Collision repair is a lot different today than it used to be. Insurance companies are putting an increasing amount of pressure on shops to do it faster, cheaper and better. Those that can’t or won’t are being cut out of the loop and steered against.

Consumers’ demands have changed, too. Their pace of life has reached light speed and they want things done faster as well, especially the repair of their cars, which are essential to making their lives go. They also want to deal with environmentally friendly shops that are clean and neat with nice, hospitable people inside.

With rampant steering, fewer collisions and skyrocketing fuel costs, many body shops are straining to find ways to replace lost profit margins. There are few places left – at least that I can see – where any more profit can be found. We’ve all tried new things to earn a higher profit. Now, all that business diversification equipment sits in the corner collecting dust, and we can’t sell it because everybody else has the same stuff in the corner, too.

I suggest taking a good look at the rental car industry, especially the local and insurance replacement segment of it. Since the terrorist attacks in 2001, the travel market has only seen slow growth, but the replacement market has grown 5 to 10 percent per year. Now it shares almost half of the industry’s $20 billion per year.  

Enterprise Rent-A-Car started renting cars in 1963 and now has over 7,000 locations, over 728,000 cars and $10 billion in gross sales. The company has built its empire by renting cars in the insurance replacement market and does a great job of keeping up on your rentals and the progress of your repairs – keeping insurance companies in the loop on those repairs, getting extensions on rentals, and billing customers and insurance companies for you. In fact, Enterprise does such a great job in the local market with its computer program reservations system designed with the insurance company and body shop in mind, in addition to its billing systems and tiered rental pricing and free rental days programs, that many shops feel there’s little to be gained by entering the rental car replacement business.

Still, there are several reasons why you might consider renting your own cars, the most obvious being to make additional profits for your business and prevent those profits from going to someone else. But there are many other reasons, too.

Accidents Still Happen  

The bulk of a collision repair facility’s business comes from one source – the accident. When an accident occurs these days, customers no longer need to take vacation days, rearrange appointments or call to borrow Grandma’s car because their insurance companies provide them with a vehicle when their own vehicles are disabled. Now, customers expect these conveniences to be available to them on-site at the shop.
 
Look at the facts. You already do many of the things that renting your own cars will help you do more of:

• You build relationships with your customers.
• You’re always consistent in your follow-ups with customers.
• You’ve been put through the ringer more often than you wish to remember, so you’re a survivor. And you’re darn persistent!
• You coddle your customers and work hard for them. You want their referrals and return business bad.
• You don’t like sharing the glory with others and desire to get more credit yourself by keeping money in-house and keeping your customers totally yours.

Taking on your own car rental business might seem impossible to do, but it really isn’t. Consider how much time you’ve wasted going to the phone to tell some other company’s rental agent when a car will be finished. Why would it be a big deal to have someone in-house updating all these files? You’re already doing most of the paperwork on claims for various insurance companies and wearing all kinds of hats in maintaining your insurance company relationships. What’s a little rental tracking?

The insurance companies want the process seamless and so do you. It’s easier when you control the cars and their cost. Since the real profit is still in the repair, you can afford to break even because you’re still exerting more control over the customer experience. If you make a little, it’s bonus. Just don’t abuse the rental business – the big companies got big in part by keeping us honest by continually calling us on behalf of our insurance partners.

If it weren’t for your insurance partners, the largest rental companies would just as soon keep your customer in a car for months as long as she or you paid the bill weekly. It’s then that those rentals turn into big bleeders if, say, the repair takes longer than the time stated by the insurance company or, worse yet, the customer runs out of rental coverage before the car was finished. If that happens, the customer looks to the shop owner for the additional fees that the rental car company wants.

The  rental car company doesn’t care how long the rental car stays out because it’s making money. In fact, they don’t want the car back because when it comes back, they have to clean it and service it and spend time delivering it to a shop again, and that all costs money. So it’s up to you to keep those rentals in “tow,” but you’re so busy it’s easy to forget about them. Out of sight, out of mind, right? It costs you dearly but your CSI (Customer Satisfaction Index) has been saved because she was loving riding around in a car that was a lot nicer than hers!

One more thing to keep in mind is that you should always be aware that your rates with outside rental companies could always go up. Look at the rental cost you have now and decide what’s right for you because the rental company’s rates aren’t set in stone.

Building Equity

Rental costs add up fast in accidents. It takes time to settle a claim or repair a badly damaged automobile. You the shop owner can be rewarded nicely if you rent your own cars to your customers.

Let’s take the worst case scenario: You break even in the rental business on days rented vs. cost to hold. Still, you can really make some change in the equity of your rental cars. Many times, you can get 50 to 75 percent of your money back when you sell the car and replace it with a new one. These funds could be used to pay down the new rentals you cycled into the system.

A rental replacement car can be used for as little as a day but we all know that it generally is used much more. Typically, your utilization is about 20 days a month. Do the math: 20 days usage at $25 per day = $500 per month. Your payment on a $12,000 car is about $300 per month on a 48-month loan. Insurance is approximately $50 a car per month. Add in depreciation and maintenance, which vary per car, and you can see how you can make out nicely. The guarantee comes in the fact that you’ll make money when you sell the car for more than you owed on it.

But what about “accident prone” customers you might rent to? That shouldn’t be a concern because their insurance companies will usually pay for the repairs. Occasionally, then, you would have a new repair for yourself.

Image Is Everything

Many dealers have their own rentals. Toyota, for example, believes that controlling one’s own rentals is important because it prevents customers from driving, say, a competing brand like Mazda or Nissan while their Toyotas are being repaired. It’s all about keeping the experience in-house and reinforcing a brand.
You should also be thinking about controlling your customer’s experience and reinforcing your brand. Your customers are usually “local shoppers” who stay close to home for repairs, and their experience with your company starts at the moment they come to your shop.

So, what could potentially happen if you don’t rent your own cars? You write estimates on their cars and determine that those cars aren’t safe to drive and advise that they leave them with you. At that point, you suggest that they call their insurance companies to secure rental cars. You and your customer wait for what seems like hours for the rental car agent to show up, only to find out he or she wants to take the customer across town to his or her rental location. The rental car company now controls the customer. It also maximizes its chances of gaining an up-sell and getting the most from the insurance rental. This might not be good for you the shop owner. Remember: image is everything.

Let’s say the customer has a $500 limit on her rental and no one knows how long the repair will take. The rental agent knows the client’s policy limits because he checked with the insurer. He wants to maximize his profit, so he starts at the top.

“How about a Cadillac or SUV today?” he says. “You have ample coverage for one and it’s only $45 per day, just sign here.”

In 10 days, that customer is going to be screaming that her rental is about to run out and you’ll reply that her car won’t be done for four to five more days. You become unhappy with the situation and want to fix it, so instead of fighting it you eat $200 worth of rental costs. But your customer is still unhappy because the rental company pointed out how long the repair was taking and she said they seemed like they were the only one who cared about her situation. If the customer had been in your car – that $25 per day rental – she would have lasted at least 10 more days, five days more than needed. But you didn’t have control of the experience – you sent her across town with a stranger. Is this the image you want? Of course it isn’t.

Even if the customer had no rental coverage, if the job was lucrative enough and you had your own cars, you could have elected to give her a car for free to drive. Sure, the big companies promise you 10 to 20 free rental days because of the volume you do with them, but at 20 days that’s just one rental car free. They get to charge you and your customer on all the rest, at least $5 to $10 a day more than your own cost per day on a rental. Is renting your own cars worth it in this scenario? I think so.

You value your customers and want them to have a great experience and not wonder if they made a mistake coming to you. Giving away 100 rental days to make all your customers happy might even be a good idea. Remember, you should make most of your profit on the repair; the rental is either a breakeven or a possible profit. It’s up to you! When Mr. Wrecks Can Happen comes back as a return customer, you can say, “Make sure Mr. Wrecks Can Happen gets that four-door Impala again. I remember how much he liked it before.” You now completely control the experience.

Be Green or Be Fun

A conservative mix of rentals for an average shop might be: three or four full size vehicles, three or four compacts and three or four subcompacts (all with four doors, automatic transmission and air). However, if you want to have some fun and create a more memorable referral, you might consider purchasing a fleet of Volkswagens or PT Cruisers, or add in a new Saturn Sky. If you want to convey the idea that you’re “going green,” you might consider a fleet of Toyota Priuses or 10 to 12 Smart Cars – you would definitely get some media coverage (free advertising) if you spun that properly. Not only would you come off as being environmentally friendly, you would be allowing people to test out a car they’ve always wanted to without a salesman breathing down their neck. And you might attract a few additional repairs to your shop. 

The conservative approach to buying these cars is finding one-year-old auction cars or cars being sold by large rental companies. They typically have some warranty left and lots of miles for much less money. You’ll probably not turn your cars over before 24 to 36 months, but there will be lots of equity built up in them by then and that makes for a good payday. Keep in mind that the holding costs will be more on Priuses and Smart Cars, so you would want to buy those new. It’s up to you to find your niche. Want some real fun? Try a fleet of Hummer H2s. They’re definitely not “green,” but they do stand out. 

Spend Now, Profit Later

All these ideas do cost money, and chances are you don’t think you have the cashola right now. But keep this in mind: The money you’re pouring into someone else’s rental cars is money you could be keeping  for yourself. And you have no equity built up! It’s like renting an apartment versus buying a home.

Even if you lose a few bucks on rentals, you’re still OK. What’s worse – breaking even on a rental or losing a job to someone else and not controlling your customer experience? 

The rental industry is complex, but it can be turned into a profit center if you just take the time to learn all of its in’s and out’s. Cherish your customers, control their experiences and maybe make more customers and a little more money in the process. Rental costs add up fast, but so can your profits. Take control. The customer is yours, not the insurance company’s or rental company’s.

Andy Batchelor has owned multiple body shops and car rental businesses over the last 40 years. Retired now, he is a consultant with SCORE to help shops that are in trouble expand their market presence and become profitable. You can e-mail him at [email protected].