I have been running a classic car hire company in the UK since 1997 and continually receive calls from people asking about setting up a similar company. These reached such a level that I developed and run a 1½ day course telling people how to do this.
Despite the current recession (now official and not just a weirdly named ‘credit crunch’) people are still asking me the same questions. So is it a good idea to launch a Classic or Sports Car Hire Company in a Recession?
The answer is inevitably both long and complex and it depends on what sort of cars are being considered, the target market and how the business is funded.
Taking these in turn:
Cars being considered
The majority of classic car hire companies have concentrated on classics from the 1960s and 1970s. Anything earlier than that and customers have to cope with non-synchro gearboxes and even cable or rod operated brakes. Classics from the 60s and 70s are a fairly safe bet, easy to drive and easy and relatively cheap to maintain.
Prices of these went crazy at the end of 1980s and early 1990s but then fell when that economic bubble burst and have been fairly sensible ever since. Only a few rare specialist cars (DB5 and DB6 etc ) have seen large increases in price.
Now with the current Recession, the prices are being squeezed a bit and it is actually quite a good time to buy a classic.
There are a few companies adding ‘modern classics’ – Aston DB7s, Jaguar XK8s etc to their hire fleets. Prices of some of these have fallen more than the older classics, XK8s are surprisingly cheap and DB7s very good value for money. So again now is a good time to buy.
What about Modern Sports cars? There are an increasing number of companies renting out modern high performance or exotic cars but these are a different proposition. These tend to appeal more to the ‘boy racer’ marketplace than the ‘nostalgic’ appeal of classics. They are also subject to large chunks of depreciation in the first few years of ownership, so won’t hold their value if purchased. Some companies source these on a lease basis where they don’t actually take full ownership so theoretically don’t bear the depreciation, but then all the lease charges become a cost to the business.
Whether the cars are classics or modern sports, hire of them is very much a luxury item, whether as a birthday or anniversary present, a treat or for a wedding. As such the market is fairly immune to fluctuations in earnings at the lower end of the market (what used to be called C2 and D). However if your target market was city bankers on large bonuses, a chunk of this market has evaporated.
Funding the business
Along with choice of cars – classic v modern, this is the most crucial aspect of starting a company. If you have your own capital then this is probably a good bet. Interest rates are almost at zero, so the return on leaving money in the back isn’t worthwhile. As long as you can pick a set of cars, which will hire out, but whose values aren’t decreasing, and aren’t likely to decrease over the next year or so, then you should be able to get your investment back if you were to sell up.
Using your own funds also puts you in a a powerful position when buying cars. Some of the dealers are experiencing a downturn and will always be willing to negotiate for ready cash. If you don’t have your own capital then you will either be borrowing the capital or arranging some form of lease financing.
Borrowing the money obviously puts you in the position of a cash buyer, but while the cost of many home mortgages has dropped significantly, particularly if based on tracking rates, normal business loans are much more expensive. Although you do end up owning the cars.
Lease financing, if you can get it, goes through the books as a straight cost and you have no equity in the cars at the end of the day. So it all depends on the robustness of your business plan and whether or not you can rent the cars out enough to cover your finance costs and make a profit.
So having picked the right cars, sorted out the financing and you are confident that there is sufficient demand in your target market, what next?
Setting up a business does not happen overnight. Identifying your target market, producing a marketing plan, designing and printing brochures, designing, building ad running a website all take time. In my view to plan and setup a classic or sports car hire properly, takes somewhere between 6 and 12 months, particularly if you have to find the cars in the first place.
So should you launch a classic or sports car hire business at this stage of the current recession, in January 2009? Maybe not.
However if you are thinking about starting up, this is going to take you about a year. During this time you should be able to buy in cars at sensible prices from dealers that need the cash flow, negotiate good prices on design, printing, advertising and websites.
By the time you launch hopefully things will have improved. Not being a crystal ball gazer I can’t say for sure that January 2010 will be better than the last few months, but if the recovery actions from all the relevant governments take effect, then hopefully the current recession will ,at worst have bottomed out and at best be on the upward curve.
Some classic and car hire companies have seen a bit of dip during 2008 and this is likely to continue through at least part of 2009. During this period, It is possible that some existing companies may cease trading, leaving the fitter stronger ones to survive, but also leaving a few extra gaps in the market.
So should you launch a new classic or sports car hire company at the end of 2008 or early 2009? Maybe not. But carry on with your planning, source the cars, build the website and be ready to launch the company at the first signs of an upswing.