Steve Levine said dealers have been approaching him recently with an idea. Should they start a car-rental businesses to supplement their dealership revenues by providing affordable rentals to customers whose vehicles are out of service for repairs.

The owner of Ignite Consulting Partners, which offers guidance on compliance, operations and best practices, replied, “This is a win-win arrangement, right? Not so fast.”

Levine, a lawyer with more than 30 years of experience protecting dealers, pinpointed multiple questions and business components operators should address before embarking on offering a rental fleet.

He began by suggesting operators check for applicable state and local laws.

“Rental statutes can be quirky and have unique requirements. I know of one dealer that incurred over $10,000 of unplanned expenses to meet various code and signage requirements,” Levine said.

Next, Levine mentioned dealers keeping a potential rental business separate from its retail operation.

“No need to create additional liability exposure by keeping the business under the existing corporate entity,” he said.

Then, Levine touched on having proper insurance.

“I know of one dealer that mistakenly believed its garage policy would cover rental incidents and learned the hard way that this was incorrect,” he said.

Furthermore, Levine was cautious about artificial intelligence doing much of the prep work.

“Your rental agreement is too important to trust to AI. Enough said,” Levine emphasized.

Finally, Levine asked these other two questions:

—Are dealership vehicles used in the rental business?

—Are they being repaired and inspected properly?

“I know of a company being sued under the theory that the vehicle had been repossessed several times and had a history of ignored repair issues. To make matters worse, the plaintiff’s lawyer sued all related entities, alleging that all the businesses were inextricably intertwined,” Levine said.

So, should dealers abandon the idea of getting into the car-rental business?

“While I don’t want to discourage your entrepreneurship, it is important to complete the legal due diligence and get your house in order. It’s important to ensure the reward is commensurate with the risk,” Levine said.

For more information about renting cars and other dealership compliance matters, send a message to [email protected].