If you’re looking to own a business, perhaps one of the options you’ve considered are car rental franchise opportunities. The car rental industry has huge earning potentials. This is due to the increasing number of travelers that need vehicles for either business or leisure and people who need to have a temporary replacement for their vehicles that have been stolen or undergo repair due to accidents or breakdowns.
In a report created by Zion Market Research, the car rental industry has been steadily growing since 2016 and is projected to grow with a Compound Annual Growth Rate (CAGR) of about 13.55% from 2017 to 2022. With both international and local car rental franchise opportunities in the US, how would you know which one to join? What factors should you look into? Below are several things to think about.
Car Rental Franchise Opportunities: Factors to Consider
1. Financial Track Record
Of course, the primary consideration when looking into car rental franchise opportunities is its profitability and capability to be consistently profitable through the years. Here are three things to look into:
Return on Total Invested Capital
A successful car rental franchise should be using its capital properly. In the event that the company needs to expand (which is the only way it can steadily increase its revenues), its owner should only borrow money that he can repay without negatively impacting his resources. We also recommend checking the company’s Debt to Net Profit Ratio which shows the number of years it needs to pay its debt. Anything over 20% is a red flag.
Return on Investment
ROI measures the amount of investment against the investment cost. Here’s a good formula to use:
ROI = (Profit from investment – Cost of investment) ÷ Cost of investment
Getting a result of zero and above means the company is profitable. A negative result is a red flag.
Current Asset Management
Here is where car rental franchises differ from others, and something that you should look closely into.
To avail huge discounts, car rental franchisees buy vehicles from manufacturers in bulk. They use the vehicles anywhere from 12 to 18 months and then resell them at a decreased price.
With this in mind, you should ask the franchisor the prices at which they buy and sell cars; yield management; and maximum financing available.
If the franchisor refuses to show you these, walk away. Chances are, their financial track record has issues.
How do customers, employees and other stakeholders feel about the car rental franchise you are considering? Do most of them view the company in a positive light? Do its customers give positive reviews? Did former franchisees earn from it? Did they have good relationships with the franchisor?
If the answer to all questions is yes, then the franchise is worth investing in. It’s because a company with a good reputation has undoubtedly built a loyal customer base that you, a future franchisee, can benefit from.
3. Brand Presence
“Oh yes, the company I am considering has a strong brand presence! I see they have a lot of posts on different social media channels!” That’s well and good. But the thing is, thousands of posts across social media channels do not make a strong brand presence. It is how a company tells its brand’s story and how that story resonates with its target audience. If the car rental franchise you are considering tells beautiful, honest brand stories that people relate to, and has positioned itself as a brand that people couldn’t help but love and trust, then it’s definitely a business you would want to put your money into.
4. Existing Contracts
Another thing to consider is the current contracts your chosen franchisor has. Does it have offices in airports or contracts with travel agencies?
Remember that the main profit drivers of car rentals are travelers who need a vehicle while they are in the place they are visiting. So having contracts with airports and travel agencies ensure franchisors of steady business all year long. This will also benefit you as a franchisee.
When speaking of competitors, you should not only be thinking of other brands. You should also consider the number of franchisees the franchisor has in a given area. More franchisees in a particular territory mean less business for you. Will they be giving you exclusive rights to the territory? Or if not, do they restrict the number of franchisees to prevent competing for customers?
These are just five things to consider when thinking of joining car rental franchise opportunities. Hopefully, this list will help you choose a car rental franchise that will provide you with a steady source of income in the years to come. However, if you are not too keen on a car rental franchise, joining us as a franchisee is an excellent way to enter the automotive franchise industry.
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