Building a Fleet of Vehicles That Are Able To Serve the Local Demand - Essay Example

Building a Fleet of Vehicles That Are Able To Serve the Local Demand Statement of the problem Car rental has emerged as an important aspect in the modern world, thanks to increase travel by people. Today, more than ever people visit different places for a variety of reasons including business, fun or for educational and work-related purposes. Global statistics reveal that car rental has been on rise and will continue to steeply rise over the coming years. This rising demand has to be met with more car rental companies. Diversity of cars available for rental is also another area were many car rental companies have failed to address. More often than not, clients are forced to settle for available car rather than the cars they would have preferred to have. Such instances can be discouraging and unpleasant to clients; more especially in instances where the clients are used to driving specific kinds of cars. In instances where clients fail to find there preferred cars for rental, they are compelled to either settle for the available cars or seek alternative providers. This is either down-cresting or time consuming depending on the option a client opts for. Zip Car Rental seeks to bridge this gap and ensure clients get value for their services through tailor-made services, in addition to getting satisfactory services. Proposed solutions Setting up a car rental company requires earlier acquaintance with the industry and hence prior knowledge of the dynamics affecting the industry. Although starting such a business may be considered easy to start, it actually is not and requires a more problem-oriented approach. The proposed approach to solving the described problem, takes into multiple considerations that will enhance position of the business within the industry. A deeper into the fundamentals of the business, reveals that procedures for car rental are way more complicated in terms of sales handling as well as managerial operations. This is, as a matter of fact, due to the fact that it does involve sale of a single inventory units (cars), it instead focuses on allocation of time for usage of the vehicles. The main features will include: Obtaining a liability insurance, Building a fleet of vehicles that are able to serve the local demand, Implementation and use of a credible and advanced vehicle rental management platform allowing automation of back office and sales handling Setting up of a dynamic, service-oriented website, integrated with management system for real-time handling of client service inquiries as well as bookings. Obtaining a liability insurance The car rental business is one characterized by lots of risks, not just to those who hire cars but also to the fleet of cars and entire business operations. Consequently, liability insurance is important to secure the business from possible losses resulting from any of the aforementioned risks. Building a fleet of vehicles that are able to serve the local demand For a car rental business, the car fleet is a central asset in ensuring success. Consequently, it will be important to come up with a fleet of diverse cars that will satisfy the needs of the diverse market. Zip car agencies hopes to actively engage in rental of economy class, standard, as well as luxury vehicles for tourists and vacationers within the targeted market. A huge chunk of the company’s revenues will be derived from daily rental charges with respect to use of vehicles. The business will further draw revenue from insurance sales to clients as well as gasoline charges to its clients. At the start of operations, ZIP Car Rental aims to have a leased fleet of 40 vehicles, expanded annually until the entire fleet hits 200 vehicles. The services offered are further described in another section. Implementation and use of a credible and advanced vehicle rental management platform allowing automation of back office and sales handling The car lease software will enable all car rentals to do more than ever before be efficient with lesser inputs. The car lease software will further assist the rental owners get maximum output of vehicle assets. The software to be used by Zip Car Rental will help manage lease contracts with scalable as well as flexible inputs. The proposed software is automotive software that has revolutionized administration functions of many other established car rental agencies. From the tiniest Entrepreneurs to largest chains globally, all car rental business relies on software to grow right along them. The software will also be used to keep track and monitor the vehicles. All data of the various lease contracts will be easily available with just a few clicks. Any and all kinds of reports will as well be generated to ensure car leasing administration. The car rental software proposed in easy to install to attain full operation and is extremely simple to use. It can offer both offline and online platforms for operator in a branch or in many branches. The flexible software will offer high quality results to all vehicle leasing, fleet managers, as well as in management of vehicle finances and other operations of Zip car rental agency. As a matter of fact, this emergent technology will help deliver a wide ranging application platform in order to increase benefits to business clients. The car rental program is further designed and developed for internet as well as intranet needs of multiple markets across geographical regions Setting up of a dynamic, service-oriented website The website will basically provide an alternative platform for client – company interaction. Clients will be able to not only gain an understanding of the services offered, the rates, as well as be able to facilitate the company’s e-commerce operations. Business model Financing the business mainly revolves around personal savings and borrowed equity from banks. A bank loan will be used to raise a considerable chunk of the business capital. The interest rate and loan agreement are to be further discussed during negotiation. This business plan assumes that the business will access a 10 year-loan with a 9% fixed interest rate. Below are the expected financials over the next three years. Strategic and Market Analysis Economic Outlook Currently, the economic condition in the US is emerging from the grave impact of recession. The economic slowdown had greatly impacted on real estate sales, which halted to historical lows. Economists projects that things are headed for better times now that then recession is long gone. However, Car Rental Agencies conventionally operate with a strong degree of economic stability given the fact that business travelers continue to require vehicles for business trip needs, although leisure travel is often affected. Industry Analysis In the United States, there are over 5,000 companies providing daily car rental services to the public. Every year, the businesses aggregately generate over $20 billion dollars of revenue, in addition to providing over 120,000 jobs. Aggregate payrolls in last five years exceed $3.1 billion. This is therefore an extremely mature industry, and the future projected growth rate is expected to be equal to that of the economy. Despite the fluctuating gasoline prices, the industry is likely to remain profitable as business travelers continue to need rented vehicles during business trips. Customer Profile The business will target clients from all backgrounds through provision of low-cost, medium as well as executive rental services although these will be handled as different business segments. Competition The Three top brand families include Enterprise Holdings comprised of Enterprise, Alamo, National; Hertz Global Holdings comprised of Hertz, Dollar Rent a Car, and Thrifty Car Rental; and Avis Budget Group consisting of Avis and Budget. At the airports, there are a colorful array of other brands, although not as many as used to be. Every brand targets different drivers through service, amenities as well as prices. Hertz, Avis as well as National are the top tier brands, and cater for big corporate travel accounts. Mid-tier Budget and Alamo on the other hand appeal to leisure travelers who have no corporate attachments, although need certain amenities and service. This business will target to encroach in all these markets. Management Team The Company is graced by a team of experts with vast experience in in the automotive industry. Through this expertise, the company will be able to bring operations of the business to profitability within the first year of operations. Financial analysis   Assumption (per unit) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5       Revenues           Trips/member/month 4   miles/trip 22   hours/trip 4   Beginning Members   0 440 856 908 1180 Attrition 0.05 0 22 42.8 45.4 59 Ending Members   440 856 908 1180 1196 New Members   440 438 94.8 317.4 75 Avg # of Members   220 648 882 1,044 1,188       Application fee (per new member) 25 11,000 10,950 2,370 7,935 1,875 Annual fees (per avg member) 300 66,000 194,400 264,600 313,200 356,400 Per mile charge 0.4 92,928 273,715 372,557 440,986 501,811 Per hour charge 1.5 63,360 186,624 254,016 300,672 342,144 Security Deposits (avg. balance) 300 66,000 194,400 264,600 313,200 356,400 Interest income (on avg. sec. dep. balance) 4% 2,640 7,776 10,584 12,528 14,256 Total Revenue   235,928 673,465 904,127 1,075,321 1,216,486       Costs     Variable Costs / Car     Beginning Cars   0 24 48 50 66 Ending Cars   24 48 50 66 66 Avg # of Cars   12 36 49 58 66 Lease Cost (car/year) 4,000 48,000 144,000 196,000 232,000 264,000 Access equip, (car/year) 400 4,800 14,400 19,600 23,200 26,400 Fuel (car/year) 1,080 12,960 38,880 52,920 62,640 71,280 Insurance (car/year) 1,700 20,400 61,200 83,300 98,600 112,200 Maintenance (car/year) 400 4,800 14,400 19,600 23,200 26,400 Parking (car/year) 0 0 0 0 0 0 Total Variable Costs   90,960 272,880 371,420 439,640 500,280       Fixed costs - Corp. level     Corporate insurance   800 800 800 800 800 Reservation system   2,895 3,160 12,000 6,000 7,000 Administration - Corp.   100,000 100,000 100,000 100,000 100,000 Benefits 20% 20,000 20,000 20,000 20,000 20,000 Office Space   0 0 5,000 5,000 5,000 Office equip. & supplies   1,000 1,000 1,000 1,000 1,000 Phone   1,200 1,800 1,800 1,800 2,500 Total Corp. Overhead   125,895 126,760 140,600 134,600 136,300       Fixed costs - Boston Office     Billing (member/year) 24 5,280 15,552 21,168 25,056 28,512 Administration - local   24,000 24,000 24,000 24,000 24,000 Benefits 20% 4,800 24,780 24,780 24,780 24,780 Office space   0 0 5,000 5,000 5,000 Office equip. & supply   1000 1000 1000 1000 1000 Telephone and Datalines   1,200 1,800 1,800 1,800 2,500 Marketing   10,000 12,000 12,000 12,000 12,000 Background checks (per new member) 20 8,800 8,760 1,896 6,348 1,500 Total Boston Overhead   55,080 87,892 91,644 99,984 99,292       Total Overhead Costs   180,975 214,652 232,244 234,584 235,592       Net Income Before Tax   -36,007 185,933 300,463 401,097 480,614 Exit Strategy If the car rental business turns out to be successful, it may be sold to a third party for significant earnings. Most probably, the Car Rental Business will hire a qualified business broker to dispose of the business on behalf of the Car Rental Agency. Based on historical figures, the business can fetch a sales premium of equal to up to four times earnings. Read More