Rental fleet becomes ‘extra profit center'

Mike Connolly found opportunity in operating a rental fleet at his Nissan dealership — and then the opportunity grew even bigger.

In the past 18 months, the general manager at Zeigler Nissan of Orland Park, in Illinois, has built a retail rental fleet whose revenue is growing 20 to 25 percent annually.

"I view it as a separate profit center, in addition to new, used, finance, service and parts," Connolly said of the 80-vehicle side business. "A rental operation, if done right, can be that extra profit center in the dealership."

The rental fleet, which generates potential business for the dealership's new- and used- vehicle departments, had modest beginnings.

"I want to expose people to our product," Connolly said. "I thought, 'Why don't I try to get more people to take extended test drives, to go on that three-day holiday weekend in one of our vehicles to see what they are all about?' "

It began as a 25-vehicle fleet, limited to existing customers. Later, the fleet expanded to serve Zeigler Auto Group's Infiniti, BMW and Mini dealerships in the Chicago suburb.

But the business didn't shift into overdrive as a commercial operation until Nissan approached Connolly with the idea of opening his fleet to the public.

"I worked with Nissan on putting together a marketing plan, getting people out working the street to generate business," the 49-year-old said.

Connolly knew the demand was there to support the business. In the past two years, two large rental car groups had opened nearby locations.

"They wouldn't come here and spend that kind of money on facilities if they didn't think there was a strong rental market," Connolly said.

Walk-in customers account for about 30 percent of Zeigler Nissan's rental business. Much of that traffic is referred by area collision centers and independent repair shops with which the dealership does business.

That retail component "is our biggest opportunity for growth," Connolly said.

The rental fleet has sedans, crossovers, pickups and commercial vans. That expands the market beyond individuals, to include contractors and corporate clients.

Zeigler Nissan has a rental office staffed by three employees who write up rental agreements and inspect the vehicles. Connolly said the operation strives to be faster and more efficient than its nearby national competitors.

"Our rental cars are kept in a corral directly outside of the showroom," he said. "These cars are closer to our building than our new-car inventory."

But for Zeigler Nissan, the side business is a means to an end: selling more high-margin certified used vehicles.

"We make it known that our fleet cars are available for sale at any time," Connolly said, adding that each rental vehicle carries a marketing flyer. Some customers buy the vehicle they just rented. In some cases, they buy or lease a new Nissan vehicle from the store.

The fleet is turned over every 120 to 180 days, with vehicles rotated out after 7,500 miles.

"They are the most financeable at that point," Connolly said. People view them as more of a new car, he said.

The vehicles removed from the rental fleet are sold as certified used, which can command a four to five times higher margin than new vehicles, Connolly said.

"Rather than buying cars at auction, I am creating my own certified pre-owned vehicle supply," he said.

The rental business is a cost-effective way to source certified used vehicles. The rental income offsets the typical 2.5 to 3 percent monthly depreciation while the vehicle is in the fleet, Connolly said.

But the rental fleet isn't simply a place to dump vehicles that are languishing on the new-car lot.

"I put in the fastest turn-rate vehicles I have on my sales reports, because I want the most popular cars to sell as CPOs," Connolly said. "I'm not going to take an inventory problem I have on the new-car side and make it my rental-car opportunity. That would be shortsighted."

Connolly has ambitious goals to keep the rental business growing. It now accounts for 8 percent of the dealership's annual gross revenue.

"I want to at least double that share," he said. "I'd like to be at about 150 cars next year."