Local dealer love used rental cars: Ask the dealers who sell you new cars if they’d consider an informal buyback program after reaching a mileage threshold in the rental fleet.
Canva
As new vehicle prices continue to climb while wholesale prices are falling, rental companies might want to rethink their vehicle buying and selling strategies.
At the 2023 International Car Rental Show, a panel of fleet experts discussed various topics related to the evolving vehicle market, including product availability, holding times, remarketing strategies, and how to be proactive in bank relations.
Pre-Covid, there were more vehicles available on the market for rental companies to buy. “We could buy vehicles straight out of our dealership group and the pricing was reasonable,” said Phil Spink, franchise manager of Sixt Rent a Car and Tom Wood Automotive Group.
Over the past few years, the retail demand for new vehicles has been high. “The vehicles come off the truck and are already pre-sold at a level that we haven’t seen in forever,” said Spink.
Currently, Spink’s Sixt franchise is buying vehicles within its dealership group, but the franchise is purchasing what’s available, leading to a more interesting fleet mix than in the past.
“There is not much negotiation when it comes to price, so we’re having to pick up vehicles that we wouldn’t necessarily have put into a rental fleet before,” said Spink. “It looks like we can rent them, but can we resell them at the end of it?”
Tips to Acquire Vehicles for Rental Fleets
When looking to increase fleet inventory, it’s important for rental companies to be prepared and more open-minded about what vehicles will work in their fleet.
“Before you start looking, you need to know your fleet numbers and what vehicles could work in your fleet,” said Mark Eckhaus, CEO and president of Eckhaus Fleet, a supplier of new vehicles to rental companies. “You need to cultivate relationships with local new and used car dealers. Make sure that your lender knows all about you and you know what your lender will advance. You also need to stay in touch with fleet companies, so when they have cars, they know to call you.”
If interested in buying several vehicles from one manufacturer, rental companies need to be aware that some manufacturers require a certain percentage to be electric vehicles.
“We have bought some EVs,” said Spink. “We have quite a few Chevy Bolts, and each EV rental comes with a nationwide charge point fob. We hope to run them for two to three years before bringing them back to market.”
Cars are becoming more available now, but it’s still a struggle for companies to fund vehicles. “Cap costs and interest rates are up,” said Kirk Browning, 1st Source Bank’s president of auto, truck & specialty vehicle fleet divisions. “While wholesale prices are still good, they aren’t as low as they were last year.”
Browning recommended being careful not to over fleet so you can build equity in your fleet. “Try to amortize them down at a faster rate so you could get rid of cars and generate some cash if you needed to,” he said.
Consider Different Remarketing Options
When choosing what vehicles to sell at auction, it comes down to the vehicle’s condition, upcoming maintenance costs, and its mileage.
“We are holding onto vehicles longer and trying to sell any vehicle over 40,000 miles,” said Spink. “We believe that reconditioning the vehicle is going to pay off in the long run. You will get in on the sale price and make a name for yourself as having a clean product.”
Eckhaus suggested reselling vehicles in the retail market. “We used to sell cars to wholesalers,” he said. “Now we tell people don’t do that. I think you’re better off if you recondition the vehicles and sell them in retail. Or sell at an auction if you have a relationship with that auction.”
Another option is dealership buyback programs. If looking for certified-preowned vehicles, Spink recommended going to a local dealer to discuss an informal program in which the dealer will buy back the units after reaching a mileage threshold in the rental fleet.
“If you buy 10 cars from a dealer, you can guarantee that within a certain time frame they will buy it back at a certain price,” he said. “You can create your own guaranteed repurchase program. You could be rotating 10, 20, or 30 cars through the same dealership monthly.”
Currently, Spink’s Sixt franchise works with three dealerships. “Every six months, I’ll get five new vehicles and the dealership will get five CPOs,” he said. “We’re refreshing our fleet at a great level and it’s a benefit to the dealerships.”
Eckhaus did issue a cautionary warning for dealer buyback programs. “They can be risky,” he said. “If you don’t have the agreement and price in writing, not every dealer is a legit and honest guy. They want to sell you the cars, but if you haven’t agreed upon a price for them to buy the vehicles back, then you have a problem.”
No matter how a rental company chooses to sell its vehicles, Spink recommended selling a vehicle once it’s too expensive for you to hold. Examine each fleet vehicle and the revenue that it brings in per month.
“When looking at the amount that a vehicle generates per month, if it’s costing you double the amount to hold it, consider selling it,” said Spink. “Interest rates have gone up. We are selling some vehicles now to lower the cost of interest. Then we have more flexibility to buy more vehicles at opportunity sales at the end of each month.”
Foster Positive Banking Relationships
To increase credit limits with a rental customer, a bank or lender needs quality financial reports, according to Browning. Financial reporting, including balance sheets, helps the bank better understand the customer’s goals.
“Letting us know your fleet plans and fleet needs are important for a banking relationship because all that takes capital,” said Browning. “As interest rates continue to go up, we have to be more cognizant of where we’re going to apply those funds, and it’s to the customers that are very organized.”