Rising economic growth and disposable incomes have shifted urban commuting patterns towards convenience and luxury. Be it daily office commutes or weekend trips to holiday destinations, rental cars have become the preferred choice. And, the car rental business is experiencing growth like never before.
There are multiple players in the car rental industry. Individuals who love cars and enjoy conversing with people will find starting and managing a car rental company a rewarding experience. Though car rental is proving to be a lucrative business, starting a car rental business involves a detailed knowledge of the different business models, audience and market segments, regulatory requirements, raising capital, fleet management, technology aspects, and customer service. In this article, let us deep dive into these aspects.
Introduction
Today’s consumerism has given rise to an urge for traveling to new places, be it on a one-day weekend trip or a 15-day trip to several scenic locations. Daily office commutes also constitute a substantial amount of travel time. Consumers of today prefer convenience during travel and a commute by cab is the first on their travel choices. Traveling by cars offers an opportunity to spend precious moments with loved ones and also enjoy experiences with friends and family.
With the increasing costs of owning a car, many people choose not to own but rent cars as per needs. This shift in the consumption pattern of renting vs. owning a car can make a car hire business that caters to diverse needs a profitable enterprise.
Types of Car Rental Business Models
A car rental business model differs according to customer needs, ease of implementation, and other business dynamics. The following are the most widely implemented business models –
- Traditional car rental
This involves buying or leasing a fleet of cars and then renting those to consumers for usage fees. The usage could be in terms of distance, hours, or both. If vehicles are owned by the rental company, the company assumes several risks. Leasing cars through long-term lease contracts reduces the costs for a car business. Another way could be owning vehicles from car manufactures with a guarantee of buy-back after a certain period when the lease duration ends. This model works well for corporate business travelers, tourists, and residents especially for long-duration trips.
- Subscription
For a car rental company, a subscription-based business model is also another choice. This model allows usage of cars by consumers for a flat recurring fee that includes costs for maintenance, insurance, and other services. Since the fee covers every cost associated with car usage, this model provides a great deal of flexibility. Auto OEMs can venture into a subscription-based model. Startups and traditional car rental businesses can also venture into the subscription model of car on rent.
- Franchise
In a car rental franchise, driven entrepreneurs purchase the rights to operate the business from a well-known car hire business. A franchise model involves huge upfront costs and offers the advantage of brand-name recognition for the business. Also, a franchise model is a quicker way of expanding a business and the brand also benefits from the local market knowledge of the entrepreneur.
- Dealership
Car owners do not have a vehicle during car maintenance. The dealership-based model targets precisely such car owners whose vehicles are due for repair. This business model has lesser upfront costs but the customer base is small.
- On-demand and peer-to-peer
These are mostly used for short-term commutes such as attending office and venturing out for shopping. An application connects the car operator or car owner with the consumer based on driving routes and wait times. It involves a one-time payment and the volume of business needs to be large in order to survive.
Market Research and Target Audience Identification
There needs to be market research for estimating the demand and popularity of a particular business model, competition landscape, customer pain points, shifts in consumption patterns, location with high volumes, and pricing. For a car rental company to succeed, the owner must have a clear understanding of not just the present needs but also the future needs so that his business is future-ready.
Identifying the target audience is the next logical step for a car hire business. The target audience should be such that they are currently underserved and also their volumes are sizable. Determining the location of a car business is also dependent on the target audience. Car models and services along with pricing to be offered will also depend on the needs and preferences of the target audience.
Developing a Comprehensive Business Plan
A written business plan for a car rental business is an important document that provides guidance and direction for the business enterprise. A comprehensive business plan must consist of the following details –
- Business model
This should explain the type of business model a car rental business intends to implement. Going for a B2B, B2C, or a combination are a few options.
- Ownership structure
The business plan should mention the ownership structure of the business whether it is a proprietorship, an LLC, an LLP, or a corporation.
- Structure of business operations
A car hire business can opt for franchise or opt for operating the business at different locations by itself.
- Expansion plans
The business plan should talk about different milestones in business and expansion plans in detail as per a particular milestone – early-stage, early-growth, growth, mature, and decline. Expansion plans are especially important when there is a need to revive the business.
- Growth estimates
Revenue projections in a business plan offer a realistic picture of a car rental business and prevent the business from losing focus.
- Plan for marketing and sales
Whether the business intends to do corporate events or participate in trade fairs must be listed in the business plan.
Legal Formalities and Business Registration
Legal formalities pertain to two broad areas – new business registration and agreements with other parties.The following are the general regulatory requirements needed for a car rental business to start –
- Business incorporation
The process of business incorporation for the business types – proprietorship, LLC, LLP, OPC, or a corporation – must be handled by an experienced lawyer. For a proprietorship, the requirements are usually lesser whereas for other business types, the requirements are more. If the business is registered under the Companies Act 2013, then it is mandatory to have a director for which a Corporate Identification Number and Director Identification Number are to be obtained.
- Permits
After incorporating a business, the next step is acquiring the necessary permits for commercial use. The permit could be restricted to a state or it could be an all India permit.
- Agreements
If the car rental business opts for a leasing arrangement with manufacturers, then legal agreements must be prepared that explains the leasing arrangements and other technicalities of the lease. Liabilities must be clearly listed out in order to avoid conflicts in the future.
- Other requirements
Applying for GST, PAN, and TAN are other regulatory requirements for a car business. A bank account must be opened in the name of the business to handle the day-to-day financial transactions.
Fleet Acquisition and Management
For businesses that want to acquire a huge fleet of vehicles, acquisition can involve significant money and effort. Acquisition terms must be negotiated so that it favors the car rental business owner. Fleet management can be done traditionally or through any fleet management application that makes it easier to track and monitor the fleet.
Technology Integration
Technology has become a key aspect of any car rental business. Companies such as Lyft, Uber, and Ola connect vehicles with customers on a real-time basis and are greatly suitable for on-demand car business. These high-tech apps use GPS navigation for calculating estimated waiting times and journey times based on pick-up and drop locations.
There must be tech-enabled payment services for customers to pay seamlessly. This payment service must be integrated into an accounting and reconciliation software for efficient management of finances.
Marketing and Customer Acquisition
A website is required for a car rental business to take off. Integrating a CRM tool into the website will ensure a steady flow of inbound leads and subsequent tracking. Setting up business pages on social media such as Facebook, WhatsApp, Telegram, and Snapchat along with Google also helps in brand presence. There needs to be marketing spends on digital campaigns so that the communication reaches the intended target audience.
Customer acquisition depends on whether the car hire business operates as a B2B, B2C, or both. For a B2B channel, the business must engage with local organizations and secure long-term transportation contracts. For the B2C channel, social media and personalized communication along with ensuring app downloads by field sales teams are the best way forward.
Financial Management and Funding
Incorporating softwares for fleet management, payments and collection through various modes, and accounting with bank reconciliation are some of the best practices to ensure strict controls on finances. Funding requirements vary as per the lifecycle and USP of the business. If a startup is offering unique value in a car hire business, it can approach investors for funding their expansion plans.
Risk Management and Insurance
A third-party insurance coverage is mandatory for a car to be driven on the road. A car rental business can face several risks such as accidents and other untoward incidents for which insurance provides a risk coverage. Also, the business requires comprehensive insurance for the commercial property in which the business is headquartered.
Customer Service and Retention
Generating long-term cash flows is a key parameter on which the sustainability of a business depends on. It is easier and more cost-effective to retain a customer than to acquire a new customer. For a car rental company, it is extremely important to retain customers through loyalty programs and rewards. Customers love pleasant surprises such as personalized messages on birthdays or a special coupon. Businesses need to implement a robust loyalty and rewards program to retain and service already acquired customers.
Conclusion
A car rental business can be a success if the business plan is carefully thought out and executed with precision. Success in this field requires identifying a target segment and their lifestyles to effectively position the products and services. For someone who is passionate about cars and interacting with people, a car rental business could be a great choice.
