When Atlanta dealer Scott Smith started a rental-car company three years ago, he quickly realized the business could help serve up profits beyond those gleaned from daily rentals to vacationers and business travelers.
Rental cars could generate revenue for his dealerships as well by providing cash-strapped buyers time to come up with a down payment on the car of their choice. Enter Smith’s rent-to-own program.
“We offer a customer the opportunity to rent a car for so much a month, for, say, three to six months, with an option to own it,” said Smith, CEO of Automotive Associates of Atlanta. “They can come up with the down payment during that time and we’ll give them a portion of the rental money back. It holds the customer captive.”
Automotive Associates has three Nissan stores, two Kia stores and a Toyota store in the Atlanta area. The group sells 15,000 new and used vehicles a year.
Here is how the rent-to-own program works. When a customer finds a new vehicle he or she likes but can’t afford, Smith uses his rental company, ValueMax Car Rental, as a means to whittle down the list price. The dealership sells the new vehicle to ValueMax, which rents it to the customer for a monthly fee. When the rental contract is up, ValueMax sells the vehicle to the dealership as used and the dealership sells it to the customer.
“We sell the car three times and we profit in the last transaction because we sell it at cost in the other transactions,” Smith said.
The rental fee is similar to that of any rental car company, he said. So a subcompact Toyota Corolla base model costs about $575 a month to rent, Smith said.
“We take about a third of what they paid to rent it upfront off the price of the vehicle,” Smith said. “So if they spent $3,000 renting the vehicle, we give them a check for $1,000 from the rental-car company. They can use that toward the down payment to buy the car or however they want to.”
With the program, Smith said, he sells an additional 40 to 50 cars a month that he wouldn’t sell otherwise across his six stores.
“We don’t make money on the rental-car side of it,” Smith said. “We make money on the transaction side.”