Car Rental Q&A: What are the Terms of a Repurchase Program?

Q: I’ve been reading a lot about repurchase programs lately. What are the terms and can I take advantage of them?

— Jeff Schneider, Sixt Car Rental, Santa Rosa, Calif.

A: Offered by auto manufacturers to car rental companies, repurchase programs are agreements by the manufacturers to buy back vehicles from the car rental company (RAC) for a set monthly depreciated value — provided the vehicle is returned in the specified time period and in the contracted condition. Then the car rental company pays for the capitalized cost of the vehicle (usually fleet invoice) minus the depreciation.

The manufacturers provide these programs for a variety of reasons. The returned vehicles provide a source of clean, low-mileage used cars for their dealers. These vehicles are introduced to a large set of potential customers. Since the cars are ordered months ahead of time, a repurchase program guarantees a minimum level of production.

When a Repurchase Program Makes Sense

Here are some of the advantages of repurchase programs and business scenarios in which they work best:

• Repurchase programs are low risk for the rental company. With a repurchase program, the RAC doesn’t get stuck with cars that will need to be sold in a down market. Repurchase programs allow RACs to de-fleet quickly and at a much lower cost. By returning the car early, RACs will only pay the minimum program term depreciation. If RACs decide to keep it, they already own it. In this case, RACs would call their fleet suppliers and request a non-return allowance. 
• If the program minimum is five to six months, the RAC can stock up for a season and not get stuck with cars. For example, the RAC can fleet up with all-wheel-drive SUVs for the ski season in November and return them in April. Or the RAC can fleet up with convertibles and small cars in April and return them in September — when everyone else is trying to sell cars.
• For RACs that put a lot of miles on their cars, repurchase programs allow as much as 24,000 to 30,000 miles for the term, which can be as short as five months.
• There are no remarketing costs, such as auction fees, and low — or no — transportation costs.
• The RAC has the customer service benefit of offering new vehicles. 
• There are low maintenance costs since the cars are newer.
• With known costs, RACs can rent different vehicle classes to new markets with little risk. 
• Repurchase programs work well for new vehicles that depreciate quickly. Through a repurchase program, a new Chevy Express passenger van could be available for $350 a month in depreciation plus interest. With a week’s rental, you can more than cover its monthly cost.

When a Repurchase Program May Not Work

• You remarket your own cars. If you own a used car lot or have a team dedicated to maximizing your profits when you sell a vehicle, repurchase is not the way you want to go.
• You keep your cars for 18 months or more, and you depreciate them properly.
• You only buy used cars. 
• You have limited finances and need more cars than you can afford with a repurchase deal. Repurchase programs are not offered at deeply discounted prices. The manufacturers want their cars back, so they price them to encourage their return.
• Your bank does not understand the process. To some banks, the idea that manufacturers actually buy the cars back after using them in fleet for a few months seems too good to be true.

Can I Take Advantage?

Here’s the hard part for any non-major car rental company: Manufacturer repurchase programs are available only to purchasers of at least 500 units in a calendar year.

However, smaller independent and franchised companies can purchase vehicles on programs through fleet management companies (such as Eckhaus Fleet, Fleet Finders or Fleet Marketing Services) that buy in large quantities from the manufacturers and sell — for a small fee — to smaller rental companies.