Automation Risk – Car rental agencies face an absolutely minimal risk as it relates to automation. Although there will be a future where all cars are fully self-driving, this will not occur in the nature future. Even once cars do reach a self-driving status, there will still be a demand to acquire these vehicles among travelers. As it relates to artificial intelligence, there is nothing that would currently pose a major risk for the development of a car rental agency. Most importantly, the use of machine learning and predictive analytics will actually be a boost for the industry in the coming years as it relates to determining the busiest seasons, the need to have certain vehicles available, scheduling staff, and creating deep analytical reports regarding the operations of these types of businesses. In fact, many car rental agencies have already begun to implement predictive analytic programs within their organizations in order to better manage and streamline how they conduct business.
Location Competition Risk – Local competition is a more modest threat for a car rental agency. Although there are numerous independent agencies that provide access to cost-effective vehicle rentals, the primary competitors are major corporations that operate directly as agencies or through a large-scale franchise system. One of the ways that many independent car rental agencies are able to differentiate their operations is by providing a higher end vehicle for a price that is comparable to that of an economy car. Some of these agencies will also provide access to high-end sports cars in order to further create a differentiating factor.
National Competition Risk – National level competition is the primary issue that is faced by any independent car rental agency. There are numerous corporations that have their operations stationed across all major airports throughout the country. As such, and as noted above, independent car rental agencies must find ways that they can effectively differentiate themselves from national level competitors. It should be noted that many independent agencies will provide pick up and drop off services as a value-added benefit in order to remain competitive.
Owner Work Life Balance Risk – The owner work life balance for a car rental agency business is moderate. As many people come to any specific location throughout the course of the day and evening, any independent car rental agent agency does require ongoing hours for an extended amount of time. However, many car rental agencies will properly train an assistant manager that can manage a business during the evening hours. This provides enough free time for the owner provided that they are working at the location during the course of the day.
Recession Risk – A recession can have an impact on a car rental agency. This risk is more pronounced if the car rental agency is located in a major tourist area, and depends on leisure travel as part of their business model. For companies that are based in major metropolitan areas where business is commonly conducted, this risk is a little bit more muted. One of the ways that this risk can be addressed is by working with independent rideshare drivers as well as personal transportation companies provide ongoing rentals when they require additional capacity. This further creates a highly predictable revenue that contributes to the economic stability of a car rental agency.
Revenue Risk – The revenue of a car rental agency are highly predictable in nature. Bookings for reservations are typically made weeks to months in advance, and the car rental agency is well aware of how many vehicles need to be provided at any given time. This is also a high margin business that not only produces income from the actual rental vehicle, but also from other revenue centers including fuel refilling and additional insurance. Once established, a car rental agency can be highly profitable, especially in a major metropolitan area market.
Scalability Risk – These businesses are also highly scalable. The cost of establishing a car rental agency is relatively low as compared to its profitability. These businesses are able to use numerous types of financing in order to acquire their fleets, which makes this a relatively easy business to expand once the initial location has reached 100% capacity. It should be noted that many partners are willing to provide ongoing capital support so that these businesses are able to have access to the resources they need when subsequent locations are being developed.
Skilled Labor Risk – Skilled labor risk is absolutely minimal for a car rental agency. Working at this type of facility does not require any specific educational background or licensure. Once employees onboarded, they can undergo a moderate period of training so they are familiarized with all aspects of their work. The only time that specialized labor is needed is if the car rental agency is establishing multiple locations are requires someone with a managerial background to operate the day-to-day operations of subsequent facilities.