In today’s truck dealership market we see two distinct types of businesses that claim they are in the rental business. It is important to recognize which category you are in so you can see if there are growth areas you are missing for your market.
So which type are you?
Sell & Rent: “We sell trucks and rent some too.”
In this business type, the motto “everything is for sale” is followed. Typically you will find the rental fleet is made up of new or used trucks that had been difficult to sell and that the CEO is willing to accept lower rental profits as long as the rest of the dealership is benefitting from the rental department. For example, the used truck sales department doesn’t have to take a hit on the truck they paid too much for on trade.
Rent & Sell: “We rent trucks and we will sell you a unit we are no longer renting.”
In this business the company is in the true rental business. They live on rental income and have no choice but to make a profit on each rental. Truck sales are only a secondary business, retail service work is very rare, and let’s not even talk about parts sales. At times they may own a truck dealership but only to get cheaper units in the rental fleet.
Which are you?
Here’s a simple test:
You buy a truck for $50,000.00. The first year you make $13,500.00 in rental profit. The second year you also make $13,500.00 in rental profit. You now feel the truck is worth $37,000.00. A customer comes in and offers you $40,000.00 for the truck. Is this a good deal to take?
If you are in the “sell & rent” category, you would say sure! That is a good deal. We make a quick
$3,000.00, another customer is happy, and we can always move another unit into the rental fleet. Plus, you are sure they will come back and buy parts and labor from you to add revenue.
If you are in the “rent & sell” category you would say no way! Next year alone I will make another
$13,500.00, and I wouldn’t give that up for $3,000.00 in profit.
So which is better? The answer is neither. Both business types are leaving profit for someone else to make.
Here are a few simple opportunities to consider:
If you are in the rental business, then be in the rental business.
Many very large companies exist solely on rental revenue, so your rental department should be
profitable. Do not treat your rental department as a secondary profit center. Here are some things to consider as you focus on creating more profit:
- Your rental fleet should not be made up of mistakes from other departments.
- Rental rates should be market appropriate.
- A rental plan should be made for each truck including expected revenue, planned maintenance and intended market.
If you are only in the rental business, then remember you are in the truck solution business first.
Selling used trucks can be a profitable and rewarding revenue source for your business. Consider the following motives for being in the used equipment business.
- If you are selling trucks as they retire from your fleet, you should actually get into the used truck business. Trade-ins, retail F&I options, buying other used trucks will turn a profit in your market area. Remember: many businesses exist solely on used truck sales profits.
- You more than likely have existing service facilities that could be set up with very little capital to make them retail service friendly. If you’re not ready for this step, you should at least look into doing your own maintenance since your maintenance provider is making money off of you.
- You are already buying parts for your fleet. With very little effort, you can start selling parts for each rental and to fill customers’ needs. With a little planning and smart purchasing, you would be surprised at how easily you can get into the parts business.
The bottom line is we all want to find areas to expand our businesses without spending a fortune in precious capital or moving into new business models. So, look to areas you already know and own. Start to look at why customers are coming and doing business with you and try to fill needs they already have. Many times the only thing that needs to change is how you think about different areas of your business. One company’s necessary evil is another company’s profit center.
To learn more about making your rental business the best it can be, download our article “7 Ways to Improve Your Rental Business”.
About Adam Madsen
Raised in Anchorage, Alaska, Adam Madsen began his career in the heavy-duty industry as a young man working in a third-generation family-owned business: Drivetrain Distributors. He later went on to work for Transwest, located in Denver, before joining the Karmak team in 2010 as a Project Analyst in the Research & Design department. He is currently the VP of Business Solutions. Being a part of the process of building an ERP system has been a long-term goal of Adam’s, so seeing Karmak’s Fusion evolve into a premier product is exciting. Adam received an Associate’s degree in Communications, and is also a graduate of ATD Dealer Academy.
Karmak, Inc. is a leading provider of business management solutions for the commercial transportation industry. With more than 30 years of heavy-duty experience, we offer a unique approach combining innovative technology, strategic advice and best practices. Our success programs produce measurable results by improving ROI, mitigating risks and achieving operational excellence.
Serving more than 1,800 locations across North America, Karmak is an employee-owned company with headquarters in Carlinville, Illinois.