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How to Start a Car Rental Business


Car Rental Business

Do you want to start a car rental company? If YES, here is a 23-step guide on how to start a profitable car rental business with no money and no experience. The first thing to consider when starting this business is the type of car rental you intend to operate.

You will have to know the types available – contract hire and daily hire, and decide which you want to go on. Contract hire is usually for business customers who hire the vehicles for a set time, while daily hire is for individual customers who hire the vehicles usually for a shorter period of time.

The next thing to consider is how to get your fleet of cars. The options available are outright purchase or leasing; outright purchase is usually more expensive than leasing. You will also have to decide how many number of cars you intend to start with, bearing in mind that the higher the number of cars your business owns, the more earnings your business makes.

The cars have to be well maintained, so that you could enjoy a high turnover. You could decide to contract the maintenance out, or hire your own maintenance staff, which could prove more expensive for your start-up business initially.

Steps to Starting a Car Rental Business

1. Understand the Industry

The car rental business has grown more strongly over five years, after previous years of recession. This was primarily due to the fact that airlines saw a decrease in customers which have now seen an increase too as compared to recent years, thereby linking air travel to car rentals.

Interesting Statistics About the Industry

The car rental industry is expected to rise through 2022 following an increase in the number of passengers traveling by air, which is due to a rise in per capita income as well as corporate profit. The largest car rental companies in the industry have a competitive advantage over smaller firms, especially as they have strategic alliances with airlines and hotels, which the smaller car rentals do not have.

The major companies in this industry have created strong brand awareness and therefore enjoy its recognition. This helps in retaining customers for these businesses, and creating difficulty for new car rentals start-up towards getting customers and retaining them as well.

Also, major companies constantly need to purchase fleets to meet up with customers’ demand, a feat that smaller companies cannot match up with, and yet regardless of the number of cars in one’s fleet, maintenance, storage, and then staff the rental location.

The industry has projected $43 billion revenue with an annual growth of 5.2% from 2011 to 2016. The industry has employed about 134,732 from 2,907 businesses. The global car rental is segmented into four places – intracity, intercity, on-airport, and others.

Out of these four, on-airport is regarded as the most significant segment accounting for 49.5% share of the overall market in 2014, and is still expected to remain the most prominent.

The car rental business is mostly segmented into two – business and leisure, with the business segment accounting for a higher percentage than the leisure segment. However, the leisure segment is expected to increase due to higher leisure activities, and domestic travel.

The car types are mostly segmented into economy cars, intermediate cars, compact cars, premium cars, luxury cars, as well as others.

More people now book to rent cars via offline, mobile application, and other internet access. The mobile application has seen an increment between 2014 and 2015. The car rental business is also segmented into organized and unorganized labour, with the organized labour expected to provide the highest incremental opportunity between 2014 and 2025.

Apart from the increase in international travel, other key factors that drive the car rental market include the increasing population, as well as increasing internet usage amongst the people. Most online car rentals are due to the increase in internet usage, which has made it more convenient for customers to access car rentals, and for car rental businesses to increase their revenue.

The major restraint in this industry especially globally has been the increase in the implementation of environmental regulations around the world. The high amount of environmental pollutants that is released by cars is highly responsible for these environmental regulations.

Executive cars and MUVs are the leaders in the car rental business globally, followed by economy cars, SUVs, and luxury cars. Apart from revenue from the airport segment, other segments that contribute to the car rental business include outstation, local usage, event transportation, employee transportation, and self-drive.

2. Conduct Market Research and Feasibility Studies

  • Demographics and Psychographics

The demographic and psychographic composition of those that use the services of a car rental business, it is obviously corporate executives, tourists, travelers coming in or out of a town or country. Others that might require the services of a car rental business are government agencies, field managers.

Young adults, working class, senior citizens, and people those are financially capable of using the services of a car rental business.

3. Decide What Niche to Concentrate On

The niches that are within the car rental business industry are those that are uniform in nature, especially as the services are to ensure that customers get to their point of destination using your vehicle as their mode of transport. However, some of the areas of specialization in the car rental business are those that specialize in the following;

  • Transport services
  • leisure services
  • corporate services
  • individual services
  • or other such services

One thing about finding your niche is that while you might stick to just your niche or two niches, other larger car rental companies might offer more areas of specialization, thereby gaining more customers due to their large offerings.

The Level of Competition in the Industry

Starting a car rental business is not an easy venture. One needs a huge source of capital to purchase the cars needed to purchase the business. Apart from needing money to pay for car rentals, you would need money to maintain the cars as well, and ensure that there is enough staff to help in your business.

While small car rental companies might easily compete with other smaller car rental businesses regionally or locally, they might not be able to easily compete with larger car rental companies.

As a small car rental company, your best hope is in building a relationship with your local customers as regards you business, and also try to partner with medium or larger scale car rental companies. These large scale car rental businesses sometimes often outsource some little jobs o those that deal with difficult or interior terrains to local or small scale car rental companies.

4. Know the Major Competitors in the Industry

Well known brands are those that have performed better over the years in their various niches and have become known for their brands and services, due to several strategies that they would have employed during their years of operation. Well known brands in the car rental business in the united states are as follows;

  • Hertz Corporation
  • Avis Budget Group, Inc.
  • GlobalCARS
  • Sixt SE
  • Eco Rent a Car
  • Enterprise Holdings Inc.
Economic Analysis

Before venturing into this business, it is one that you would need to carry out a feasibility study on. You would need to put so many factors into consideration so that your business does not fail before it even starts. Chief amongst your concerns should be how you intend to draft strategies that would distinguish you from your competitors.

You would also have to draft strategies that would ensure that you get a share for your business either by carving out a niche for yourself, or by ensuring that your unique selling point is attractive enough to get you noticed to your customers.

This means that you would need to draft a business plan that would aid you and make you see clearly whether the car rental business is worth venturing into.

Another thing you should consider before starting this business is where you intend to get your start-up capital from. Bear in mind that banks and major financial institutions will likely lend to already established and successful car rental businesses than a start-up business. This means you would have to be extra aggressive in getting funds to start up your business.

Another thing to consider is where your business will be located, if you intend to start on a medium or large scale, you would need to ensure that your location is large enough for the fleet of cars you intend to use for your business, and also convenient for your staff and customers to access.

5. Decide Whether to Buy a Franchise or Start from Scratch

Starting the business in whatever way can have its advantages and disadvantages, and this means that you would need to have gotten your plans in place before starting off the business. Starting your business from scratch will help you grow as an entrepreneur, and will give you the experience that a franchise would not give you.

Starting from the scratch means you will have to deal with paperwork and also draft strategies on how to get your customers, while running the business. This does not in any way mean that all businesses that start from the scratch succeed.

Buying a franchise is for those who do not want to deal with paperwork and having to worry about customers. When buying a franchise, you buy all the strategies, equipment, structure, and techniques in place, and only have to worry about rendering service to your clients.

If you are only concerned with services and have no head for other technicalities, then you should buy a franchise. However, before buying a franchise carry out a thorough research on the company that would best be suited to you business-wise and one that would generate revenue.

6. Know the Possible Threats and Challenges You Will Face

There is no business without its challenges. Some of the likely threats and challenges you would face when starting or running your car rental business are usually a bad economy. A bad economy leads to a lower income per capita and disposable income, leading to fewer people needing the services of a car rental.

Another challenge that you might face might be in getting the required finance either to start the business or expand your fleet.

Finance is an important part of any business, and the lack of it can cause your business to crumble or not even start up at all. Another challenge could be in your location, as getting a poor location that would inconvenience your customers is likely to see you out of business.

7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)

The nature of the car rental business is one that makes it difficult to start the business with just any type of legal entity. Most people that usually start this business usually go for Limited Liability Companies (LLC). The LLC is popular due to the fact that it is a hybrid of a partnership legal structure and that of a corporation, and so gives anyone using the LLC the benefit of both.

Incorporating an LLC as a car rental company will lead to you having advantages as regards management flexibility and taxation. Also, with LLCs you get a limited personal liability for the actions of the LLC.

Choosing an LLC will give you the benefit of filing your tax returns as a sole proprietorship, partnership, or corporation chiefly because the federal government doesn’t recognize the LLC under a federal tax classification, which is why as an LLC; you get to use pass-through taxation. You will also get to avoid double taxation.

If you are starting off small however, with just one car at first and catering to your local clients, you could start off with a simple legal structure such as a sole proprietorship and work your way up to becoming an LLC for the benefit of your business.

8. Discuss With an Agent to Know the Best Insurance Policies for You

Insurance is a very important part of any business. Not getting insurance or the correct one could spell doom for your business, as insurance protects you from probable and unforeseen circumstances. This is not a decision you rush into on your own, as you would need to meet with a professional insurance agent or broker that would guide you on the best policies that are suitable for your business.

Some of the basic insurance policies that you should put into consideration when starting your own car rental business include;

  • Liability Insurance
  • Collision Damage Waiver
  • Personal Accident Insurance
  • Personal Effects Coverage
  • Commercial Auto Liability
  • General Liability
  • Workers’ Compensation

9. Protect your Intellectual Property With Trademark, Copyrights, Patents

This is a service based business and usually does not require an intellectual property protection, and so if you are considering starting this business, you will not need to acquire an IPP. Some entrepreneurs usually secure an IPP for the company’s slogan or logo especially if they have gotten brand recognition.

If however you feel you are going to be among top brands or you see it as a priority then, by all means you should secure one. However, you should note that most people in this business do not consider getting an IPP a priority.

10. Get the Necessary Professional Certification

If you decide to get into this business in the United States, you would not need a professional certificate to be able to run this business. Regardless of this, you would need to ensure that you find out from your state or municipality the requirements you would need to start the car rental business.

11. Get the Necessary Legal Documents You Need to Operate

Listed below are some of the legal documents that are required to run a car rental business successfully in the United States of America;

  • Certificate of Incorporation
  • Business Plan
  • Business License
  • Insurance Policy
  • Contract Document
  • Operating Agreement
  • Offer Letters

12. Write a Business Plan

Because writing a business plan is cumbersome, most people hastily draft out a plan without carrying out feasibility studies and so when they fail, decide to consider the business plan as ineffective towards the business.

The business plan is not meant to be a document of fiction where figures will be concocted to make you feel good, the business plan is usually a document that shows you hard facts and in the end might save you from throwing money away in starting a new business venture that would not have been worthwhile in your area or region.

The key components that your car rental business plan needs to contain are as follows;

Every business plan requires an executive summary, the executive summary is where you are expected to clearly state the aim of your car rental business, your sales and marketing strategies, your marketing goals, your target market and perhaps what stands you out from your competitors.

You are also expected to state your company’s vision statement, objectives and the niches you intend to specialize in. Your business plan would also need to analyze the market size and shares, projected room for growth for your car rental business.

Other things that would need to be included are the number of cars you intend to start with, the number of staff you are likely to employ, and if you would get an in-house maintenance crew or contract the maintenance services out.

If however, you feel that writing a business plan would be cumbersome for you; there may be the need to engage the services of a business consultant that could help you write a business plan for your car rental business. However, you can also download a car rental business plan template online and used that to draft something out.

13. Prepare a Detailed Cost Analysis

The car rental business can be started with little, average or high funds, depending on the scale you intend to start off the business with. If you intend to target the luxury clients and start hiring out limousines for instance, then you might need more funds than someone that intends to start with regular clients, and is renting out SUVs.

This is a business that you have to be careful going into. You would need to have carried out a detailed research as to how much budget you have to start the business with and how realistic your budget is in achieving your plans. If you intend to launch a car rental business in the United States of America, there are certain items and requirements that you would need to have fulfilled, and they are as follows;

  • Incorporation fees for car rental business would cost $1,500
  • Licensing, permit and liability insurance would cost $1,500
  • The cost of leasing a facility for at least one year would cost $150,000
  • The cost for equipping the office with computers, CCTV cameras, printers, filing gadgets, telephones, and so on would cost $3,000
  • The cost of acquiring the cars needed to run the business would cost $500,000
  • Cost of launching of an official website would cost $1,000
  • Additional expenditure such as business cards, signage, would cost $500

Going by the above report from detailed research, you will need an average of $658,000 to start a small scale car rental business in the United States of America.

If you want to start a medium scale car rental business in the United States, you would need nothing less than $1,300,000. And if are looking to start a large scale car rental business in the United States of America, then you should look towards raising well over $2,600,000.

14. Raise the Needed Startup Capital

Everyone knows the importance of finance in carrying out their daily activities, and every entrepreneur knows the importance of finance in their businesses as well. No business can start, or continue in its operation without finance. The car rental business is not an easy one, and so raising capital might not be so easy.

This is why the importance of the business plan cannot be over-emphasized. Your business plan helps point you to likely sources that will invest in your business. A good business plan will also help convince investors of your seriousness at making your business work to make money for its growth and to pay them back as well.

Some of the options that you can explore to finance your car rental business includes;

  • Approaching angel investors and intimating them of your plan.
  • Raising money from venture capitalists
  • Applying for loan from financial institutions and banks
  • Financing part of the business from personal finance and sale of properties
  • Approaching specific investors

15. Choose a Suitable Location for your Business

As an entrepreneur, you should know that the location of your business is extremely an important factor to be considered when starting out your business, as it could affect the growth of your business. There are many issues you would need to consider when choosing a location for your car rental business.

The location of your car rental business must not only be instrumental to the success of your business, the leasing of the facility must be what you can afford, and also it must be appropriate for a car rental business. While the location for some businesses might not be so much important as just finding any affordable facility anywhere, that of a car rental is mighty important as it needs to be accessed conveniently by your clients.

This is not a business you can run from the comfort of your house, except your operation is based on one car, and your target market is just your local neighborhood, in that case you can operate the business from home. If you however, intend to run a standard car rental business then you would need to get a facility in a place that will favor your business.

The facility you should aim for should be that which can allow you to expand comfortably. This is why a business plan is important, it allows you know your intentions towards your business, if you plan to expand or will be more comfortable on a particular scale, as this will be a guiding decision to choosing a location for your car rental business.

Your location has to be one that highly considers your clients and where they will be coming from to hire the cars for their own use. In essence, your location has to be a well-traveled route that has lots of traffic.

16. Hire Employees for your Technical and Manpower Needs

There really isn’t much equipment that you would need to start your car rental business as your cars are the main equipment that is necessary for your business to grow. Since the cars are the main equipment, it is not advisable to buy them for fairly used, as you might spend more in maintaining them than when you purchase new cars. Other equipment needed are light work tools for the cars.

Some of the equipment that you would need to fully launch your car rental business includes:

  • Cars
  • Safety tools
  • CCTV Security Cars
  • Maintenance tools
  • Computers
  • Phones
  • Filing Cabinets

The nature of this business might not allow most people operate their business from home, and so an office facility with a large space parking lot for the cars must be taken into consideration. It also makes clients both potential and existing to take your business seriously.

Regarding the number of staff that you would need to run your car rental business is at least 5 to 7 people. You would need at least a manager, front desk officer, security, maintenance staff, and accountant.

The Service Delivery Process of the Business

The process involved in the delivery of rental services to customers depends on the needs of the customers. The processes involved ranges from providing regular services to providing premium services. Other process involves ensuring that customers stay satisfied, and providing other services that might be needed.

17. Write a Marketing Plan Packed With ideas & Strategies

Any business that wants to make money would need to ensure that their marketing strategies are sound. Marketing ensures that you advertise your products and services in an aim to make money. Every marketing strategy should leverage on all conventional and unconventional sources to be able to make money.

If your car rental business is medium or large scale, you can ensure that you bid for contracts at every opportunity available and at the right time. Running a large scale car rental business means that you can partner with smaller car rental companies, this would give you a far and wider reach, whilst still garnering brand awareness for your company.

Some of the marketing ideas and strategies for the car rental business in the United States include;

  • Promptly bidding for contracts from corporate organizations, airline sector, and also relevant government agencies
  • Ensuring that the affected clients know about your business by sending brochures as well as introductory letters to them
  • Advertising your business in relevant magazines and newspapers
  • Making use of your official website to engage your customers, and allowing them to carry out their bookings
  • Ensuring that your car rental business is located on local directories
  • Ensuring that the social media – LinkedIn, Facebook, Twitter, Instagram, are used to generate traffic to your website and revenue as well
  • Advertising your business on online directories
  • Pasting your notices on boards and places close to your target market
  • Employing word of mouth marketing
  • Use direct marketing

18. Work Out a Reasonable Pricing for your Services & Products

Getting the right factors that will ensure that you give the best pricing for your car rental business is one that would ensure that your rates are affordable to your clients while not allowing you operate on a loss. This can be achieved if you scale back unnecessary expenses and concentrate more on the ones that cannot be avoided.

19. Develop Iron-clad Competitive Strategies to Help You Win

Competitors would always exist in every industry and sector, and any entrepreneur going into business knows this. Customers always go to businesses that offer them an affordable package with excellent services, and so if you must rise above your competition you would need to find out unique packages for your customers for prices that would be affordable to them.

You could design your competitive strategy in a way that your low paying customers could also have access to a segment of your luxurious fleet but with certain conditions. This might lead to you renting out your luxurious fleet, while your competitors struggle with ensuring that theirs make revenue for them.

Another way to rise above your competitors is to ensure that you offer areas of specialization that are related to your car rental business. You must ensure that your competitors aren’t offering these same related services, and if they are, find a way to ensure that your services beat theirs.

20. Brainstorm Possible Ways to Retain Clients & Customers

Customers always stay with companies that meet their needs and wants. This means that for you to retain your customers, you would need to be able to anticipate what they need and want. Anticipation plus the provision of excellent services is guaranteed to keep customers happy and not leave your business for competitors. Customers usually leave businesses who they feel do not care about them.

Another way at increasing customer retention is to ensure that you offer incentives either on the car type or discount on certain days, or for long contract hires. You could also ensure that your services are designed in different packages so that high premium customers get more services for paying more and yet lower paying customers do not feel cheated at paying less, since there are services that would cater to their ‘affordability’ as well.

21. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity

The strategies needed to boost the brand awareness and create a corporate identity for your car rental business is one that would ensure that the bottom line of your business improves and becomes a force to be reckoned with. If you want to start off with running a large scale car rental business then you might consider getting expert help as regards creating strategies to boost your brand.

  • Some of the strategies that can be used to promote the brand of the business while also boosting the company’s publicity and creating awareness are:
  • Using the car wrap technique, where your business and its information are used on all your fleet of cars, covertly or overtly.
  • Ensuring that you seriously promote your business on your official website
  • Advertising you car rental business in appropriate places like traveler’s magazines, local newspapers, radio, television stations, as well as other mean
  • Leveraging on social media platforms such as Instagram, Facebook, Twitter etc; and offering incentives through these that would boost your company’s brand
  • Ensuring that you use the testimonials of your satisfied customers to get potential customers
  • Employing the mailing approach to garner attention to potential customers
  • Taking advantage of online directories as well as yellow pages
  • Using the referral system to help gain new customers and increase your brand awareness.

22. Create a Suppliers/Distribution Network

Running a standard car rental business means that you will need to liaise with car manufacturers and dealers so as to get your cars when you need them and other such services as well.

This means that you would need to be in a good relationship with your car dealers, local maintenance companies, and other such that would ensure that your business runs efficiently and effectively. Being in a good relationship with these suppliers and distributors would ensure that you get tips on the best cars or brands that would be best for you and your car rental business regardless of the car type segment you intend to go into.

23. Tips for Running a Car Rental Business Successfully

Ensuring that your car rental business becomes successful means that you would require managerial skills in managing your resources, otherwise you might lose your valuable assets – fleet of cars. As an entrepreneur that is just starting out, you would to find a way to rise above your competition, by ensuring that you offer fair prices and are always available to your customers.

Another way to ensure that you remain successful is in paying attention to which segments of your business will give you more profit. This means that you would need to keep an eye on the items that are likely to affect the bottom line of your business, this way you can adjust your Business model according to the changes in the business environment.

Finally, you would need to thrive on opportunity, and ensure that the logistics associated by your business is simple enough for your customers to understand, this is as you offer your customers a high end experience that is guaranteed at retaining your customers, and improving the bottom line of your company.