independents) regularly sell direct to the secondary rental market, as do some leasing companies. This direct sale has the benefit of avoiding auction fees for both the buyer and seller.
Brokers are also a source of used vehicles. Though independent, some are known to buy from a particular rental company or other specific companies with vehicles to sell. In a broker scenario, you are paying the owner of the vehicle and the broker takes a service fee to make the sale happen. Some brokers act as agents for both the seller and buyers.
Fleet remarketers are distinct from brokers in that they actually own the units and are paid directly.
When considering buying used, Lyons recommends that operators check with their lender. There may be a premium on the rate for used vehicles, or the lender may have a threshold for age and model year of vehicles allowed under its line of credit, he says.