Welcome to Automotive Life, where Lucky talks about all things related to the automotive industry. In this video, Lucky discusses why the rental car business is going to be booming in 2023. Lucky has talked to multiple dealers in different states and they all have one thing to say – the tax season is not looking good, and people are simply not buying cars for several reasons.
The first reason is that car prices are way too high, and dealers are stuck with overpriced inventory. The second reason is that banks are not lending because they’re being more restrictive, so fewer people are qualifying for loans. Finally, the down payments are much bigger because banks want to offset their risks, and the tax returns are just not there.
This situation is similar to what Lucky faced several years ago when he started his rental car business. He spoke to a few dealers, and they all asked if he had a Buy Here Pay Here or a rent-to-own program. These programs are becoming more popular because there are many people who don’t want to buy a car and carry monthly insurance, overhead, maintenance, and other expenses. Lucky believes that this next generation is going to be giving birth to the rental car business.
Lucky is currently renting regular cars, economy cars, and commercial vehicles from his location on Fremont Street in Vegas. He believes that this is where the most demand is going to be. He does not do daily rentals; he only does weekly rentals because he wants people to keep his cars for a number of days.
Lucky advises people to stay away from Turo and other ride-sharing apps. When you use these programs, they eat up the majority of the profit, and you won’t be able to pay down your loans or pay out on your depreciation. Lucky believes that his model is going to be successful moving forward because as more and more repossessions start piling up, people are going to start walking away from their cars. Car prices are going to come down, and people will see that they are upside down on their cars. They paid $45,000 for a Tahoe, and now they can buy the exact same one for $28,000 or $30,000. They will be asking themselves why they should stay upside down for $10,000 when they can buy a new one and walk away from the old one.
This situation is similar to the 2008 housing crisis. We are a little bit away from that because there is still money floating around in the economy, but it’s slowly shrinking, and it’s burning very quickly. Once this demand goes away, that’s when it’s going to get really scary. As dealers start to collapse, they are going to start losing their flooring lines, which are lines of credit. Every few months, the creditor runs what the equity is in their line. If they have a million dollars worth of cars and the average loss per vehicle value is 8 to 10 percent a month, they are talking about $80,000 to $100,000 off their million-dollar line.
In these dealers’ contracts, it is written that at any time, the flooring company can come up to them and say, “Hey, we just ran the books on your cars, and I know you owe a million dollars on them, but the vehicle value is $800,000. So we need a $200,000 check right now.” These people are going to be freaking out trying to come up with $200,000 at a moment’s notice, and this is what’s going to start the trickle effect of many of these dealers going out of business.
The reason why Lucky believes that the rental car business is going to be booming is that people simply can’t afford to buy cars anymore. One of the keys to success in the rental car business is to make sure you have a diverse range of vehicles to offer your customers. Lucky mentioned renting out economy cars and commercial vehicles, which is a smart move because these are the types of vehicles that are often in high demand. Additionally, he mentioned only offering weekly rentals instead of daily rentals. This allows him to keep his cars rented for longer periods of time, which can increase his profits.
However, it’s important to note that the rental car business isn’t without its challenges. You’ll need to have a solid understanding of your local market and the competition in your area. You’ll also need to be prepared to deal with maintenance and repair costs, as well as the occasional accident or insurance claim.
That being said, if you’re willing to put in the effort, starting a rental car business in 2023 could be a great opportunity. With the current economic climate, more and more people are looking for short-term transportation solutions that don’t involve buying a car outright. By catering to this market, you could build a successful business that provides a valuable service to your community.