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Old Jul 27, 12, 7:45 pm   #1
 
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How are inexpensive rentals profitable?

I just booked a car this weekend for 24 hours for $20, and I've had much less expensive ones- even as low as maybe $15 for 24 hours.

The market is a business traveler market, not a leisure market, and so I'd guess that there is little demand on weekends.

How does National make money on those rentals? True, a dollar is better than no dollar, but wouldn't the wear and tear on the car, costs of cleaning, maintenance, etc. be at least $15-20?

Is National's goal just to build customer loyalty and market share, in the hopes of capturing more profitable business in the future?
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Old Jul 28, 12, 12:13 am   #2
 
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You're assuming that the cost of having a car sit idle is zero -- which I'm not sure it is. Depending on the station, there might be significant costs associated with having nearly the entire local fleet sit idle -- think of all the satellite parking lots you see at some airports, presumably required for overflow. Moving cars to and from that lot en masse would mean extra staffing.

Meanwhile, as long as they're doing some business, they need staff on hand to clean and prep cars (at least what very minimal cleaning and prepping they actually still do). Having staff sit idle is a waste of resources just as the cars sitting idle is.

It does surprise me that even the cheapest rates rarely impose any mileage limits.
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Old Jul 28, 12, 7:02 am   #3
 
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I think dtremit is right, when you get a cheap rate you're basically being paid to park the car for the weekend. Nice work if you can get it.

Rental cars depreciate with miles, not age, since they do so many more miles per month on average than a private vehicle. If the company buys a car for $20,000 and then offloads it after 35,000 miles for $13,000 then you're depreciating it at twenty cents per mile, so your $15 a day becomes drastically uneconomical if you start doing more than 75 miles a day.
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Old Jul 28, 12, 5:06 pm   #4
 
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For cheap one-ways, they tend to make money on the demand difference. Ex, A car in the FL hurricane season that would have made $35/day can make $100/day+ when rented in the summer peak season northern markets. Doing that might mean offering a customer the car for $5/day for a few days to take it there.
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Old Jul 29, 12, 2:15 am   #5
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Quote:
Originally Posted by dtremit View Post
You're assuming that the cost of having a car sit idle is zero -- which I'm not sure it is. Depending on the station, there might be significant costs associated with having nearly the entire local fleet sit idle -- think of all the satellite parking lots you see at some airports, presumably required for overflow. Moving cars to and from that lot en masse would mean extra staffing.

Meanwhile, as long as they're doing some business, they need staff on hand to clean and prep cars (at least what very minimal cleaning and prepping they actually still do). Having staff sit idle is a waste of resources just as the cars sitting idle is.

It does surprise me that even the cheapest rates rarely impose any mileage limits.
An average of $30-35 a day is the break even point for profit. $15 per rental (plus a small few cents for mileage) is the minimum needed to avoid actually losing money on the rental (a decent chunk of that is the employee time required to handle the transaction [clean the car, handle the rental at the counter, etc.], assuming they would not otherwise be sitting around and the workload necessitates having additional staff present to handle the cheap rentals, neither of which is actually usually the case).

How do they make it up?

Most are not one-day rentals. Even $10/day times two days is $20.

Sales: upgrades, coverage, gas, etc. Although National is not as pushy as some others, a good location can maintain a $10-15 or even higher daily dollar average on these items, which turns a $15 rental into a profitable $30 rental.

As mentioned above, in real life, the agents staffing the office on low-demand days would likely be there anyway, so there really is no actual incremental staffing cost to rent the car out. The true cost of renting the car out is really just a couple of dollars--the chemicals for the car wash, the electricity for the vacuum, and a couple bucks for mileage depreciation.

The $15 (or $2, as the case may actually be) figure also doesn't factor in the costs dtremit mentioned of not renting the car. If a shuttling crew of five people costing the company $12 per hour can move 15 cars to a satellite lot two miles away in one hour, then that's a $4 cost per car, not even factoring the cost of renting the satellite lot. So, that effectively lowers the minimum rental revenue necessary to avoid losing money to $11 from $15.

Also, keep in mind that especially with the purchase of Alamo and National by Enterprise, the cars are sourced very, very cheaply--much below even normal dealer cost. If EHI is selling you a used rental car, you are likely still paying them a couple thousand more for it than they paid the manufacturer a year or two ago.

Obviously, though, a rental location can't sustain an entire operation on $15 per day cars (if they are really good and maintaining a $15 daily dollar average on sales, then they can maybe break even--barely--and that's assuming the fleet utilization stays at 80% during low-demand periods). The hope is, though, that there are enough $50, $80, or even $150 rentals during the week or during high season to offset the lack of profit during the dead times.

Last edited by jackal; Jul 29, 12 at 2:40 am.
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