'Getting into the used-car business is getting more and more scary.'
So said Jim Schalberg, president of Auto Rental Services, at the American Car Rental Association convention in Phoenix in early May. Schalberg was speaking to a group of rental-car franchisees in a seminar staged by the association.
Whether they like it or not, rental-car franchisees are getting into the used-car business these days because manufacturer buyback programs have been on the decline for several years. That means the rental-car companies are buying more cars without a guaranteed buyback price from the manufacturer.
The rental franchisee must sell the car once its useful fleet life is over. That means determining how much to invest in reconditioning and what price to set to recoup the investment. These cars for which the rental company assumes the risk of depreciation are called, aptly enough, at-risk cars.
Managing the depreciation and getting a good price is no simple task. That's why the rental-car association brought in experts like Schalberg to help puzzled franchisees learn how to dispose of cars that have outlived their usefulness in the rental fleet.
The rental-car business is a complex animal all by itself. It's difficult enough for those who operate franchises to operate in the rental environment without also having to think about selling cars.
Why should rental operators sell cars when they can unload them at auctions? Because there's more money to be had selling those cars at retail than at wholesale, Schalberg says.
A rental-car operator can bring $2,000 or more straight to his bottom line by selling just one car a month, Schalberg maintains. That is why he urged franchisees to at least ask their customers the question when they're bringing their rental cars back, whether that be at an airport lot or a neighborhood insurance replacement lot: 'Did you fall in love with the car? If so, did you know you can buy it?'
The sales process should start as soon as customers get inside the door, he said.
'Getting into the retail business is not for the faint of heart, but it can be extremely profitable if it's done properly,' he said. Rental companies like Enterprise have shown that it can be done, and car dealers know it too.
The steady increase in at-risk cars probably means those dealers can expect to see even more competitors vying for their once-tidy used-car profits.
MORE OFTEN - For those who have been asking for more used-car industry news, there's good news: This page will now appear every other week. The next used-car page is scheduled for the June 16 edition of Automotive News.
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