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Custom Cars R Us essay paper sample

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Perform industry analysis, using external information. Limit the analysis to the Emirate of Abu Dhabi

The UAE has a flourishing tourist industry and presents opportunities for shoppers to conduct various activities. Christensen (2011) says that in Abu Dhabi, driving is an economical way to travel. When people are visiting Dubai and plan to rent a car, they should keep in mind that an international driver’s license or a temporary Dubai license is required. Christensen (2011) says that some car rental companies are able to help arrange international or temporary Dubai licenses for visitors. Most rental cars are new, automatic, and air-conditioned. Rates vary considerably, and are usually cheaper when booked in advance online.

Car rental is a significant part of the Abu Dhabi’s travel industry and the one, which is emerging fast. Car rental provides an example of a good business and generates significant profits through tourism to Abu Dhabi. Abu Dhabi attracts a lot of tourists and business travelers from all over the world, because of its facilitative business atmosphere created by the UAE government. Businessmen and tourists will want to utilize Cars R Us rental services for ease of travel and comfort to make sure they arrive at their destinations in good time and in good order. For a fast changeover from plane to car, Cars R Us is the perfect solution for tourists and business travelers. With special family and luxury model rates, Cars R Us becomes an ever more appealing option.

Create a marketing strategy for Ahmed

Cars R Us consumer market is made up of two distinct segments, namely: the leisure market, which accounts for approximately half of the business and the business/ corporate market, which accounts for the other half (Lubbe, 2000). Ahmed should, however, spilt the market into eight niche segments based on user needs and is thereby able to focus and accelerate growth in these segments.

Distribution strategy

In distributing the car rental products to the corporate market in Abu Dhabi, Cars R Us should create a direct channel of distribution. The most important thing is to note that business travelers invariably use a car in conjunction with an airfare and a hotel booking (Lubbe, 2000). Lubbe (2000) says that in an effort to deliver a higher level of service to its corporate clients, Ahmed should develop a database that reduces paper work and creates platform for distribution. For the tourism market several channel can also be used to distribute the product in the leisure market. Internet should be the major channel although travel agencies will continue to play a major role (Lubbe, 2000).

Promotion

Cars R Us should use brand promotion as part of his marketing strategy. This will enable him to maintain and increase his brand awareness. Lubbe (2000) noted that “compliance to the corporate identity in his visible manifestations, including uniform, signage, kiosk and office design and promotional material” (p. 36).

Advertising strategy

Cars R Us should utilize an effective media strategy, apart from targeting specific media. He should select and retain carefully chosen positions in those publications. As part of his marketing strategy, Ahmed should factor in internet as a distribution channel. This is because many of the users have access to the internet and Abu Dhabi has reached the stage of true e-commerce center. 

Cars R Us should also adopt and add value to its services, for example, tour packages. The most important thing is to deliver the product to the consumer. Cars R Us rental business should follow the global travel trend in commission cutting. In line with this, Ahmed should embrace the use of smart card technology to distribute its products. Lubbe (2000) says that through the use of smart card technology all the consumer’s details can be stored on the card and payment can also be done through the card. Ahmed should see this as a major movement in the future and one that will foster e-commerce (Lubbe, 2000).            

Which models should he purchase and how many of each model

Gitman & Joehnk (2007) noted that the out of pocket cost of operating an automobile includes not only car payments, but also insurance, license, fuel oil, tires and other operating and maintenance outlays. While purchasing the models, Ahmed should note that some of these costs are fixed regardless of how much someone drives, others are variable, and depending on the number of miles the car is driven. The biggest fixed cost is likely to be the installment payments associated with the loan or lease used to acquire the cars. On the other hand, the biggest variable cost will be the fuel (Gitman & Joehnk, 2007).

The first consideration Ahmed should look at is the type of car he needs. More than one style category may work for his rental business. Gitman & Joehnk (2007) say that, when considering the model, size body style and features, he should think about the needs and dislikes of the customers. This is because there is a direct relationship between size and cost. Also the larger the car the more expensive it will be for him to purchase and operate it. Gitman & Joehnk (2007) say that, Ahmed should consider performance, handling, appearance, fuel economy, reliability, repair problems and resale value of the models.

Ahmed should purchase the cars based on the revenue they generate per year. From the case study it is evident that, the revenues generated by some models are higher and, therefore, they favor other models. The luxury model generates high revenues of approximately AED 112000 compared to 4x4 models, which generate AED 85250. The family size model can generate revenue of 38250 per year while the compact model can generate 23400 on the basis of daily rental.

Model

No of Cars

Price

Estimated Revenue/ Car

Compact

15

55,000

23,400

Family

20

110,000

38,250

Luxury

30

170,000

112,000

4x4

10

190,000

85,250

           

Purchasing more luxurious cars will mean that Cars R Us will have a wide range of options from which customers can rent. The compact models, which are cheaper to maintain will give the business substantial returns in terms of revenue. The family and compact models are affordable and have low operating costs.   

What policy should he following selling used cars

Drucker (1993) says that, in order to sell the used car he has to take loss on the used car in part payment. He will also allow for it more than he can sell it for. When selling used cars, Ahmed will again take a loss on the car traded in against it and so forth. Cars R Us must take a loss in order to maintain the quantitatively less important new car business. This means that the dealers profit depends on his ability to keep the losses on 70% of his sales below the profit he makes on 30% of his car rental business in the form of a commission on new car sales (Drucker, 1993).

For Ahmed, the main factor in dealer profits is the ratio of used-car losses to new-car profits. Drucker (1993) says that, Ahmed’s main chance for higher profits lies in lowering used-car losses while his main danger in an increase in these losses. This also applies specifically as the number of used cars that had to be sold. Ahmed should be much more interested in the margin of profit or loss than in the absolute number of new-car sales.

While selling used cars, Ahmed should know that they are less expensive than a comparable new car and the recent popularity of short-term car leases has increased the availability of late-model, attractively priced used cars (Gitman & Joehnk). Selling a used car less than 18 months old often means saving the 20 to 25 percent depreciation in value typically experience during the first 12 to 18 months of a cars life. Ahmed should also note that since used cars are less expensive, buyers normally do not have put down as much money as they would for a new car.

If Ahmed decides to mount an advertising campaign, how much should he spend on it (perform an analysis based on advertisements publish and assume different response rates)

The company will offer special promotions to increase sales. From August, Cars R Us will be offering 50 percent off weekend rentals in December. The special weekend offer will make it easy for cautious motorists to enjoy the security, comfort, and reliability of newer models for Cars R Us rental cars, saving wear and tear and mileage on their own vehicles.

Objective

Media

Budget %

Amount (AED)

1

Newspapers

13%

15000

2

Websites

8%

20000

3

Morning and evening radio shows

8%

30000

4

Outdoor Abu Dhabi area

3%

40000

Cars R US will spend approximately 13% of the budget to achieve Objective 1 the firm is targeting professionals who read newspapers daily. Cars R Us will spend approximately 8% of the budget to achieve Objective 2 to advertise on websites like Google.com, which is a popular search engine website amongst many clients such as tourists in Abu Dhabi. Cars R Us will spend roughly 8% of the budget to achieve Objective 3. This will be done in order to target various corporate customers by advertising on morning and evening peek hour radio shows on popular and urban radio stations.

Cars R Us will spend approximately 3% of the budget to achieve Objective 4 to advertise in the outdoor Abu Dhabi area. Corporate and leisure customers who use public transportation will see the advertisements during their commutes. If Cars R Us spends 5% of gross sales on your advertising campaign, it is expected that the firm will get $400,000 in sales this year. The response rate is expected to be 52% above the expenditures spend on advertising.

Should he change rental policies in favor of long term rental?

Cars R Us should mainly focus on long term rental. The long term rental market segment will permit them to put forward a rental package that is suitable and which has exceptional rates and offers a wide selection of vehicle models. Long term rental is suitable because they have many towns in Abu Dhabi allow for faster and easier pickups. The long term rental rates are about 25% lower than daily rental rates. Long rentals have a wide collection of inexpensive rates exceeding that of their opponents. Using the long term rental model, the firm has the capacity to keep on purchasing newer models with added technology.

Cars R Us primary focus is on major towns within Abu Dhabi. In this context, their customers are people who want to hire cars, where they live and work in other towns hence they will be favored by long term rental frequency. Cars R Us has focused on having operations through an extensive network of local towns, because this is their target market. Consumers and corporate customers have continued to articulate interest in long term rental frequency. Cars R Us is adding about 20 luxury car models to its fleet to add rent on long term rental frequency. This is an apparent advantage for the Cars R Us, because their participants cannot have the funds to rent luxury cars on long term rental frequency. In addition, customers give high scores to long term rentals in the areas of, reservation process, costs and fees.

How sensitive is his rental to breakdowns and to insurance costs

The rental business is very sensitive to breakdowns and insurance, which is the capitalized cost minus the residual value (Gitman & Joehnk, 2007). Studies show that, the lower the capitalized cost and higher the breakdowns the lower the payment. Under the rental terms the owner of the car is responsible for insuring and maintains the car. At the end of the rental period one is obligated to pay any unreasonable wear and tear. A good rental contract should clearly define what is considered unreasonable (Gitman & Joehnk, 2007). The annual mileage allowance typically about 10,000 to 15,000 per year for the rental period.

Rental car companies sell different types of cover and waivers that widen customer liability fortification and alleviate clients of the duty of paying for a broken down rental car.

Loss damage waivers and collision damage waivers from Cars R Us, essentially take the place of individuals own crash and comprehensive insurance. This will let the client off the hook, if the car is stolen or sabotaged or if the customer clashes the vehicle. Some Loss damage waivers include the collision damage waivers, and some waivers require clients to pay a deductible, just like individual’s comprehensive and collision insurance. Client’s insurance coverage may become invalid, if the accident results from speeding, driving under the influence or some other reckless error on the client’s part.

These waivers are not indemnity products, since they are not endorsed or sold by an insurance firm. It is the rental car company's account of comprehensive and collision insurance. If clients already have comprehensive and collision insurance for their own car, they should not duplicate the insurance cover they already have. It is worth the money, if customers have dropped their comprehensive and collision coverage or do not have auto insurance.. The rental car insurance cover generally ranges from AED 100 to AED 200 per day.

Cars R Us will also offer supplementary liability insurance supplements. If clients are worried that their own auto policy has low liability limits, they can purchase extra coverage for between AED 10and AED 15 per day within Car R Us. This package will often cover up the customer for up to AED 2 million, if they cause an accident, breakdowns or injure other people. If customers purchase this insurance from Cars R Us, it turns out to be their main liability insurance. Client’s auto liability insurance is, again, downgraded to excess coverage status. However, Cars R Us notes that buying an umbrella policy may be much more cost-effective.

Should his rental terms incorporate a policy on, mileage consumption, if so, how should it be worded?

Cars R Us will incorporate policy on mileage consumption based on daily rental and long term rental, costing AED 130 for Compact models, AED 225 for Family, 700 for Luxury and 550 for 4x4 models. The hourly rate includes fuel, insurance and maintenance and the vendor will direct bill agencies. Each day, customers will be allowed 200 miles costs 0.35 per mile after that on the basis of a round trip rental. The customers must return the car to the company premises or where they picked them.

Cars R Us intends to introduce contracts to provide full day and weekly rentals to meet longer term needs. Rates start at AED 150 per day (AED 450 weekly), include insurance and repairs and the vendor will direct bill agencies, excluding fuel. Long term rentals will include unlimited mileage, one day fuel allowance and the cars will be returned to the firm’s headquarters.

When a customer rents a car, the firm will record information that will detail the customer’s rental information as recorded in the rental agreement. The details will include, where the customer rented the car, where and when he or she will return the car, payment arrangements, insurance preferences, gas consumption, mileage and other information related to the vehicle rental. All these information will be worded in the rental agreement.

Fuel consumption allowances based on mileage and car model:

Model

No of days rented

Mileage/Miles (Fuel allowance)

Compact

2

10

Family

4

15

Luxury

6

25

4x4

5

20

Ahmed is wondering whether to get a bank loan to increase his fleet at a discount rate of 8%. Since he needs to provide 20% of his own money for the investment in new cars, he is limited to a loan of one million Dirham. He is debating whether to proceed with a loan and which models to purchase.

Ahmed should proceed with the loan to increase his fleet. This is because car loans can be extended for a period of 3 or 4 years. Within this period of time he will have acquired a return on investment of the amount of loan acquired. The long term loan will enable Ahmed purchase luxury cars that can approximately give him above 112,000 IRR or even purchase 4x4 cars will also give him above 85,250 IRR. These types of loans typically carry lower interest rates of 8%compared with about 12% for 72 month loans. In this context, Cars R Us should use the long term loans to buy high end luxury, 4x4 and family models, which have high IRR. By the end of the loan repayment the luxury models will have a good return on investment.

The loan will be appealing to Ahmed even though the total cost of loan repayment for cars will be more than buying it on cash terms. Another reason for using a loan is on the basis of the rising car prices, the non-deductibility of consumer loan interest and lower monthly payments. This also means that he will be able to get a more expensive car for same monthly payment and minimize the down payment to preserve cash. Unlike cash purchase, with a loan Ahmed will not be paying for the whole car. Loans are not as complex as leases hence borrowing money from the bank to buy the car is more appropriate. 

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