So, you want to get into the car rental business. How are you going to do it? Buy an existing business; buy a franchise? Or start from scratch as “No Name Rent A Car”?
Articles in Auto Rental News and other publications have demonstrated how to buy an existing business or a franchise. This article will discuss one way to go at it alone as an “independent,” by serving an underserved market niche — customers with less than perfect credit.
Understand the Pitfalls
All rental companies require more than just a valid driver’s license to entrust a car to a potential customer. Many companies will only rent to someone with a major credit card in the renter’s name that can be authorized for the amount of the rental. This qualification excludes a large part of the population; therefore, many independents are tempted by this niche.
As credit-worthiness is a measure of a person’s responsibility, studies have shown that low credit-worthiness is directly related to a propensity for accidents.
It is also a good predictor of whether the rental will incur typical pitfalls such as whether the car will be returned on time and in good condition, whether the car has incurred unpaid parking tickets, toll or speed violations or other infractions, or whether you’ll be able to collect on additional charges.
These concerns come with every rental, but the risks increase exponentially as the potential renter’s credit-worthiness decreases.
Nonetheless, many operators transact cash and debit card rentals successfully. What do you need to do to make a profit in this segment?
Qualify the Renter
The first requirement is to properly qualify the potential renter. Because the renter does not have a credit card that can be authorized, you must establish that he or she is a responsible individual in other ways.
A current pay stub confirms that the potential renter is employed. A utility bill confirms his or her residence. If the renter owns a car, a valid vehicle insurance policy is another point in the renter’s favor. A debit card indicates that the renter meets the bank’s requirements for a bank account and accompanying debit card.
Detailed qualification procedures are beyond the scope of this article, but it is very important that you and every one of your employees follow them scrupulously. The rules must have a reasonable, business-related purpose and must be applied every time and to everyone equally. They cannot be based on an employee’s mood, how many vehicles you have idle or a subjective opinion of a renter based on appearance, tattoos, piercings or accent.
And of course, the rules must be applied equally to all races, ethnic groups and genders.
Your qualification procedures, except for the credit card requirement, need to be more stringent than your competitors — and you should never make exceptions or listen to sob stories. You and your staff will, of course, be courteous but firm in turning down a majority of applicants who will be testing you at the beginning.
Even if a potential customer qualifies, your job is not finished until the vehicle is returned safely. You and your staff must pay strict attention to overdue vehicles on a daily basis.
Find the Business
One important source of business will be other rental companies. Most companies that only rent to customers with a valid credit card will be happy to refer their credit-challenged customers to you.
This is good for you, but do not forget that the referring company has made a business decision not to rent to this type of customer. Therefore, it is up to you to attract and rent to the subset of this group that is responsible, and consequently profitable.
You will be one of very few rental companies in your area — or possibly the only one — that does not require a credit card. Word will get around quickly and you can expect a flood of inquiries. You must establish from the start that although you will rent to folks that can’t get a credit card, you are not a pushover.
Source the Right Vehicles
One final topic we will cover is fleet planning for your specific business. There is good money to be made by renting high-end and specialty vehicles, such as Cadillac Escalades and convertibles. If your business model is to rent to credit-challenged customers, this is not for you!
The last thing you want to do is appeal to a renter without a credit card who wants to drive an Escalade or convertible. Remember, you’re striving to attract the subset of the population that lacks a credit card for reasons other than being irresponsible.
Your ideal renter is a stable, serious individual with a steady job who needs a rental car to replace his or her car while being repaired, does not need a car frequently enough to own one or needs a different vehicle for a specific purpose. A flashy vehicle does not fill these needs.
While good qualification procedures will reduce your problems, you will still have many more than the companies that rent only to credit card holders. Cars will get totaled or badly damaged, and they will disappear. To reduce your exposure from an inevitable bad rental, you need to keep your capital cost of each vehicle as low as possible.
Your ideal fleet will consist of low-cost economy and compact cars, bought used if possible, in common colors and with normal equipment. The only extras that you might add are GPS tracking units from an aftermarket supplier to be able to track the vehicle and shut it off if needed. State laws regarding use and disclosure of GPS units in rental cars vary, so be sure you are in compliance.
A Loyal Following
To summarize, if you don’t have the marketing muscle and brand recognition of a national system, an option is to become a provider of rental services to folks without credit cards. You must have good qualification procedures that are rigidly adhered to.
You must be on top of your business at all times — this business model does not work well if it’s too large or decentralized. Your fleet should consist of low cost, rather bland vehicles — nothing flashy.
Keep these points in mind, and you will develop a loyal following of good renters who are responsible and very desirable customers, even though they lack a credit card.
About the Author
Jim Tennant provides consulting and expert witness services to the vehicle rental industry. Tennant also chairs the Tennant Group Roundtable, a group of car rental owners that meet to exchange financial information.