Car Rental Business : How to Start Car Rental Business

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The self-driven car rental or car rental sector forms a large part of the automotive industry. It has been steadily growing since the digitization of the rental space. Compared to the global industry, there is a huge market to cover. Therefore, if you’re thinking about starting a car rental business, this guide can help you. Learn all about the scope of the car rental market in India and how to create a car rental business plan.

How big is the car rental market in India?

The car rental market in India is highly scattered and dominated by the unorganized sector. It is segmented by the type of vehicle, type of trip, location, types of clients, and booking channel. Hence, most of the industry is situated across Tier One cities in India like Bangalore, Delhi, Mumbai, Chennai, Ahmedabad, etc. According to Ken Research, the industry is heading for steady growth at a CAGR of 14.6%.

However, the organized sector is gradually catching up. Due to investments from foreign bodies and private firms, high-value startups have emerged in the car rental space. For example, Zoomcar is a car rental startup that took an innovative approach to self-rentals.

Currently, companies like OLA are moving towards self-rentals as well. This can turn out to be the primary differentiator in the industry. However, the gap between demand and supply is large. Therefore, by creating targeted rental services, you can position your business higher compared to your competitors.

Car Rental industry challenges

The self-driven car rental market needs to undergo constant innovation to stay at par with emerging startups from the organized sector. General economic factors have induced challenges in all businesses. However, here are some of the primary challenges this industry faces:

  1. Cheap On-Demand Transport: The availability of on-demand taxis, bike taxis, and autos has made transportation convenient and highly affordable. Most car rentals comprise airport trips and inter-city trips. Therefore, the market for car rentals has narrowed down to leisure and long-distance trips.
  2. Fleet Management: Self-driven car rental services need to maintain a large fleet of vehicles. Maintaining and servicing so many vehicles is an expensive task. Especially after the pandemic, offline rentals have slowed down. This has increased operating costs.
  3. Lack of Digitization: Startups are bringing innovation in the form of digital access to rental services. Customers can order a rental car with a few clicks. If not mobile apps, unorganized services need to move towards web applications for better visibility.
  4. Sanitization Post-Pandemic: The COVID-19 pandemic has created a new challenge of sanitization. Cars need to be constantly cleaned and sanitized after every use. This has bumped up costs.

Types of Car Rental Services

Having a diverse fleet of vehicles can help attract different demographics. However, you can also select a particular type of car rental service and build a large fleet around that. Below are some of the types of car rental services available:

  1. Economy cars: These are long-mileage cars that are suited for daily travel and long trips. They’re the cheapest to rent and provide high value for money. Example: Maruti Suzuki Swift or Toyota Etios.
  2. Compact cars: These cars have a form factor of a hatchback. Due to their size, they’re best suited for intra-city tours and short runs through the traffic. Example: Hyundai i20, Wagon R
  3. Sedans and SUVs: This is the large car segment. They provide powerful performance, comfort, and high seating capacity.
  4. Luxury cars: This is an exclusive service that offers premium cars such as Audi, Mercedes, BMW, etc. for rentals. These cost the most and have a very niche market.
  5. Electric Cars: Although still in nascent stages, EVs can be rented out as well. The popularity of EVs has sharply increased and thus, this is a great renting service.

How to Create a Car Rental Business Plan

If you want to create a business that disrupts the competition and yields high profits, you need to spend considerable time planning it. For this industry, a creative car rental business model is needed. This business model will have to incorporate strategies that address the primary challenges and offer the best value to a customer.

Additionally, purchasing a large fleet of vehicles is a capital-heavy task. Thus, a business plan will help you get loans or investments. Start by referring to this standard business plan template. Below are some of the important steps to focus upon.

Market Analysis

Market analysis is the first step to kickstart your business plan. Data from this analysis will give key insights into the industry and the demand. Customer demand and profitability differ from city to city. Additionally, the area of your business within the city also impacts how your business performs. The goal of a market analysis is to study the market trends, potential customers, target market, and develop revenue projections.

Researching the current state of the car rental industry is important to decide how your business will operate. You can also use a third-party research service to generate a comparative market analysis. Lastly, analyse all the data that you’ve gathered to create projections of how much revenue you can expect from your business.

Competitors Analysis

Competitor analysis is an important part of your market research. Listing out your competitors and analysing their business models is a great way to gain essential insight into the industry. The main purpose of competitor analysis is to understand the strengths, opportunities, and weaknesses of your competition. There are several benefits to this such as – understanding the target market, competitor product tracking, competitive pricing model, and customer acquisition.

Decide Your Car Rental Service

What products do you want to offer? As mentioned above, there are a variety of car rental services. You can either create a diverse fleet or focus on niche services such as luxury car rentals. This largely depends on the market you want to target. If your primary business model is airport car rentals, then sedans and long-distance cars work the best.

Another important factor to consider while planning a car rental business is if you want to provide self-driven cars vs. driver rentals. Each has its benefits. Self-driven rentals give the customer more flexibility and lesser cost. Driver rentals on the other hand reduce the risk of accidents and may allow access to a variable market.

Workforce required

Your workforce will ultimately determine the level of customer satisfaction. A car rental service will need a professional and highly skilled team to run the business smoothly. The following employees are essential for a rental service:

  • Administrative Staff: To manage front-desk operations, salaries, finances, and customer management.
  • Team of Mechanics: If you have a large fleet of vehicles, it is important to keep them in optimum condition. Having an in-house team of mechanics is extremely important for maintenance.
  • Drivers: You can provide drivers along with the rented vehicles. This is a great option for airport shuttles and inter-city trips.
  • CRM Team: A professional CRM team can help gather important information about customer experience and help optimize the business. This will ultimately raise customer satisfaction and grow the business.

Legal Requirements

You need some licenses and permits to start a car rental business in India. Here are the licenses required:

  • GST Registration: All businesses in India must obtain a GST number for tax liabilities. You need to register your firm and get this number through a chartered accountant.
  • Shop and Establishment License: Mandatory license for all businesses. It’s obtained through your local municipal corporation.
  • Trade License: Needed when your business carries out trade as part of its operation.
  • Vehicle and Liability Insurance: Insurance for each vehicle in the fleet is mandatory.
  • Emission Certificate for Each Vehicle

Selecting a Location

Car rental businesses need to be placed at key points around the city. The most ideal spots for such services are near transit hubs such as airports, railway stations, and bus depots. This will help capture the influx of passengers from these transit stations. Another thing to keep in mind is the purpose of your business. If your business offers rental services for the daily commute, transit hubs might not be ideal. In that case, position your business near offices and large residential complexes for better customer accessibility.

Financial plan

The amount of investment required for a car rental business depends on the scale and type of the business. Purchasing new vehicles for your fleet can be quite expensive. However, buying used cars is a cost-saving method. If you start with a fleet of five used medium-sized cars, the fleet alone will cost you approximately INR 12 – 15 lakhs.

Apart from that, you need to pay for infrastructure and land rent which may cost around INR 2 lakhs per month. While creating the financial plan, including employee salaries for 12 months, legal fees, and all the miscellaneous equipment that will be needed to run your business.

Profit Margin in Car Rentals

The profit margin of a car rental service can vary based on the business model. The profit of self-driven car rentals will differ from drive rental services. Let’s take the standard driver rental model to understand how much profit can be generated.

For example, let’s assume your business is located at a transit hub like the airport in Bangalore. A round-trip from the airport to the city will produce a bill of around INR 1500. Deducting fuel (4 litres of diesel) expenses for the trips – INR 300 and driver fees, you will be left with a profit of around INR 800. If your drivers make 4-5 similar trips, you can easily make a profit of over INR 2000 per day.

Importance of a Car Rental Management Software

As your business grows, more vehicles will be added to your fleet. Hence, you will need a digital solution to keep track of all the vehicles. This is where fleet management software helps. Software such as FleetX provides GPS tracking of each vehicle, dashboard management, fuel management, and driver analytics. Through software, you can gather highly detailed ride data that was not possible before.

Car Rental Startups in India

Several car rental startups are leading the industry. You can analyse to implement marketing strategies for your business. Additionally, you can also buy their franchise. Here are some of the top car rental companies in India:

  1. Zoomcar
  2. Myles
  3. Let Me Drive
  4. AVIS
  5. SmileCars
  6. MyChoize

Conclusion

Car renting is a highly profitable business provided you continue to innovate and evolve with digitization. The CAGR is indicative of the immense growth potential this industry holds. With a creative social media marketing campaign, attracting target customers has become easier than ever. Fleet management solutions further reduce the burden of manual operation. Thus, use this guide as a starting point to plan your car rental business today.

This post is also available in: English Hindi

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1 comment

  1. That’s a lot of information, thank you. Many people are unaware of Bangalore’s charm and culture. Therefore, if you’re planning a trip to Bangalore, you should definitely check out some of these attractions. You should also have a driver with you who has experience in driving.

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