How The Car Rental Business Operates

Car hire services are provided by specialised companies which operate a designated business model that serves the needs of both service providers and clients. They are rather important for the proper function a wide range or other industries, including tourism and entertainment. So having rent-a-car companies that can be trusted, and more importantly – knowing how to differentiate the really reputable ones from the fakes, is a rather important matter. The framework for all models is relatively similar (you can easily compare car rental companies to check for yourself), however there are specifics and exceptions (variations) in the precise method and layout of service provision. These variations can be on a regional, national or other basis. The important thing however is that all good car hire services, despite their differences, have one thing in common – they always put the client first, look after their comfort and peace of mind. So, when you find a good rent a car company, you will be able to obtain the vehicle you need – a family SUV, sports car or whatever – and do that on a price that is not going to strain your budget even one bit. It is just that simple and that complex indeed. There are a few things that you have to know about the way the industry operates that will help you in such an endeavour.

Basic breakdown of car rental business model

Car Rental SignProvided the car rental company has already been set up and funded accordingly, the next step of the process is acquiring the necessary number and type of vehicles. These would be the vehicles rented out to clients. In general there are three main types of vehicle fleet ‘ownership’ for car hire companies:

  • Purchase vehicle fleet (also known as direct or outright ownership);
  • Fleet lease (the business is leasing their vehicle fleet);
  • Ownership under buy-back guarantees (vehicles are sold back to manufacturer at end of service life);

Every car hire company out there has to have a sufficient number of vehicles of the necessary type/class. Generally rental car companies have three options at their disposal. A – to hold direct ownership of the vehicle fleet, or B – to lease the vehicle fleet. And alternatively in some countries it may be possible to lease the fleet with a buy-back guarantee (at the end of the vehicle’s service life).

 

 

Direct/Outright Fleet Ownership

In the case of outright ownership the rental company owns its vehicle fleet. This scheme is also known as ‘risk ownership’ because the operator/company is risking how much vehicles would be sold for at the end of their service life e.g. there are no guarantees.
 

 

 

 

Fleet Lease

 

In the instance of fleet lease, the operator/rental company uses certain financial tools provided by banks for example to pay for the vehicle fleet. Leasing vehicles for a rental company is essentially the same as leasing vehicles for private use, however there are different terms and conditions in the case of rental fleet lease e.g. interest rates, asset depreciation, residual value etc.
 

 

 

 

Ownership under Buy-Back

In cases where the company holds ownership under buy-back it means the operator holds outright ownership over the fleet but the vehicle manufacturer (or its finance branch) has agreed and guarantees to purchase back the fleet from the operator when vehicles are due for decommissioning. Such fleets are made up of what’s called ‘re-purchase’ vehicles. The price at which vehicles are bought back by manufacturer is set and agreed at the start of the program.

Sale of decommissioned rental vehicles

Sooner or later the service life of every rental vehicle will come to an end. This however doesn’t mean that the vehicle itself is going to be scrapped or left to rot in some storehouse, on the contrary. Ex-rental vehicles are sold and continue their life as a private or commercial vehicles owned by individuals or other businesses. Obviously selling decommissioned rental vehicles has its specifics – potential first time buyers need to do their homework and be vigilant about what they are buying. In the United Kingdom there is a well-known trend to try and increase the market/re-sale value of former hire vehicles. This is usually done by selling the vehicles (officially and legitimately) through an unknown branch or subsidiary of the company with a ‘front’ (again all legit) provided by a third party car or lorry dealership. In some cases the vehicle manufacturer may also take part in the scheme, although that is quite rare. Keep in mind this is a completely legit way of selling such vehicles so it is up to buyers to determine whether or not a given ex-rental is worth its asking price.

In North America and some Australian states there is a different re-sale model that’s used. Again, this is completely legal and government sanctioned way of selling and buying ex rental fleet vehicles. As long as buyers are happy and willing to pay the asking price there is no ‘obvious cheating’ going on. In this type of scheme, the actual rental company which operated the vehicles has set up its own ex-fleet dealership. Usually these re-sale branches are directly (and officially) connected, and bear the branding of the ‘mother company’ although they may have a different name or entity status. These companies sell ex-fleet vehicles directly to the public.

White vanA not so widely used but still common practice (in Australia and New Zealand for instance) is to sell off ex-fleet vehicles at special auctions. Such car auctions may or may not be strictly reserved for ex-fleet vehicles, they can also sell impounded/confiscated vehicles by police, or stolen and found vehicles whose owners are no longer laying claim (e.g. insurance has settled the case). United States (being the place for vehicle auctions) makes use of one of the largest vehicle auctions/markets worldwide, namely the Manheim Auctions.

Buying an ex-fleet vehicle

Purchasing an ex-fleet vehicle is much the same as finding and choosing a decent car/lorry from any other dealership out there. General view towards such sales is that there is less ‘dodginess’ than usual. Having said that, one must exercise the same caution and common sense when buying an ex-rental as in any other case. Things like mileage, maintenance and current condition of the vehicle should obviously be taken into consideration. Common perception is that ex-rentals have seen too much use and abuse (although cared for properly during their service life) to be worth it. This isn’t necessarily true so consider the facts without bias and if a vehicle is worth its asking price then conclude the deal. On the same note, rental companies are legally bound to care for their vehicles properly and keep them safe and comfortable for clients so at the end of the day the vehicle in question may have seen lots of use but still be in a very good technical condition and worth the money. At the moment, re-sale of ex-rentals is popular and many people and businesses take part in such sales and auctions.